AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (the “ Agreement ”), dated the 23 ^rd day of January, 2006, is among Kerr-McGee Oil & Gas Corporation (“ KMG ”), a Delaware corporation, and Kerr-McGee Oil & Gas (Shelf) LLC , a Delaware limited liability company and wholly-owned subsidiary of KMG (“ KMG Sub ”), with offices at 16666 Northchase, Houston, Texas 77060, and W&T Offshore, Inc. (“ W&T ”), a Texas corporation, and W&T Energy V, LLC , a Delaware limited liability company and wholly-owned subsidiary of W&T (“ Merger Sub ”), with offices at 8 Greenway Plaza, Suite 1330, Houston, Texas 77046.

WHEREAS, prior to the date hereof KMG has assigned to KMG Sub, effective as of October 1, 2005 (the “ Calculation Date ”), all of KMG’s right, title and interest in and to certain assets and liabilities referred to collectively as the “ Property ” and set forth in greater detail herein; and

WHEREAS, KMG and W&T propose that, upon and subject to the terms and conditions hereinafter set forth, Merger Sub merge with and into KMG Sub under the terms of Section 18-209 of the Delaware Limited Liability Company Act (the “ Merger ”), as a result of which (a) KMG Sub will be the surviving entity in the Merger, (b) the membership interests of Merger Sub, all of which are held by W&T, will be converted into membership interests of KMG Sub and (c) the current issued outstanding membership interests of KMG Sub (the “ Membership Interests ”), will be converted into the right to receive the aggregate consideration hereinafter provided for and KMG, as the holder of all of such currently issued and outstanding Membership Interests will be entitled to receive such aggregate consideration;

NOW THEREFORE, in consideration of the above recitals and of the covenants and agreements herein contained, the parties agree as follows:

1.1    The Merger. At the Effective Time (as hereinafter defined), Merger Sub shall be merged with and into KMG Sub in accordance with this Agreement, and the separate existence as a limited liability company of Merger Sub shall cease and KMG Sub shall continue as the surviving entity (“ Surviving Entity ”) and will succeed to and assume all the rights and obligations of Merger Sub in accordance with the Delaware Limited Liability Company Act.

1.2    Effective Time. On the terms and subject to the conditions set forth in this Agreement, on or prior to the Closing Date, in order to effect the Merger, the Certificate of Merger (the “ Certificate of Merger ”) in substantially the form of Exhibit B (completed as appropriate to reflect the terms of this Agreement) shall be executed by KMG Sub as Surviving Entity. If all the conditions to Closing in Section 6.2 shall have been fulfilled or waived in accordance with this Agreement and this Agreement shall not have terminated as provided in Section 11.20 , on the terms and subject to the conditions set forth in this Agreement, and no later than two business days subsequent to the Closing the Certificate of Merger will be filed by W&T with the Secretary of State of the State of Delaware and become effective in accordance with Delaware law upon filing or such later time as agreed by the parties and designated in the Certificate of Merger (the “ Effective Time ”). The parties shall execute and deliver such other documents or certificates and take such other actions as may be required to effect the Merger and consummate the transactions contemplated hereby. The Merger shall have the effects set forth in this Agreement, Section 18-209 of the Delaware Limited Liability Act and other applicable provisions of Delaware law.

1.3    Certificate of Formation; Limited Liability Company Agreement . From and after the Effective Time, (i) the certificate of formation of KMG Sub in effect immediately prior to the Effective Time, as amended by the Merger Certificate, shall be the certificate of formation of Surviving Entity, until further amended in accordance with applicable law, and (ii) the Limited Liability Company Agreement of Merger Sub in effect immediately prior to the Effective Time shall be the Limited Liability Company Agreement of Surviving Entity, until further amended in accordance with applicable law.

1.4    Managers . From and after the Effective Time, all of the managers and officers of KMG Sub shall be deemed to have resigned and the managers and officers of Surviving Entity shall be those persons serving as such on behalf of Merger Sub immediately prior to the Effective Time.  

1.5    Membership Interests of Merger Sub . Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any action on the part of KMG, W&T, KMG Sub, Surviving Entity or Merger Sub, the membership interests of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become fully paid and non-assessable membership interests of Surviving Entity, and such converted membership interests will, collectively, represent all of the issued and outstanding membership interests of Surviving Entity.  

1.6    The Property.  KMG heretofore has assigned to KMG Sub, effective as of the Calculation Date, all of KMG’s right, title and interest in and to the Property, as set forth below:

1.6.1    The oil, gas and mineral lease(s), operating rights and other interests in oil and gas described in Exhibit A , Schedule 1 (the “ Leases ”);

1.6.2    All rights, obligations and interest in any unit or pooled area in which the Leases are included, to the extent that these rights, obligations and interest arise from and are associated with the Leases or Wells (as hereinafter defined), including without limitation, all rights and obligations derived from any unitization, pooling, operating, communitization or other agreement or from any declaration or order of any governmental authority, including without limitation those described in Exhibit A , Schedule 1 (the “ Units ”);

1.6.3    All oil, gas and condensate wells (whether producing, not producing or abandoned), water source, water injection and other injection or disposal wells and systems located on the Leases or the Units (the “ Wells ”);

1.6.4    All equipment, facilities, flow lines, pipelines, gathering systems, platforms, caissons, subsea equipment, tank batteries, improvements, fixtures, inventory, spare parts, tools, moveables, immovables, abandoned property and junk and other personal property located on the Leases, the Units, the Permits and Easements (as hereinafter defined), or the sea floor covered thereby, or located elsewhere to the extent acquired or held for use of the joint account as identified in any operating agreement included in the Property (collectively, the “ Equipment ”), including without limitation, the pipelines or gathering lines which originated from and are located downstream of the Leases or Units including without limitation those described on Exhibit A , Schedule 2 (the “ Off-Lease Pipelines ”);

1.6.5    The gas, oil or sulphur processing, treating, fractionation or handling facilities, including without limitation those described in Exhibit A , Schedule 2 , including without limitation, all buildings, pipes, valves, compressors, tanks, pumps, equipment, fixtures, machinery and other related improvements, moveables, immovables and other personal property located thereon or used solely in connection therewith, or located elsewhere to the extent acquired or held for use of the joint account as identified in any operating agreement included in the Property (collectively, the “ Facilities ”);

1.6.6    To the extent assignable or transferable, all easements, rights-of-way, licenses, permits, servitudes, surface leases, surface use agreements, surface fee tracts and similar rights and interests to the extent applicable to or used in operating the Leases, Units, Wells, Equipment, Off-Lease Pipelines or the Facilities, including without limitation those described in Exhibit A , Schedule 2 (the “ Permits and Easements ”);

1.6.7    Any royalty, overriding royalty, net profits or other oil, gas or mineral interests with respect the Leases and Units including without limitation those interests described in Exhibit A , Schedule 1 (the “ Royalty Interests ”), including all rights and obligations pertaining to the Royalty Interests under any of the Related Contracts (as hereinafter defined);

1.6.8    To the extent assignable or transferable, all agreements, contracts and contractual rights, obligations and interests applicable to the Property, including unit agreements; farmout agreements; farmin agreements; operating agreements; and hydrocarbon sales, purchase, gathering, compression, transportation, treating, marketing, exchange, processing and fractionating agreements, including those described in Exhibit A , Schedule 3 , but excluding (i) any contracts for the sale, purchase or exchange of Hydrocarbons (as defined in Section 2.2.2(ii) ) on a spot basis, and (ii) the Base Contract for Sale and Purchase of Natural Gas between Cinergy Marketing & Trading, LP and KMG dated June 1, 2005 (the   “ Cinergy Contract ”)   INSOFAR ONLY as such agreements, contracts and contractual rights, obligations and interests cover and apply to the Leases, the Units, the Wells, the Equipment, the Off-Lease Pipelines, the Facilities, the Permits and Easements and the Royalty Interests (collectively, the “ Related Contracts ”);

1.6.9    All rights against (including rights to receive make-up gas or to receive cash balancing payments) third parties with respect to any oil or gas production, transportation, and processing imbalances with respect to the Property (“ Imbalances ”) related to production from the Property during the period prior to the Calculation Date;

1.6.10    All other tangibles, miscellaneous interests or other assets on or being used in connection with the Leases, including (subject to Section 6.4.1 ) all lease files, right-of-way files, well files (including well logs), production records, division order files, abstracts, title opinions, and contract files, insofar as they are directly related to the Leases, the Units, the Wells or the Imbalances (the “ Property Records ”); and

1.6.11    All Suspense Accounts (as defined in Section 11.6 ).

1.7    Exclusions from the Property . The Property does not include the following, which were reserved by KMG, unto itself and its successors and assigns, from the assignment to KMG Sub referred to in the first recital of the Agreement; provided, however, none of the following items shall be considered excluded if they are owned by the joint account as identified in any operating agreement included in the Property (the “ Excluded Assets ”):

1.7.1    Unless the parties otherwise agree in writing and enter into a separate data license agreement, (i) seismic, geological, geochemical, or geophysical data (including cores and other physical samples or materials from wells or tests) belonging to KMG or licensed from third parties, and (ii) interpretations of seismic, geological, geochemical or geophysical data belonging to KMG or licensed from third parties;

1.7.2    KMG’s intellectual property used in developing or operating the Property, including without limitation, proprietary computer software, computer software licensed from third parties, patents, pending patent applications, trade secrets, copyrights, names, marks and logos;

1.7.3    Concurrent interests in any and all easements, rights-of-way, licenses, permits, servitudes, surface leases, surface use agreements, contracts, facilities, equipment, pipelines, and similar rights and interests relating to rights and interests reserved and not assigned by KMG in the Facilities (if any) and necessary or convenient to the possession and full enjoyment of such reserved rights and interests;

1.7.4    KMG’s corporate, financial and tax records, and legal files, except that KMG will provide W&T or Surviving Entity (as hereinafter defined) with copies of any tax records that are necessary, if any, for Surviving Entity’s ownership, administration or operation of the Property;

1.7.5    Notwithstanding any other provision of this Agreement to the contrary, any records or information that KMG considers proprietary or confidential (including without limitation, employee information, internal valuation data, business plans, reserve reports, transaction proposals and related information and correspondence, business studies, bids and documents protected by any privilege), or which KMG cannot legally provide to KMG Sub because of third party restrictions;

1.7.6    Trade credits and rebates from contractors and vendors, and adjustments or refunds attributable to KMG’s interest in the Property that relate to any period before the Calculation Date, including without limitation, transportation tax credits and refunds, tariff refunds, take-or-pay claims, insurance premium adjustments, and audit adjustments under the Related Contracts;

1.7.7    Claims of KMG for refund of or loss carry forwards with respect to (i) production, windfall profit, severance, ad valorem or any other taxes attributable to any period prior to the Calculation Date, (ii) income or franchise taxes and (iii) any taxes attributable to the excluded items described in this Section 1.2 ;

1.7.8    Deposits, cash, checks in process of collection, cash equivalents, accounts and notes receivable and other funds attributable to any periods before the Calculation Date, and security or other deposits made with third parties prior to the Calculation Date;

1.7.9    All proceeds, benefits, income or revenues with respect to the Property attributable to periods prior to the Calculation Date;

1.7.10    All Claims arising from acts, omissions or events, or damage to or destruction of the Property before the Calculation Date, and all related rights, titles, claims and interests of KMG (i) under any policy or agreement of insurance or indemnity, (ii) under any bond or letter of credit, or (iii) to any insurance or condemnation proceeds or awards;

1.7.11    All shore base facilities;

1.7.12    Contracts for support services (except for those support service contracts specifically listed as part of the Related Contracts in Exhibit A , Schedule 3 );

1.7.13    All swap, futures, or derivative contracts backed by or related to hydrocarbons;

1.7.14    (i) Pipelines, equipment and other facilities located on the Leases, the Units, or the Permits and Easements that are not associated with or used in connection with the Leases or the Units; (ii) any equipment, materials, spare parts, tools and other personal property that may have been previously used on the Leases, the Units or the Permits and Easements, but is presently stored or warehoused at a KMG or third party site not located on the Property and not acquired or held for use of the joint account as identified in any operating agreement included in the Property; and (iii) except as provided in Section 1.1.5, any gas processing plants or their associated facilities, pipelines and gathering lines, wherever located;

1.7.15    (i) Radio towers, remote terminal units, personal computer equipment, vehicles, communication equipment, and photocopy machines, wherever located, (ii) all leased vehicles and equipment for which W&T or Surviving Entity (as hereafter defined) does not assume the applicable lease under this Agreement, and (iii) all third party equipment and property located on or used in connection with the Property, including without limitation contractor equipment;

1.7.16    The Cinergy Contract and any contracts for sale, purchase or exchange of Hydrocarbons on a spot basis; and

1.7.17    KMG’s interest in the offshore “Boxer” pipeline currently operated by an affiliate of Shell Oil Company.

2.1    Merger Consideration; Certain Other Payments

2.1.1    Conversion of Membership Interests . At the Effective Time, by virtue of the Merger and without any action on the part of KMG, W&T, KMG Sub, Surviving Entity or Merger Sub, the aggregate Membership Interests, all of which are held by KMG, will be converted to the right to receive, in the aggregate, $1,339,400,000 (the “ Base Merger Consideration ”), adjusted as specified in Sections 2.1.2 , 2.2 and 2.3 . As of the Effective Time, all such Membership Interests will no longer be outstanding and will automatically be cancelled and retired and will cease to exist, and KMG will cease to have any rights with respect to the Membership Interests, except the right to receive the Base Merger Consideration, as it may be adjusted pursuant to the terms hereof.

2.1.2    Performance Deposit . Upon execution of this Agreement, W&T shall pay to KMG $25,000,000 as a performance deposit (“ Performance Deposit ”), to assure W&T’s performance under this Agreement. The Performance Deposit is solely to assure the performance of W&T pursuant to the terms and conditions of this Agreement. If W&T refuses or is unable for any reason (including failure to obtain financing) to close the transaction in accordance with the terms of this Agreement, KMG may, at its sole option, retain the Performance Deposit as agreed liquidated damages and not as a penalty. However, if this Agreement is terminated pursuant to the provisions of Section 11.20 ( Default and Remedies ) other than Section 11.20.1 ( KMG’s Remedies ), the Performance Deposit shall be returned without interest as provided in this Agreement within one (1) business day of termination. If Closing occurs, KMG shall retain and credit the Performance Deposit against the Base Merger Consideration at Closing, in which case W&T must pay KMG an amount equal to the Base Merger Consideration, adjusted as provided in Section 2.2 , less the Performance Deposit.

2.1.3    Bond Premium Payment Reimbursement . From the date hereof until the Closing or earlier termination of this Agreement, premium payments made by KMG to obtain bonds for KMG Sub under applicable regulations of the federal Minerals Management Service (“ MMS ”) shall be reimbursed by W&T immediately as incurred by KMG. Such reimbursement under this Section 2.1.3 is non-refundable, unless this Agreement is terminated by W&T pursuant to Section 11.20.2 (in which case KMG shall refund such reimbursement amount, without interest), and shall not be taken as an adjustment to the Base Merger Consideration under Sections 2.2 and 2.3 .

2.2    Adjustments at Closing

2.2.1    Preliminary Settlement Statement . At Closing, the Base Merger Consideration will be adjusted as set forth in Sections 2.1.2 , 2.2.2 and 2.2.3 . No later than three (3) days prior to the Closing Date, KMG will provide W&T a preliminary settlement statement identifying all adjustments to the Base Merger Consideration to be made at Closing (the “ Preliminary Settlement Statement ”). KMG and W&T acknowledge that some items in the Preliminary Settlement Statement may be estimates (e.g., revenues) or otherwise subject to change in the Final Settlement Statement (as hereinafter defined) for the Property, to be prepared pursuant to Section 2.3 .

2.2.2    Upward Adjustments . The Base Merger Consideration will be increased by the following expenses, revenues and other items:

(i)    KMG’s share of all actual production and operating costs and expenses, overhead charges under applicable operating agreements (or, with respect to active producing or injection Wells included in the Property operated by KMG that are not subject to an operating agreement, an overhead charge of $500 per each such Well per month), capital expenditures paid or incurred by KMG in connection with ownership or operation of the Property (including without limitation royalties, minimum royalties, rentals, and prepaid charges), to the extent they are attributable to the Property for the period on and after the Calculation Date until Closing but excluding Hurricane-Related Costs (as defined in Section 8.12 );

(ii)    KMG’s share of any proceeds from the sale of oil, gas, casinghead gas, condensate, distillate and other liquid and gaseous hydrocarbons of every kind or description (“ Hydrocarbons ”) produced from or attributable to the Property and other income from the Property received by Surviving Entity or W&T, to the extent they are attributable to the ownership or operation of the Property before the Calculation Date;

(iii)    $60.00 per barrel for all merchantable Hydrocarbons produced from or attributable to the Property before the Calculation Date that are stored in the Lease or unit stock tanks as identified on the OGAR for the production month of September, 2005 filed with the MMS (the “ Stock Tank Oil ”) (but excluding all Hydrocarbons produced from or attributable to the Property before the Calculation Date and stored in gathering lines or production facilities upstream of the sale or custody transfer meters (or other applicable point at which the transfer of title actually occurs) of the purchaser or processor of Hydrocarbon production attributable to the Property which shall, at Closing, be the property of Surviving Entity);

(iv)    Imbalance adjustments pursuant to Section 11.1 , as applicable; and

(v)    Any other increases in the Base Merger Consideration specified in this Agreement or otherwise agreed in writing between KMG and W&T prior to or at Closing.

2.2.3    Downward Adjustments . The Base Merger Consideration will be decreased by the following expenses and revenues:

(i)    KMG’s share of all actual production and operating costs and expenses, overhead charges under applicable operating agreements, capital expenditures paid or incurred by W&T in connection with ownership or operation of the Property (including without limitation royalties, minimum royalties, rentals, and prepaid charges), to the extent they are attributable to the Property for the period before the Calculation Date;

(ii)    KMG’s share of any proceeds from the sale of Hydrocarbons produced from or attributable to the Property and other income attributable to the Property and received by KMG, to the extent they are attributable to the ownership and operation of the Property for the period from and after the Calculation Date until Closing; provided, however, if the Closing Date is on or after the 25 ^th calendar day of the month, the proceeds of sale of Hydrocarbons marketed by KMG for the prior calendar month shall be deemed to have been received for purposes of adjusting the Base Merger Consideration;

(iii)    Imbalance adjustments pursuant to Section 11.1 , as applicable; and

(iv)    Any other decreases in the Base Merger Consideration specified in this Agreement or otherwise agreed in writing between KMG and W&T.

2.3    Adjustments after Closing

2.3.1    Final Settlement Statement . Within 120 days after Closing (the “ Final Settlement Date ”), KMG will prepare a final settlement statement containing a final reconciliation of the adjustments to the Base Merger Consideration specified in Section 2.2 (the “ Final Settlement Statement ”). However, failure of KMG to complete the Final Settlement Statement within 120 days after Closing will not constitute a waiver of any right to an adjustment otherwise due. W&T will have 30 days after receiving the Final Settlement Statement to provide KMG with written exceptions to any items in the Final Settlement Statement that W&T believes in good faith to be questionable. All items in the Final Settlement Statement to which W&T does not take written exception within the 30-day review period will be deemed correct.

2.3.2    Payment of Post-Closing Adjustments . Any adjustments to the Base Merger Consideration (excluding disputed items) will be offset against each other so that only one payment is required. The party owing payment will pay the other party the net post-Closing adjustment to the Base Merger Consideration within 10 days after the expiration of W&T’s 30-day review period for the Final Settlement Statement. However, the payment of any disputed items will be subject to the further rights of the parties under Section 2.3.3 .

2.3.3    Resolution of Disputed Items . After the completion and delivery of the Final Settlement Statement, the parties shall negotiate in good faith to attempt to reach agreement on the amount due with respect to any disputed items in the Final Settlement Statement. If the parties agree on the amount due with respect to any disputed items, and a payment adjustment is required, the party owing payment will pay the other party within 10 days after the parties reach agreement. If the parties are unable to agree on the amount due with respect to any disputed items within 60 days after KMG receives W&T’s written exceptions to the Final Settlement Statement, then the disputed items will be submitted to a mutually agreed upon independent expert (“ Accounting Referee ”). The costs and expenses of the Accounting Referee shall be shared equally by W&T and KMG. Within 10 days after a decision of the Accounting Referee, W&T and KMG, as the case may be, shall promptly make a cash payment to the other equal to the sum as may be found by the Accounting Referee.

2.3.4    Further Revenues and Expenses .

2.3.4.1    KMG agrees as follows with respect to production marketed by it:

(i)    If the Closing Date occurs before the 25 ^th calendar day of the month, the proceeds of sale of Hydrocarbons for the prior month shall be deemed to be received on the 25 ^th calendar day of the month and KMG shall wire transfer to W&T the proceeds by the 5 ^th business day following such 25 ^th calendar day;

(ii)    The proceeds of the sale of Hydrocarbons for the calendar month during which the Closing occurs shall be deemed to be received on the 25 ^th calendar day of the following month and KMG shall wire transfer the proceeds to W&T by the 5 ^th business day following such 25 ^th calendar day; and

(iii)    The proceeds of the sale of Hydrocarbons for any other month following the Closing shall be deemed to be received on the 25 ^th day of the month following the month of production and shall be wire transferred to W&T by the 5th business day following such 25 ^th calendar day;

2.3.4.2    After the completion of the post-Closing adjustments under this Section 2.3 , (i) if either party receives revenues that belong to the other party under this Agreement, the party receiving the revenues agrees to promptly remit those revenues to the other party, and (ii) if either party pays expenses that are the responsibility of the other party under this Agreement, the party on whose behalf the expenses were paid agrees to promptly reimburse the other party for the expenses paid on its behalf upon receiving satisfactory evidence of such payment. However, neither party will be obligated to reimburse the other party for any single expense in excess of $5,000 unless it has been consulted about that expense prior to payment.

2.4    Payment Method. Unless the parties otherwise agree in writing, all payments under this Agreement will be by wire transfer in immediately available funds to an account designated by the party receiving payment.

2.5    Principles of Accounting. The Preliminary Settlement Statement and Final Settlement Statement will be prepared in accordance with generally accepted accounting principles in the United States, and applicable laws, rules and regulations, and with reasonable supporting documentation for each item in those statements.

3.1    Reciprocal Representations and Warranties. By their execution of this Agreement, KMG and W&T each represent and warrant that the following statements are true and accurate as to itself, as of the execution date of this Agreement, and the Closing Date.

3.1.1    Corporate Authority . It is a corporation duly organized and in good standing under the laws of its state of incorporation, is duly qualified to carry on its business in the states onshore of where the Property is located, and has all the requisite power and authority to enter into and perform this Agreement.

3.1.2    Requisite Approvals . Upon execution of this Agreement, it will have taken all necessary actions pursuant to its articles of incorporation, bylaws and other governing documents to fully authorize (i) the execution and delivery of this Agreement and any transaction documents related to this Agreement; and (ii) the consummation of the transaction contemplated by this Agreement.

3.1.3    Validity of Obligation . This Agreement and all other transaction documents it is to execute and deliver on or before the Closing Date (i) have been duly executed by its authorized representatives; (ii) constitute its valid and legally binding obligations; and (iii) are enforceable against it in accordance with their respective terms.

3.1.4    No Violation of Contractual Restrictions . Its execution, delivery and performance of this Agreement does not conflict with or violate any agreement or instrument to which it is a party or by which it is bound, except any provision contained in agreements customary in the oil and gas industry relating to (i) the preferential right to purchase all or any portion of the Property; (ii) required consents to transfer and related provisions; (iii) maintenance of uniform interest provisions; and (iv) any other third-party approvals or consents contemplated in this Agreement.

3.1.5    No Violation of Other Legal Restrictions . Its execution, delivery and performance of this Agreement do not violate any law, rule, regulation, ordinance, judgment, decree or order to which it or the Property is subject.

3.1.6    Bankruptcy . There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by, or to its actual knowledge, threatened against it.

3.1.7    Brokers’ Fees . It has not incurred any obligation for brokers’, finders’ or similar fees for which the other party would be liable.

3.1.8    No Restraining Litigation . To its knowledge, there is no action, suit, proceeding, claim or investigation by any person, entity, administrative agency or governmental body pending or, to its knowledge, threatened, against it before any court or governmental agency that seeks substantial damages in connection with, or seeks to restrain, enjoin, materially impair or prohibit the consummation of all or part of the transaction contemplated in this Agreement.

3.2    KMG’s Representations and Warranties . By its execution of this Agreement, KMG represents and warrants to W&T that the following statements are true and accurate, as of the execution date of this Agreement and the Closing Date.

3.2.1    Limited Liability Company Authority of KMG Sub . KMG Sub is a limited liability company, validly existing and in good standing under the laws of the State of Delaware and is now, or at Closing will be duly qualified to carry on its business in the states of Louisiana and Texas.

3.2.2    No Conflicts .   This Agreement, and the execution and delivery hereof by KMG, does not and the consummation of the transactions contemplated hereby will not (i) conflict with or result in a breach of KMG Sub’s certificate of formation or limited liability company agreement or any other governing documents of KMG Sub, (ii) violate or conflict with, or constitute a default under, or result in the creation or imposition of any security interest, lien or encumbrance upon any property or assets of KMG Sub under any mortgage, indenture or agreement to which it is a party or by which the Property is bound, which violation, conflict or default might adversely affect the ability of KMG to perform its obligations under this Agreement or the ability of Surviving Entity to own the Property, or (iii) violate any statute or law or any judgment, decree, order, writ, injunction, regulation or rule of any court or governmental authority, which violation might adversely affect the ability of KMG to perform its obligations under this Agreement or the ability of Surviving Entity to own the Property.

3.2.3    Membership Interests . KMG is, and will be on the Closing Date, the sole record and beneficial owner and holder of the Membership Interests, free and clear of all pledges or other liens. All of the outstanding Membership Interests owned by KMG have been duly authorized and validly issued and are fully paid and non-assessable. No third party has any rights or options relating to the Membership Interests or to the issuance of new membership interests.

3.2.4    Broker’s Fees . KMG Sub has not incurred any liability, contingent or otherwise, for brokers’ or finders’ fees relating to the transactions contemplated by this Agreement for which W&T shall have any responsibility whatsoever.

3.2.5    Assets . At Closing, the Property will constitute all of the assets of KMG Sub, and all of the liabilities of the KMG Sub at Closing will relate only to the ownership or operation of the Property.

3.2.6    Books and Records . The minute books and other records of KMG Sub, all of which have been made available to W&T, are complete and correct in all material respects. The minute books of KMG Sub contain accurate and complete records of all meetings held of, and limited liability company action taken by, the member, and no meeting of any such member has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of the KMG or KMG Sub.

3.2.7    No Company Employees . KMG Sub does not have any employees, and KMG Sub is not obligated for any employee benefit plan.

3.2.8    Insurance . At Closing and during the period it owns the Property, KMG and KMG Sub, as the case may be, will have insurance, or be self-insured, for all risks normally insured against by a person carrying on the same business as KMG or KMG Sub, as the case may be.

3.2.9    Disregarded Entity for Tax Purposes . KMG Sub is a disregarded entity for tax purposes in accordance with Internal Revenue Service Regulation Section 301.7701-2(c)2; and KMG Sub does not have, nor has it ever had, any active business other than that associated with its ownership of the Property.

3.2.10    No Default . Except as disclosed in writing prior to the end of the Due Diligence Period, to KMG’s knowledge, neither KMG nor KMG Sub is in breach or default of any Lease included in the Property or any Material Related Contract (as defined in Section 3.2.22 ), which breach or default has not been remedied or which breach or default would have a material adverse effect on the ownership or operation of any of the Property.

3.2.11    No Repayment . Except as disclosed in writing prior to the end of the Due Diligence Period, to KMG’s knowledge, none of the Property is encumbered by take-or-pay or other similar arrangements with purchasers of oil or gas whereby KMG Sub is obligated (i) to deliver production without receiving payment therefor, or (ii) to repay monies received for production paid for but not taken.

3.2.12    Leases in Full Force and Effect; Condition of Property . To KMG’s knowledge, the Leases are in full force and effect, and neither KMG while it owned the Property, nor KMG Sub has violated any laws, statutes, regulations or orders applicable to any of the Property or the operation thereof which violation (i) would have a material adverse affect on the ownership or operation of any material part of the Property or (ii) has not been remedied. To KMG’s knowledge, taken as a whole, the Property which are tangible assets are in a state of repair so as to be adequate for current operations, except for any requirements for repairs or replacements attributable to Hurricanes Katrina or Rita.

3.2.13    Tax Returns . KMG Sub or KMG has filed or caused to be filed (on a timely basis since its formation) all tax returns that are or were required to be filed by or with respect to KMG Sub, either separately or as a member of a group of companies, pursuant to applicable legal requirements. KMG Sub, or KMG, has paid all taxes that have become due pursuant to those tax returns or otherwise, or pursuant to any notice of deficiency, statutory notice of deficiency or notice of administrative proceedings or proposed deficiency or assessment with respect to KMG Sub or any of its properties from any taxing authority. There are no outstanding agreements or waivers by or with respect to KMG Sub as a separate entity that extend the statutory period of limitations applicable to any tax returns required to be filed by KMG Sub as a separate entity for any period. There are no present disputes as to taxes of any nature payable by KMG Sub. KMG Sub is not and will not be liable for any claim for taxes of KMG or any member of any affiliated or consolidated group of which KMG is a member.

3.2.14    No Investment . KMG Sub does not own, directly or indirectly, any interest or investment (whether equity or debt) in any corporation, partnership, business, trust, or other entity.

3.2.15    Outstanding Commitments . Except as set forth on Exhibit G , to KMG’s knowledge, as of the execution date of this Agreement, there are no outstanding authorities for expenditure or other commitments to drill or rework or make other capital expenditures with respect to the Property that require aggregate expenditures by KMG or KMG Sub in excess of $500,000 for the particular individual operation or project (net to KMG Sub’s interest) after the Calculation Date.

3.2.16    Mortgages and Other Instruments . The transactions contemplated by this Agreement do not violate any covenants or restrictions imposed on KMG or KMG Sub by any bank or other financial institution in connection with a mortgage or other instrument, and will not result in the creation or imposition of a lien on any portion of the Property.

3.2.17    Lawsuits and Claims . Except as disclosed in Exhibit C or disclosed to W&T in writing prior to Closing, and limited by Section 3.4 , to KMG’s knowledge, there is no written demand or lawsuit, nor any compliance order, notice of probable violation or similar governmental action, pending or threatened before any court or governmental agency that (i) would result in a material impairment or loss of title to any part of the Property, or substantial impairment of the value thereof, or (ii) would materially hinder or impede the operation of any material part of the Property.

3.2.18    Tax Partnerships . Except as set forth on Exhibit F , KMG represents that (i) none of the Property operated by it is subject to any tax partnership agreement or provisions requiring a partnership income tax return to be filed under Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue Code of 1986, as amended, or any similar state statute and (ii) to its knowledge, no other Property is subject to any such agreement or provisions.

3.2.19    Qualification . KMG Sub is now, or at Closing will be qualified to own and, as applicable, operate any federal oil, gas and mineral leases, and any oil, gas and mineral leases for all states in which the Property is located, including meeting all bonding requirements.

3.2.20    Governmental Approval . KMG is unaware of any fact or circumstance which would preclude or inhibit unconditional approval of KMG’s assignment(s) to KMG Sub of that portion of the Property which constitutes state or federal oil, gas and mineral leases, by any federal or state authority having jurisdiction,   including meeting existing or increased state and federal bonding or supplemental security requirements of such authority.

3.2.21    Calls on Production . Except as disclosed by KMG in writing prior to the end of the Due Diligence Period, to KMG’s knowledge, the Property is not subject to any calls on production, hedging or any marketing arrangements which affect KMG Sub’s ability to freely market the production from the Property, other than contracts that are terminable by KMG Sub on 60 days or fewer notice without the payment of any fee or penalty, or as provided in the Material Related Contracts.

3.2.22    Marketing . To KMG’s knowledge, other than the Cinergy Contract,   and any other Material Related Contract identified on Exhibit A , Schedule 3 under the caption “Marketing Agreements”, there are no gas or oil purchase agreements (excluding gathering, transportation or processing agreements) included in the Related Contracts pertaining to production from any material portion of the Property that cannot be cancelled with 60 or fewer days notice.

3.2.23    Material Related Contracts . Exhibit A , Schedule 3 sets forth all Related Contracts of the type described below (collectively, the “ Material Related Contracts ”):

(i)    any Related Contract that can reasonably be expected to result in aggregate payments by KMG Sub or Surviving Entity of more than $100,000 that is not terminable without penalty on 60 days or fewer notice during the current or any subsequent calendar year (based solely on the terms thereof and without regard to any expected increase in volumes or revenues, but excluding joint or unit operating agreements);

(ii)    any Related Contract that can reasonably be expected to result in aggregate revenues to KMG Sub or Surviving Entity of more than $500,000 during the current calendar year (based solely on the terms thereof and without regard to any expected increase in volumes or revenues);

(iii)    any Hydrocarbon purchase and sale, transportation, gathering, processing or similar contract that is not terminable without penalty on 60 days or fewer notice;

(iv)    any sale-leaseback or similar contract that can reasonably be expected to result in aggregate payments by KMG Sub or Surviving Entity of more than $100,000 during the current or any subsequent calendar year;

(v)    any Related Contract that constitutes a lease under which KMG Sub is the lessor or the lessee of real or personal property which lease (A) cannot be terminated by KMG Sub without penalty upon 60 days or fewer notice and (B) involves an annual base rental of more than $100,000;

(vi)    any Related Contract with any affiliate of KMG that will not be terminated prior to Closing; and

(vii)    any farmout or farmin agreement with respect to which no interest in the Property affected thereby has been earned, and any partnership, joint venture, participation, exploration or area of mutual interest agreements, excluding joint or unit operating agreements and tax partnership or area of mutual interest provisions which may be a part thereof.

3.3    W&T’s Representations and Warranties. By its execution of this Agreement, W&T represents and warrants to KMG that the following statements are true and accurate, as of the execution date of this Agreement and the Closing Date.  

3.3.1    Independent Evaluation . W&T is an experienced and knowledgeable investor in the oil and gas business. In making the decision to enter into this Agreement, W&T has been advised by and has relied solely on its own expertise and legal, tax, reservoir engineering and other professional counsel concerning this merger transaction.

3.3.2    Qualification . Consummating the merger transaction contemplated in this Agreement will not cause W&T or Merger Sub to be disqualified or to exceed any acreage limitation imposed by law, statute or regulation.

3.3.3    Securities Laws and W&T’s Other Dealings . W&T and Merger Sub have complied with all federal and state securities laws applicable to W&T and Merger Sub in regard to the Merger and will comply with such laws if either subsequently disposes of all or any part of the Property. Except for traditional financing from reputable financial institutions, neither W&T nor Merger Sub has not sought or solicited, nor is W&T or Merger Sub participating with, investors, partners or other third parties in order to fund the Base Merger Consideration or the Performance Deposit and to close this transaction, and all funds used by W&T in connection with this transaction are W&T’s own funds.

3.3.4    Merger Sub . Merger Sub is a limited liability company validly existing and in good standing under the laws of Delaware and is duly qualified to own its properties and to carry on its business as now being conducted.

3.3.5    Operator’s Bond Qualifications . W&T is unaware of any fact or circumstance which would preclude or inhibit W&T’s or Surviving Entity’s qualification to operate the Leases and Wells for which W&T or Surviving Entity is seeking operatorship, including meeting the existing or increased state and federal bonding or supplemental security requirements of any state or federal authority having jurisdiction.

3.3.6    No Investment Company . Neither W&T nor Merger Sub is (i) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, or (ii) subject in any respect to the provisions of that act.

3.3.7    W&T’s Funds . W&T has arranged or will arrange to have available by the Closing Date sufficient funds to enable W&T to pay in full the Base Merger Consideration as adjusted pursuant to this Agreement, and otherwise to perform its obligations under this Agreement without financing that is subject to any material contingency. W&T has provided KMG with a true and correct copy of the commitment letter of TD Securities (USA) LLC dated January 20, 2006 to provide a $1,300,000,000 senior debt facility to W&T in connection with the financing of the Merger.

3.4    Limitation as to Environmental Matters . The warranties and representations of KMG in this Article 3 do not extend to environmental matters, permits, compliance with environmental laws and regulations, and environmental Claims pertaining to the ownership or operation of the Property. All liabilities and obligations of KMG and W&T with respect to environmental matters, permits, compliance with environmental laws and regulations, and environmental Claims pertaining to the ownership or operation of the Property will be governed solely and exclusively by the provisions of Sections 4.2 , 4.3 , 5.3 and Article 8 , regardless of the warranties or representations in this Article 3 .

3.5    Notice of Changes. Prior to Closing, KMG and W&T will each give the other prompt written notice of any matter of which it becomes aware materially affecting any of their representations or warranties under this Article 3 or rendering any such warranty or representation untrue or inaccurate.

3.6    Representations and Warranties Exclusive. ALL REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT (INCLUDING WITHOUT LIMITATION THOSE IN THIS ARTICLE 3) ARE EXCLUSIVE, AND ARE GIVEN IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, ALL OF WHICH ARE EXPRESSLY DISCLAIMED.

4.1    Permits and Easements. KMG HAS HERETOFORE CONVEYED THE PROPERTY TO KMG SUB SUBJECT TO ALL ROYALTIES, OVERRIDING ROYALTIES, BURDENS, ENCUMBRANCES, AND SURFACE RIGHTS, AND (EXCEPT FOR THE SPECIAL WARRANTY OF TITLE IN THE CONVEYANCING DOCUMENTS) WITHOUT WARRANTY OF TITLE, EXPRESS OR IMPLIED. SPECIFICALLY WITH RESPECT TO THE PERMITS AND EASEMENTS, KMG EXPRESSLY DISCLAIMS, AND W&T HEREBY WAIVES, ALL WARRANTIES AND REPRESENTATIONS THAT KMG OR KMG SUB OWNS THE PERMITS AND EASEMENTS, THAT THEY ARE IN FORCE AND EFFECT; THAT THEY MAY BE ASSIGNED; THAT THEY ARE CONTIGUOUS; THAT THE EQUIPMENT LIES WITHIN THE PERMITS AND EASEMENTS; OR THAT THEY GRANT THE RIGHT TO LAY, MAINTAIN, REPAIR, REPLACE, OPERATE, CONSTRUCT, OR REMOVE THE EQUIPMENT. KMG EXPRESSLY DISCLAIMS, AND W&T HEREBY WAIVES, ALL WARRANTIES AND REPRESENTATIONS THAT THERE ARE ANY PERMITS AND EASEMENTS IN FORCE AND EFFECT WITH RESPECT TO THE EQUIPMENT. If necessary, W&T or Surviving Entity shall secure its own rights to operate and maintain the Equipment on the lands of others at its own expense .

4.2    Condition and Fitness of the Property. KMG HAS HERETOFORE CONVEYED THE PROPERTY TO KMG SUB WITHOUT ANY, AND EXCEPT AS SET FORTH IN THIS AGREEMENT HEREBY DISCLAIMS ANY, EXPRESS, STATUTORY OR IMPLIED WARRANTY OR REPRESENTATION OF ANY KIND, INCLUDING WARRANTIES RELATING TO (i) THE CONDITION OR MERCHANTABILITY OF THE PROPERTY, (ii) THE FITNESS OF THE PROPERTY FOR A PARTICULAR PURPOSE, (iii) (EXCEPT FOR THE SPECIAL WARRANTY OF TITLE IN THE CONVEYANCING DOCUMENTS) TITLE TO ANY OF THE PROPERTY, (iv) THE CONTENTS, CHARACTER OR NATURE OF ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY ENGINEERING, GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE PROPERTY, (v) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE PROPERTY, (vi) THE CONTENT, CHARACTER OR NATURE OF ANY INFORMATION MEMORANDUM, REPORTS, BROCHURES, CHARTS OR STATEMENTS PREPARED BY KMG OR THIRD PARTIES WITH RESPECT TO THE PROPERTY, (vii) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE TO W&T OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY