ASSET PURCHASE AGREEMENT

Exhibit 10.3

EXECUTION VERSION

ASSET PURCHASE AGREEMENT

DATED AS OF DECEMBER 7, 2007,

BY AND BETWEEN

EOG RESOURCES, INC.,

EOG RESOURCES APPALACHIAN LLC AND

ENERGY SEARCH, INCORPORATED

AS SELLER,

AND

EXCO APPALACHIA, INC.

AS BUYER

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ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (this “ Agreement ”), dated as of December 7, 2007, is by and among EOG Resources, Inc., a Delaware corporation (“ EOG ”), EOG Resources Appalachian LLC, a Delaware limited liability company (“ EOG Appalachian ”), and Energy Search, Incorporated, a Tennessee corporation (“ ESI ”) (EOG, EOG Appalachian and ESI are hereinafter collectively referred to as “ Seller ”), and EXCO Appalachia, Inc., a Delaware corporation (“ Buyer ”).

WHEREAS, Seller owns undivided interests in certain oil and gas leases and related assets located in various fields situated in the States of Ohio, Pennsylvania, Virginia and West Virginia; and

WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, such oil and gas leases and related assets upon the terms and subject to the conditions set forth in this Agreement; and

WHEREAS, Seller owns undivided mineral fee interests in oil, gas and other hydrocarbons in place in and under certain lands situated in the State of Pennsylvania; and

WHEREAS, Seller desires to lease to Buyer, and Buyer desires to lease from Seller, such undivided mineral fee interests upon the terms and subject to the conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, the parties hereto agree as follows:

ARTICLE I.

DEFINITIONS

Section 1.1              Certain Defined Terms .  Unless the context otherwise requires, the respective terms defined in Appendix A attached hereto and incorporated herein shall, when used herein, have the respective meanings therein specified, with each such definition to be equally applicable both to the singular and the plural forms of the term so defined.

Section 1.2              References, Gender, Number .  All references in this Agreement to an “Article,” “Section,” or “subsection” shall be to an Article, Section, or subsection of this Agreement, unless the context requires otherwise.  Unless the context otherwise requires, the words “this Agreement,” “hereof,” “hereunder,” “herein,” “hereby,” or words of similar import shall refer to this Agreement as a whole and not to a particular Article, Section, subsection, clause or other subdivision hereof.  Whenever the context requires, the words used herein shall include the masculine, feminine and neuter gender, and the singular and the plural.

ARTICLE II.

SALE AND PURCHASE OF ASSETS

Section 2.1              Sale and Purchase .  On and subject to the terms and conditions of this Agreement, Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase from Seller, the Assets.

ARTICLE III.

PURCHASE PRICE AND PAYMENT

Section 3.1              Purchase Price .  The purchase price for the sale and conveyance of the Assets to Buyer is Three Hundred Ninety-Five Million Dollars $395,000,000 (the “ Purchase Price ”), subject to adjustment in accordance with the terms of this Agreement.  The “ Adjusted Purchase Price ” shall be the Purchase Price (i) as adjusted by the Initial Adjustment Amount determined pursuant to Section 3.3, (ii) as adjusted downward for Preference Properties which are excluded from the Assets in accordance with and as contemplated by Section 8.3, (iii) as adjusted downward for any Environmental Defect or the exclusion of any Environmental Defect Property pursuant to Section 6.2, (iv) as adjusted downward for Title Defects, if any, in accordance with Section 7.2, (v) as adjusted downward for excluded Title Defect Properties, if any, in accordance with Section 7.5, (vi) as adjusted for pipeline imbalances and Royalty Accounts, if any, pursuant to Section 3.5, (vii) as adjusted downward by the amount of the Deposit delivered pursuant to Section 3.2, together with interest on the Deposit from the date of execution of this Agreement until the Closing Date at the Agreed Rate, and (viii) as adjusted upward by an amount equal to interest on the Adjusted Purchase Price, as adjusted in the manner provided in items (i) through (vii) above, from the Effective Time until the Closing Date at the Agreed Rate.

Section 3.2              Payment .  On the date of execution of this Agreement, Buyer shall deposit an amount equal to $39,500,000 with Seller as a deposit hereunder (the “ Deposit” ) by wire transfer of such amount in immediately available funds to Bank of America N.A., in Dallas, Texas, ABA No. 026-009-593 for the account of Seller, Account No. 375-049-4400, named “EOG Resources, Inc.”.  At the Closing, Buyer shall assume the Assumed Liabilities and wire transfer the Adjusted Purchase Price in immediately available funds to such account specified above, or such other account or accounts specified by Seller to Buyer on or prior to the Business Day immediately preceding the Closing Date.

Section 3.3              Adjustment Period Cash Flow .  The Purchase Price shall be increased or decreased, as the case may be, by an amount equal to the Net Cash Flow with respect to the Assets for the time period (the “ Adjustment Period ”) beginning at the Effective Time and ending at 7:00 a.m. Eastern Standard time on the Closing Date.  Seller shall deliver to Buyer on or prior to the fifth Business Day preceding the Closing Date a statement (the “ Adjustment Statement ”) setting forth Seller’s preliminary determination (the “ Initial Adjustment Amount ”) of the Net Cash Flow.  If the Initial Adjustment Amount shown on the Adjustment Statement is a positive number, then the Purchase Price shall be increased by such amount.  If the Initial Adjustment Amount shown on the Adjustment Statement is a negative number, then the Purchase Price shall be decreased by such amount.

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(a)            The Adjustment Statement shall be based upon actual information available to Seller at the time of its preparation and upon Seller’s good faith estimates and assumptions.  There shall be attached to the Adjustment Statement such supporting documentation and other data as is reasonably necessary to provide a basis for the Net Cash Flow shown therein.

(b)            If Buyer has any questions or disagreements regarding the Adjustment Statement, then, upon request by Buyer at least two Business Days prior to the Closing Date, Seller and Buyer shall in good faith attempt to resolve any disagreements, and Seller shall afford Buyer the opportunity to examine the Adjustment Statement and such supporting schedules, analyses, and workpapers on which the Adjustment Statement is based or from which the Adjustment Statement is derived as are reasonably requested by Buyer.  If Buyer and Seller agree on changes to the Initial Adjustment Amount based on such discussions, then the Adjusted Purchase Price shall be paid at Closing based on such changes.  If Buyer and Seller do not agree on changes to the Initial Adjustment Amount, then the Adjusted Purchase Price shall be paid at the Closing based on the amounts set forth in the Adjustment Statement.  In either such case, appropriate adjustments to the Purchase Price shall be made after the Closing pursuant to Section 3.4.

(c)            The “ Net Cash Flow ”, calculated in accordance with GAAP, shall be the algebraic sum of (i) a positive amount equal to the aggregate amount paid by Seller as Seller’s share of the costs of exploration, development, maintenance, operation, abandonment and production of the Assets during the Adjustment Period, which costs shall include, but shall not be limited to, royalties, overriding royalties, net profit interests and other similar burdens on production, general and administrative and operating costs, Taxes (other than Income Taxes), the cost of maintaining leaseholds or other interests included in the Assets, the cost of extension or renewal of any interest included in the Assets, the cost of treating, processing, storing, compressing, transporting, selling, marketing and otherwise handling and dealing with hydrocarbon production with respect to the Assets, the cost of any exploration or development activities on the Assets performed in accordance with Article IX, and costs of insurance coverage (including prepayments of any costs in accordance with Article IX), (ii) a negative amount equal to the aggregate gross proceeds received by Seller from the sale of hydrocarbons produced from or attributable to the Assets during the Adjustment Period or from the sale, salvage or other disposition of any Assets during the Adjustment Period (excluding any payments accounted for under clause (ii) of Section 3.1), and (iii) a negative amount equal to the aggregate amount of any costs paid under clause (i) above and reimbursed to Seller by any third party (unless such reimbursement is accounted for under clause (ii) above); provided, however , the amounts held by Seller for the account or benefit of any third party joint interest owners shall not be included in the calculation of Net Cash Flow, and therefore, shall not have an effect on the Purchase Price.  If an operating agreement is not in place during any part of the Adjustment Period with respect to any Asset for which Seller or an Affiliate of Seller is acting as operator, then to compensate Seller for administrative overhead expenses associated with conducting operations of any such Asset with respect to such part of the Adjustment Period, an administrative overhead fee of $250.00 per month per operated well that is flowing and $300.00 per month per operated well that is pumping, shall be deemed paid by Seller and shall be charged and allocated to such Asset for purposes of determining Net Cash Flow.

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(d)            The Adjustment Statement shall include Seller’s good faith estimate of any sales Taxes owed by Buyer.

Section 3.4             Post Closing Review .  After the Closing, Seller shall review the Adjustment Statement and determine the actual Net Cash Flow.  On or prior to the 120th day after the Closing Date, Seller shall present Buyer with a statement of the actual Net Cash Flow and such supporting documentation as is reasonably necessary to support the Net Cash Flow shown therein (the “ Final Adjustment Statement ”).  To the extent reasonably necessary to Seller, Buyer will give personnel, accountants and representatives of Seller reasonable access to the Assets and Buyer’s premises and to its books and records for purposes of preparing the Final Adjustment Statement and will cause appropriate personnel of Buyer to assist Seller and Seller’s personnel, accountants and representatives, with no charge to Seller for such assistance, in the preparation of the Final Adjustment Statement.  Seller will give personnel, accountants and representatives of Buyer reasonable access to Seller’s premises and to its books and records for purposes of reviewing the calculation of Net Cash Flow and will cause appropriate personnel of Seller to assist Buyer and Buyer’s personnel, accountants and representatives, with no charge to Buyer for such assistance, in verification of such calculation.  The Final Adjustment Statement shall become final and binding on Seller and Buyer as to the Net Cash Flow 30 days following the date the Final Adjustment Statement is received by Buyer, except to the extent that prior to the expiration of such 30-day period Buyer shall deliver to Seller one or more notices, as hereinafter required, of its disagreement with the contents of the Final Adjustment Statement. Such notices shall be in writing and set forth all of Buyer’s disagreements with respect to any portion of the Final Adjustment Statement, together with Buyer’s proposed changes thereto, and shall include an explanation in reasonable detail of, and such supporting documentation as is reasonably necessary to support, such changes.  Any disagreements with or changes to the Final Adjustment Statement not included in such notices shall be waived by Buyer.  If Buyer has timely delivered one or more notices of disagreement to Seller in the manner required above, then, upon written agreement between Buyer and Seller resolving all disagreements of Buyer set forth in such notices, the Final Adjustment Statement (including any revisions thereto as are so agreed) will become final and binding on Buyer and Seller as to the Net Cash Flow.  If the Final Adjustment Statement has not become final and binding by the 180th day following the Closing Date, then Buyer or Seller may submit any unresolved disagreements of Buyer set forth in the aforesaid notices to Ernst & Young, Houston, Texas for final and binding determination and Buyer and Seller shall execute such engagement, indemnity and other agreements as such accounting firm may reasonably require in connection with or as a condition to such engagement.  Buyer and Seller shall cooperate diligently with any reasonable request of the accounting firm and furnish to the accounting firm such workpapers and other documents and information relating to such objections as the accounting firm may reasonably request and are available to such party or its subsidiaries (or its independent public accountants) and will be afforded the opportunity to present to the accounting firm any material relating to the determination of the matters in dispute and to discuss such determination with the accounting firm prior to any written notice of determination hereunder being delivered by the accounting firm and to the extent that a value has been assigned to any objection that remains in dispute, the accounting firm shall not assign a value to such objection that is greater than the greatest value for such objection claimed by either party or less than the smallest value for such objection claimed by either party.  The fees and expenses of said accounting firm in making such

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determination shall be shared equally by Buyer and Seller.  Upon resolution of such unresolved disagreements of Buyer, the Final Adjustment Statement (including any revisions thereto as are so resolved or agreed), shall be conclusive, final and binding on Buyer and Seller as to the Net Cash Flow.  If the final amount of Net Cash Flow is more or less than the Initial Adjustment Amount, the Adjusted Purchase Price shall be redetermined under Section 3.1 using such final amount of Net Cash Flow.  If such redetermination under Section 3.1 results in a reduction in the Adjusted Purchase Price, Seller shall pay Buyer the amount of such reduction.  If such redetermination results in an increase in the Adjusted Purchase Price, Buyer shall pay Seller the amount of such increase.  Within three (3) Business Days after the Final Adjustment Statement (as so resolved or agreed) becomes final and binding, Seller or Buyer, as appropriate, shall pay to the other party the amount of such increase or reduction, if any, in the Adjusted Purchase Price, together with interest on the amount of such increase or reduction from the Closing Date until paid at the Agreed Rate.  Except for specific costs which are expressly set forth and accounted for in the final and binding Final Adjustment Statement, neither the Final Adjustment Statement nor this Section 3.4 shall operate to waive, release or impair the indemnity and hold harmless obligations of Buyer under Sections 5.1, 6.1 and 14.1.

Section 3.5             Pipeline Imbalance Adjustments; Royalty Accounts .  The Purchase Price shall be:

(a)            reduced by the product obtained by multiplying the aggregate amount of Negative Imbalances by $3.50 per MMBtu;

(b)            increased by the product obtained by multiplying the aggregate amount of Positive Imbalances by $3.50 per MMBtu; and

(c)            reduced by the amount of the Royalty Accounts.

Section 3.6             No Duplicative Effect .  The provisions of Sections 3.1, 3.3, 3.4, and 3.5 and as set forth in any of the other Transaction Documents shall apply in such a manner so as not to give the components and calculations duplicative effect to any item of adjustment and, except as otherwise expressly provided in this Agreement, the parties hereto covenant and agree that no amount shall be (or is intended to be) included, in whole or in part (either as an increase or a reduction), more than once in the calculation or preparation of (including any component of) the Adjusted Purchase Price, the Initial Adjustment Amount, the Adjustment Statement or the Final Adjustment Statement, or any other calculated amount pursuant to this Agreement if the effect of such additional inclusion (either as an increase or a reduction) would be to cause such amount to be over- or under-counted for purposes of such calculation. The parties acknowledge and agree that in the event that there is a conflict between a determination, calculation or methodology set forth in this Agreement on the one hand, and those provided by GAAP, on the other hand, (a) the determination, calculation or methodology set forth in this Agreement shall control to the extent that the matter is included in this Agreement as a line item or specific adjustment and (b) the determination, calculation or methodology prescribed by GAAP shall control to the extent the matter is not so addressed in this Agreement or requires reclassification as an asset or liability to be included in a line item or specific adjustment.

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ARTICLE IV.

REPRESENTATIONS AND WARRANTIES

Section 4.1              Representations and Warranties of Seller .  As of the date of this Agreement, Seller represents and warrants to Buyer as follows:

(a)            Organization and Qualification .  Each of EOG and ESI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and Tennessee, respectively, and has the requisite corporate power to carry on its business as it is now being conducted.  EOG Appalachian is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware.  Seller is duly qualified to do business, and is in good standing, in each jurisdiction in which the Assets owned or leased by it makes such qualification necessary, except where the failure to so qualify and be in good standing will not have a Material Adverse Effect.

(b)            Authority .  Seller has all requisite corporate or limited liability power and authority to execute and deliver this Agreement and the Transaction Documents required to be executed and delivered by Seller hereunder and to perform its obligations hereunder and thereunder.  The execution, delivery and performance of this Agreement and the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite corporate and limited liability company action on the part of Seller.

(c)            Enforceability .  This Agreement constitutes, and upon the Closing each of the Transaction Documents required to be executed and delivered by Seller hereunder will constitute, a valid and binding agreement of Seller enforceable against Seller in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws of general application with respect to creditors, (ii) general principles of equity and (iii) the power of a court to deny enforcement of remedies generally based upon public policy.

(d)            No Conflict or Violation .  Except for any exceptions set forth in Section 4.1(e) (or referenced in Schedule 4.1(e) ), neither the execution and delivery of this Agreement or the Transaction Documents nor the consummation of the transactions and performance of the terms and conditions contemplated hereby and thereby by Seller will (i) conflict with or result in a violation or breach of or default under any provision of the certificate of incorporation, by-laws, operating agreement or other similar governing documents of Seller, (ii) conflict with or result in a violation or breach of or default under any agreement, indenture or other instrument under which Seller is bound and to which any Asset is subject, other than such conflicts, breaches, violations or defaults as will not have a Material Adverse Effect, or (iii) violate or conflict with any Law applicable to Seller or the Assets.

(e)            Consents .  Except for (i) consents or approvals of or filings with the United States Department of Interior, or applicable Governmental Authorities in connection with assignments of the Subject Interests as contemplated by Section 8.5 that are customarily obtained post-closing in a purchase and sale transaction of this nature, (ii) Preference Rights and Transfer Requirements, and  (iii) consents, approvals, authorizations, permits, filings or notices referenced in Schedule 4.1(e) , no consent, approval, authorization or permit of, or filing with or notification

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to, any Person is required for or in connection with the execution and delivery of this Agreement by Seller or for or in connection with the consummation of the transactions and performance of the terms and conditions contemplated hereby by Seller.

(f)             Actions .  Except as set forth in Schedule 4.1(f) , there is no Action pending or, to the knowledge of Seller, threatened to which Seller is (or is threatened to be made) a party and which relates to the Assets or any material part thereof.

(g)            Compliance With Laws .  Except as set forth in Schedule 4.1(g) , with respect to those Assets operated by Seller, Seller is not, and with respect to the Assets operated by third parties, to the knowledge of Seller, such third party operators are not, in violation of any Law with respect to the Assets, other than violations of Law which are not reasonably expected by Seller to have a Material Adverse Effect; provided that, Seller makes no representation or warranty, express or implied, with respect to (i) any Environmental Law, (ii) any Tax Law, except as set forth in Section 4.1(l), or (iii) Seller’s title to the Assets.

(h)            Brokerage Fees and Commissions .  Neither Seller nor any Affiliate of Seller has incurred any obligation or entered into any agreement for any investment banking, brokerage or finder’s fee or commission or other similar form of compensation in respect of the transactions contemplated by this Agreement for which Buyer or any of its Affiliates shall incur any liability.

(i)             Bankruptcy .  There are no bankruptcy, reorganization or arrangement proceedings pending against, being contemplated by, or, to the knowledge of Seller, threatened against Seller or any Affiliate of Seller.

(j)             Material Contracts .  Schedule 4.1(j)  sets for t h a list of the following contracts, agreements or commitments to which the Assets are subject or by which Seller is bound with respect to the Assets:

(1)            any written contract or agreement between Seller and any Affiliate of Seller relating to the provision of goods or services in respect of the Assets which will survive the Closing or which affects the Assets on or after the Effective Time;

(2)            any contract, agreement or commitment that commits Seller or its assigns to aggregate expenditures with respect to the Subject Interests or other Assets of more than $100,000 in any calendar year; excluding (i) the Subject Interests and any contracts or agreements creating interests or rights in the Subject Interests or in any Hydrocarbon Interests, wells or units, (ii) joint operating agreements, and (iii) unitization or pooling agreements;

(3)            any contract, agreement or commitment that commits Seller or its assigns to sell, exchange, gather, process, treat, handle, store or transport any Hydrocarbon production attributable to the Subject Interests exceeding 100 Mcfe per day; excluding (i) any such contract, agreement or commitment which expires within six months or can be terminated by Seller or its assigns upon not more than six months notice

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without penalty, (ii) the Subject Interests, (iii) joint operating agreements, and (iv) unitization or pooling agreements; and

(4)            any contract, agreement or commitment included in the Assets and that constitutes (i) an indenture, mortgage, loan, credit or similar contract for borrowed money or any hedge or derivative contract (in each case) for which Buyer or any of its Affiliates will be responsible or which affects any revenues or expenses attributable to the Assets on or after the Effective Time, (ii) any agreement for the use or sharing of drilling rigs in connection with the Assets, (iii) any farmin or farmout agreement, exploration agreement, participation agreement, agreement for development or similar agreement providing for the earning of an ownership interest that has not been earned as of the date of this Agreement, (iv) any non-competition agreement or any agreement that would restrict, limit or prohibit the manner in which, or the localities in which, Buyer or any of its Affiliates conduct their respective businesses, and of which Seller has knowledge, or (v) any agreement creating an area of mutual interest of which Seller has knowledge.

(k)            Compliance with Contracts .  Except as set forth in Schedule 4.1(k) , (i) neither  Seller nor, to Seller’s knowledge, any other party thereto is in material breach of or material default under any contract, agreement or commitment listed in Schedule 4.1(j) , and (ii) there does not exist under any provision thereof, to Seller’s knowledge, any event that, with the giving of notice or the lapse of time or both, would constitute such a breach or default, except for such breaches, defaults or events which would not have a Material Adverse Effect.

(l)             Tax Matters .  Except as set forth in Schedule 4.1(l) , (i) All Tax Returns relating to or in connection with the Assets required to be filed have been timely filed and all such Tax Returns are correct and complete in all material respects, (ii) all Taxes relating to or in connection with the Assets that are or have become due have been timely paid in full, and Seller is not delinquent in the payment of any Taxes (including all Property Taxes and Hydrocarbon Taxes) attributable to any periods through the Effective Time relating to or in connection with the Assets, (iii) there is not currently in effect any extension or waiver of any statute of limitations of any jurisdiction regarding the assessment or collection of any Tax (other than Income Taxes) of Seller relating to or in connection with the Assets, (iv) there are no administrative or judicial proceedings pending against the Assets or against Seller relating to or in connection with the Assets by any Taxing Authority with respect to Taxes (other than Income Taxes), (v) there are no liens on any of the Assets that arose in connection with the failure (or alleged failure) to pay any Tax, other than current period Property Taxes not yet delinquent, and (vi) Seller is not a foreign person within the meaning of Section 1445(f) of the Code.

(m)           Status of Seller .  Seller is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(n)            Payments for Production .  To Seller’s knowledge, all shut-ins, rentals, royalties, excess royalty, overriding royalty interests and other payments due and payable by Seller to overriding royalty holders and other interest owners (including working interest owners)

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under or with respect to the Assets and the Hydrocarbons produced therefrom or attributable thereto have been paid except for the amounts held in suspense in the Royalty Accounts, and Seller is not obligated under any contract or agreement for the sale of gas from the Assets containing a take-or-pay, advance payment, prepayment, or similar provision, or under any gathering, transmission, or any other contract or agreement with respect to any of the Assets to gather, deliver, process, or transport any gas without then or thereafter receiving full payment therefor.

(o)            Payout Balance .  To Seller’s knowledge, Schedule 4.1(o)  sets forth the status of any “payout” balance as of the Effective Time, for the wells and units comprising the Assets, subject to reversion or other adjustment at some level of cost recovery or payout.

(p)            Tax Partnership .  To Seller’s knowledge, except as set forth in Schedule 4.1(p) , none of the Assets is held by or is subject to any contractual arrangement between Seller and any other Persons, whether owning undivided interests therein or otherwise, that is treated as or constitutes a partnership for United States federal Tax purposes (a “ Tax Partnership ”).

(q)            AFEs and Other Commitments .  Except as set forth in Schedule 4.1(q) , as of the Effective Time and as of the date of this Agreement, there were and are no AFEs, capital expenditures related to the drilling or reworking of wells, or other commitments for capital expenditures outstanding with respect to the Assets in excess of $50,000 individually (net to Seller’s interest).

(r)             Wells .  The only wells being drilled on the Subject Interests as of the date of this Agreement are those set forth in Schedule 4.1(r) .

(s)            Production Allowables .  To Seller’s knowledge, since the Effective Time through the date of this Agreement, Seller has not received written notice that there has been any change proposed in the production allowables for any wells located on the Subject Interests.

(t)             Plugging and Abandonment .  To Seller’s knowledge, since the Effective Time, Seller has not abandoned, and is not in the process of abandoning, any wells (nor has it removed, nor is it in the process of removing, any material items of personal property, except those replaced by items of substantially equivalent suitability and value).  Except as set forth in Schedule 4.1(t) , there are no wells located on the Subject Interests:

(1)            with respect to which Seller has received an order from any Governmental Authority requiring that such well be plugged and abandoned that has not been plugged and abandoned;

(2)            that formerly produced but that are currently shut in or temporarily abandoned; or

(3)            that, to Seller’s knowledge, have been plugged and abandoned but have not been plugged in accordance with all applicable requirements of each Governmental Authority having jurisdiction over the Subject Interests.

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(u)            Current Bonds .  Schedule 4.1(u) sets forth a list of all surety bonds, letters of credit and other similar instruments maintained by Seller or any of its Affiliates with respect to the Assets.

(v)            Governmental Authorizations .  Except as set forth in Schedule 4.1(v) , Seller has obtained and is maintaining all material federal, state and local governmental licenses, permits, franchises, orders, exemptions, variances, waivers, authorizations, certificates and consents (the “ Governmental Authorizations ”) that are presently necessary or required for the ownership and operation of the Assets operated by Seller as currently owned and operated (excluding Governmental Authorizations required by Environmental Laws), except for any Governmental Authorizations the failure of which to obtain and maintain will not have a Material Adverse Effect.  Except as set forth in Schedule 4.1(v) , since the Effective Time no written notices of material violation have been received by Seller.

(w)           Condemnation .  Except as set forth in Schedule 4.1(w) , there is no actual or, to Seller’s knowledge, threatened taking (whether permanent, temporary, whole or partial) of any part of the Subject Interests by reason of condemnation or the threat of condemnation.

(x)             FERC .  Neither Seller nor any of its Affiliates has filed any tariffs with the Federal Energy Regulatory Commission with respect to the operation of any of the Assets.

(y)            Employee Related Matters .

(i)             Schedule 4.1(y)(i)  sets forth a true and complete list of each of the following that is sponsored, maintained or contributed to by Seller in which any Company Employee (as defined in Section 9.11(a)) currently participates or may be eligible for a benefit (the “ Seller Benefit Plans ”):

(1)            each “employee benefit plan,” as such term is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), including but not limited to employee benefit plans, such as foreign plans, that are not subject to the provisions of ERISA; and

(2)            each material personnel policy, stock option plan, stock purchase plan, stock appreciation rights plan, phantom stock plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, education, adoption or dependent care assistance program, severance pay plan, policy or agreement, deferred compensation agreement or arrangement, executive compensation or supplemental income arrangement, consulting agreement, employment agreement, and each other employee benefit plan, agreement, arrangement, program, practice or understanding.

(ii)            Except as set forth on Schedule 4.1(y)(ii) , neither Seller, nor any corporation, trade, business or entity under common control with Seller, within the meaning of Section 414(b), (c), or (m) of the Code, or Section 4001 of ERISA (a “ Seller Controlled Entity ”), sponsors, maintains or has any obligation to contribute to (nor has sponsored, maintained or contributed to within the last six years prior to the Closing

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Date) any employee benefit plan (within the meaning of Section 3(3) of ERISA) that is subject to Title IV of ERISA or Section 412 of the Code (a “ Title IV Plan ”) with respect to which Seller or a Seller Controlled Entity has or may have any liability.  Except as set forth on Schedule 4.1(y)(ii) , with respect to any such Title IV Plan, (1) no withdrawal liability (within the meaning of Section 4201 of ERISA) has been incurred, which withdrawal liability has not been satisfied, (2) no liability to the Pension Benefit Guaranty Corporation (“ PBGC ”) (other than liability for premiums, which premiums have been paid when due) has been incurred which has not been satisfied, (3) no accumulated funding deficiency (within the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not waived, has been incurred, (4) all contributions (including installments) to such plan required by Section 302 of ERISA and Section 412 of the Code have been timely made, (5) no reportable event (within the meaning of Section 4043 of ERISA or the regulations issued thereunder) has occurred, other than an event for which the thirty (30) day notice period is waived, (6) no event or condition  has occurred or exists that would reasonably be expected to present the risk of termination, (7) no notice of intent to terminate any such Title IV Plan has been given under Section 4041 of ERISA, and (8) no proceeding has been instituted under Section 4042 of ERISA to terminate any such Title IV Plan.

(iii)           Except as set forth on Schedule 4.1(y)(iii) , neither Seller nor any of its Affiliates has agreed to recognize any labor union or other collective bargaining representative nor has any labor union or other collective bargaining representative been certified as the exclusive bargaining representative of any employees of Seller or any of its Affiliates.

(z)             Reserve Report .  Seller makes no warranty or representation as to quantity, quality or recoverability of the oil, gas and other hydrocarbon reserves attributable to the Subject Interests, except that Seller warrants and represents that (i) to Seller’s knowledge, the production history data, data on operating history, seismic data and well logs (excluding any opinion, interpretation, analysis, evaluation or other similar work product) that Seller provided to Degolyer and Macnaughton to prepare the Reserve Report are true and correct in all material respects, and (ii) except for production in the ordinary course of business, changes set forth in Schedule 4.1(z)  and changes (including changes in commodity prices) generally affecting the oil and gas industry, to the knowledge of Seller, since the date of the Reserve Report, (A) there has been no material adverse change with respect to the matters addressed in the Reserve Report and (B) neither Seller nor any of its Affiliates has disposed of any material oil and gas property that was included in the Reserve Report.

(aa)          FCC Matters .  To the knowledge of Seller, Seller does not hold any licenses, permits, certificates, approvals, franchises, consents, waivers, registrations or other authorizations issued by the Federal Communications Commission with respect to the ownership or operation of the Assets.

(bb)          Nonconsent Elections .  To the knowledge of Seller, Schedule 4.1(bb) sets forth each situation in which Seller elected not to participate in an operation on the Subject Interests since the date of the Reserve Report that remains subject to a loss of interest or penalty.

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(cc)          Joint Operating Agreements .  To the knowledge of Seller, Schedule 4.1(cc) sets forth each joint operating agreement to which the Assets are subject.

(dd)          No Liens Securing Financings .  The Assets are not encumbered by any mortgages or security interests granted or created by Seller to secure obligations of Seller or any of its Affiliates under any credit agreement, loan agreement or similar financing arrangements with any banks or other financial institutions.

(ee)          Preference Rights and Transfer Requirements .  To Seller’s knowledge, all agreements containing (i) a Preference Right are set forth in Part I of Schedule 4.1(ee) and (ii) a Transfer Requirement are set forth in Part II of Schedule 4.1(ee) , except for any agreements that do not affect any material property included in the Assets.

Section 4.2              Representations and Warranties of Buyer .  Buyer represents and warrants to Seller as follows:

(a)            Organization and Qualification .  Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power to carry on its business as it is now being conducted.  Buyer is duly qualified to do business, and is in good standing, in each jurisdiction in which the Assets to be acquired by it makes such qualification necessary, except where the failure to so qualify and be in good standing would not impact Buyer’s ability to consummate the transactions contemplated under this Agreement.

(b)            Authority .  Buyer has all requisite corporate power and authority to execute and deliver this Agreement and the Transaction Documents required to be executed and delivered by Buyer hereunder and to perform its obligations hereunder and thereunder.  The execution, delivery and performance of this Agreement and the Transaction Documents required to be executed and delivered by Buyer hereunder and the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite corporate action on the part of Buyer.

(c)            Enforceability .  This Agreement constitutes, and upon the Closing each of the Transaction Documents required to be executed and delivered by Buyer hereunder will constitute, a valid and binding agreement of Buyer enforceable against Buyer in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws of general application with respect to creditors, (ii) general principles of equity and (iii) the power of a court to deny enforcement of remedies generally based upon public policy.

(d)            No Conflict or Violation .  Except for any exceptions set forth in Section 4.2(e), neither the execution and delivery of this Agreement or the Transaction Documents nor the consummation of the transactions and performance of the terms and conditions contemplated hereby or thereby by Buyer will (i) conflict with or result in a violation or breach of or default under any provision of the certificate of incorporation, by-laws or other similar governing documents of Buyer or any material agreement, indenture or other instrument under which Buyer is bound or (ii) violate or conflict with any Law applicable to Buyer or the Assets.

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(e)            Consents .  Except for (i) consents or approvals of or filings with the United States Department of Interior or other the applicable Governmental Authorities in connection with assignments of the Subject Interests as contemplated by Section 8.5 that are customarily obtained post-closing in a purchase and sale transaction of this nature, and (ii) Preference Rights and Transfer Requirements, no consent, approval, authorization or permit of, or filing with or notification to, any Person is required for or in connection with the execution and delivery of this Agreement by Buyer or for or in connection with the consummation of the transactions and performance of the terms and conditions contemplated hereby by Buyer.

(f)             Actions .  There is no Action pending or, to the knowledge of Buyer, threatened to which Buyer is (or is threatened to be made) a party, other than Actions which are not reasonably expected by Buyer to have a material adverse effect on Buyer.

(g)            Brokerage Fees and Commissions .  Neither Buyer nor any Affiliate of Buyer has incurred any obligation or entered into any agreement for any investment banking, brokerage or finder’s fee or commission or similar form of compensation in respect of the transactions contemplated by this Agreement for which Seller or any of its Affiliates shall incur any liability.

(h)            Qualified Owner .  At or prior to Closing, Buyer (i) shall be qualified in all material respects under Law to own the Assets and (ii) will have complied with all necessary governmental bonding requirements required for its ownership of the Assets.

(i)             Funds .  Buyer will have sufficient funds available to enable Buyer to consummate the transactions contemplated hereby and to pay the Adjusted Purchase Price and all related fees and expenses of Buyer.

(j)             No Distribution .  Buyer is an experienced and knowledgeable investor in the oil and gas business, Buyer is able to bear the economic risks of its acquisition and ownership of the Assets, and Buyer is capable of evaluating (and has evaluated) the merits and risks of the Assets and Buyer’s acquisition and ownership thereof.  Prior to entering into this Agreement, Buyer was advised by its counsel and such other persons it has deemed appropriate concerning this Agreement and has relied solely on an independent investigation and evaluation of, and appraisal and judgment with respect to, the geologic and geophysical characteristics of the Subject Interests, the estimated reserves recoverable therefrom, and the price and expense assumptions applicable thereto. Buyer is an “accredited investor,” as such term is defined in Regulation D of the Securities Act of 1933, as amended (the “ Securities Act ”), and will acquire the Assets for its own account and not with a view to a sale or distribution thereof in violation of the Securities Act of 1933, as amended, and the rules and regulations thereunder, any applicable state blue sky laws or any other applicable securities laws.

(k)            Bankruptcy .  There are no bankruptcy, reorganization or arrangement proceedings pending against, being contemplated by, or to the knowledge of Buyer, threatened against Buyer or any Affiliate of Buyer.

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ARTICLE V.

ACCESS TO INFORMATION; NO WARRANTY; ETC.

Section 5.1             General Access .  Subject to Section 6.1 (which shall govern all environmental reviews, inspections and audits), promptly following the execution of this Agreement and until the Closing Date (or earlier termination of this Agreement), Seller shall:

(a)            permit Buyer and its representatives to have reasonable access at reasonable times in the Seller’s offices, and in a manner so as not to interfere unduly with the business operations of Seller, to Seller’s books, records, Tax Returns (other than with respect to corporate Income Taxes), contracts, abstracts of title, title opinions, title files, ownership maps, lease files, assignments, division orders, and documents relating to the Assets (including the Asset Records) insofar as the same are in Seller’s possession and insofar as Seller may do so without (i) violating legal constraints or any legal obligation or (ii) waiving any attorney/client, work product or like privilege (provided, clauses (i) and (ii) of this subsection (a) shall not apply to title opinions relating to the Subject Interests), together with the opportunity to make copies of such books, records, or other documents, at Buyer’s sole cost and expense, and to discuss the business operations of Seller with respect to the Assets with such officers, directors, accountants, consultants and counsel of Seller as Buyer and/or its lenders deem reasonably necessary or appropriate to familiarize itself or themselves with the Assets; and

(b)            subject to any required consent of any third Person, permit Buyer and its representatives at reasonable times and at Buyer’s sole risk, cost and expense, to conduct, in the presence of Seller’s representatives, reasonable inspections of the Assets;

provided, however, Buyer shall repair any damage to the Assets resulting from such inspections and Buyer does hereby indemnify and hold harmless, release and agree to defend the Seller Indemnified Persons from and against any and all Covered Liabilities arising, in whole or in part, from Buyer’s inspection of the Assets, regardless of any concurrent negligence or strict liability on the part of the Seller Indemnified Persons and regardless of the form of claim whether at common law, strict liability, negligence or under any statute or regulation .  Nothing in this Agreement shall be construed to permit Buyer or its representatives to have access to any files, records, contracts or documents of Seller relating to this transaction, including, without limitation, any bids or offers received by Seller for the sale of the Assets in competition with the Buyer’s bid or offer, it being agreed that all such competing bids or offers shall be the sole property of Seller.  Seller shall use commercially reasonable efforts to assure that all copies (including electronic copies) of any files, records, contracts or documents of a material nature that are provided to Buyer pursuant to this Section 5.1 shall be accurate and complete recitations of the originals of such files, records, contracts and documents.

(c)            Seller acknowledges that Buyer may be required at some time following the Closing to file with the U.S. Securities and Exchange Commission certain statements of revenues and direct expenses and notes related thereto related to the Assets in such form that such statements can be audited.  Seller shall use its commercially reasonable efforts to prepare, at the sole cost and expense of Buyer, statements of revenues and direct expenses and notes related to the Assets for the calendar year 2007 (the “ 2007 Statements of Revenues and Expenses ”). 

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Seller (i) shall cooperate with and permit Buyer to reasonably participate in the preparation of such 2007 Statements of Revenues and Expenses and (ii) shall provide Buyer and its representatives with reasonable access to the personnel of Seller who engage in the preparation of such 2007 Statements of Revenues and Expenses.

(d)            Promptly after the date of this Agreement, Seller shall engage Deloitte & Touche LLP, to perform an audit of the 2007 Statements of Revenues and Expenses and shall use commercially reasonable efforts to cause Deloitte & Touche LLP, to issue unqualified opinions with respect to the 2007 Statements of Revenues and Expenses (the 2007 Statements of Revenues and Expenses and related audit opinions being hereinafter referred to as the “ 2007 Audited Financial Statements ”).  Buyer shall reimburse Seller for all fees and expenses charged by Deloitte & Touche LLP, pursuant to such engagement.  Seller shall use commercially reasonable efforts to facilitate the completion of such audit and delivery of the 2007 Audited Financial Statements to Buyer or any of its Affiliates no later than sixty (60) days after Closing.  Seller shall keep Buyer regularly informed regarding the progress of such audit and also shall periodically provide Buyer with copies of drafts of the 2007 Audited Financial Statements and related audit opinions.

Section 5.2              Confidential Information .  Buyer agrees to maintain all information made available to it pursuant to this Agreement confidential and to cause its partners, directors, officers, employees, agents, representatives, consultants and advisors to maintain all information made available to them pursuant to this Agreement confidential, to the extent provided in that certain confidentiality agreement dated August 9, 2007 (the “ Confidentiality Agreement ”), by and between Seller and EXCO, the terms of which are incorporated herein by reference and made a part of this Agreement.  Notwithstanding anything to the contrary contained in this Section 5.2 or in Section 9.4, Buyer may disclose the existence and contents of this Agreement, the transactions contemplated hereby and information regarding the Assets to the Standard & Poor’s and Moody’s rating agencies and any actual or potential lenders or other financing sources of Buyer in connection with the transactions contemplated hereby; provided that, any such third party to whom Buyer discloses any such information shall be informed by Buyer of the confidential nature thereof and of Buyer’s confidentiality obligations under this Agreement and shall have agreed in writing to be bound by the obligations of confidentiality under this Section 5.2.  Buyer shall be responsible for any use or disclosure of such confidential information by any of such third parties.

Section 5.3              No Warranty or Representation .  Seller makes no warranty or representation, express, implied, statutory or otherwise, with respect to any Environmental Matters (including, without limitation, any Environmental Condition) and Buyer hereby acknowledges and agrees that Buyer’s sole remedy for any Environmental Matter (including, without limitation, any Environmental Defect or Environmental Condition) with respect to any of the Assets shall be pursuant to the procedures set forth in Sections 6.1 and 6.2.  Furthermore, without limiting the provisions of paragraph 7 of the Confidentiality Agreement (which shall continue in full force and effect) and except for the representations and warranties made by Seller in Section 4.1, Seller makes no warranty or representation, express, implied, statutory or otherwise, with respect to the accuracy or completeness of the information, records and data now, heretofore or hereafter made

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available to Buyer in connection with this Agreement; including, without limitation, any description of the Assets, pricing assumptions, potential for production of oil, gas or other hydrocarbons from the Subject Interests, projected development costs, projected plugging and abandonment costs or any other matters contained in or related to the Reserve Report; any environmental information; or any other material furnished to Buyer by Seller or any director, officer, shareholder, employee, counsel, agent or advisor of Seller .

ARTICLE VI.
ENVIRONMENTAL MATTERS

Section 6.1                                   Environmental Review and Audit .

(a)                             Environmental Access . Prior to the expiration of sixty (60) days after the date of execution of this Agreement (the “ Environmental Examination Period ”), subject to the restrictions contained in this Agreement and any required consent or waiver of any third Person, Seller shall (i) permit Buyer and representatives of Buyer and its lenders to have reasonable access at reasonable times in the Seller’s offices, and in a manner so as not to interfere unduly with the business operations of Seller, to Seller’s environmental files and records in Seller’s possession relating to the Assets insofar as Seller may do so without waiving any attorney/client, work product or like privilege (other than any such privilege related to title opinions), permit Buyer and the Environmental Consultant to have reasonable access to the Assets for the purpose of allowing Buyer and the Environmental Consultant to inspect, test and/or audit the Assets for any Environmental Defects (collectively, “ Buyer’s Environmental Review ”), all at Buyer’s sole risk, cost and expense. If requested by Buyer, Seller shall request that the operators of Assets not operated by Seller afford to Buyer and the Environmental Consultant, at Buyer’s sole cost, risk and expense, reasonable access to such Assets for the purpose of allowing Buyer and the Environmental Consultant to inspect such Assets for any Environmental Defects; provided that, Seller shall have the right to be present during any such inspection and Buyer’s inspection shall be subject to such reasonable limitations and restrictions as may be determined by such operators. In the event that, during such inspection of any Assets not operated by Seller, Buyer or the Environmental Consultant discovers an Environmental Condition affecting any such Assets, Seller, if requested by Buyer, shall request that such operator afford Buyer and the Environmental Consultant, at Buyer’s sole cost, risk and expense, reasonable access for the purpose of performing such invasive investigations of such properties as may be reasonable in light of all relevant facts and circumstances and consistent with the provisions of Sections 6.1(b) and (c).

(b)                            Conduct of Review . Prior to conducting Buyer’s Environmental Review, Buyer shall furnish Seller with a proposed scope of Buyer’s Environmental Review, including a description of the activities to be conducted and the locations of such activities. No third Person, other than the Environmental Consultant and Buyer’s employees, may conduct Buyer’s Environmental Review. Buyer shall not commence any activity proposed to be included in Buyer’s Environmental Review unless and until such activity (including the location thereof) has been approved in writing by Seller which approval shall not be unreasonably withheld or delayed. Seller shall have the right to be present during any inspection (including Buyer’s

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Environmental Review) of the Assets and shall have the right, at its option and expense, to split samples with Buyer.

(c)                             Buyer Responsibility for Review . In connection with Buyer’s Environmental Review, Buyer agrees that Buyer, the Environmental Consultant and Buyer’s employees, agents and contractors shall comply with all Laws and shall exercise due care with respect to the Assets and their condition, taking into consideration the characteristics of any wastes or substances found thereon, and in light of all relevant facts and circumstances. Specifically, but without limitation, when handling solid waste or hazardous substances, if any, discovered during the inspection of the Assets, Buyer, the Environmental Consultant and Buyer’s employees, agents and contractors shall handle such waste or substances in accordance with all Laws. Any soil or water samples taken by Buyer from the Assets shall become the sole property and possession of Buyer and will be managed consistent with the applicable rules and regulations of the U.S. Environmental Protection Agency and other applicable Governmental Authorities with regulatory authority. Promptly after completing Buyer’s Environmental Review, Buyer shall, at its sole cost and expense, restore the Assets to their original condition, in accordance with good engineering practice, if changed due to Buyer’s Environmental Review. Failure by Buyer to comply with the requirements of this subsection within a reasonable time period will entitle (but shall not obligate) Seller to take any action deemed necessary or appropriate by Seller to correct such failure, all at Buyer’s expense. Prior to Closing, Buyer shall maintain and shall cause its officers, directors, employees, agents, representatives, contractors, consultants and advisors to maintain all information obtained pursuant to Buyer’s Environmental Review strictly confidential and shall not disclose the same to any third Person without the prior written consent of Seller, except to the extent required by Law. Buyer shall provide Seller’s counsel with copies of any reports prepared and analytical test results received by Buyer or the Environmental Consultant promptly following Buyer’s or the Environmental Consultant’s preparation or receipt of the same. Buyer does hereby indemnify and hold harmless, release and agree to defend the Seller Indemnified Persons from and against any and all Covered Liabilities, including all Environmental Liabilities, arising out of any violation by Buyer, the Environmental Consultant, or Buyer’s or the Environmental Consultant’s officers, directors, employees, agents, representatives, contractors, consultants and advisors of the provisions of this Section or, in whole or in part, from Buyer’s or the Environmental Consultant’s inspection or testing of the Assets or handling any substances or samples in connection therewith, regardless of any concurrent negligence or strict liability on the part of any Seller Indemnified Person and regardless of the form of claim whether at common law, strict liability, negligence or under any statute or regulation .

(d)                            Buyer’s Right to Exclude . If Buyer is not granted access to any Property Subdivision which is not operated by Seller in accordance with the provisions of Section 6.1(a) applicable thereto, Buyer may, in addition to any other remedies hereunder, elect to exclude such Property Subdivision (or portion thereof) (together with the Incidental Rights and assets attributable or appurtenant thereto) from the Assets, in the manner provided for in Section 7.5 for excluded Title Defect Properties and reduce the Purchase Price by the portion of the Purchase Price allocated to such Property Subdivision (or portion thereof).

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Section 6.2                                   Environmental Defects .

(a)                             Buyer’s Assertions of Environmental Defects . Prior to the expiration of the Environmental Examination Period, Buyer may notify Seller in writing of any matters which, in Buyer’s reasonable opinion, constitute Environmental Defects. Buyer’s written notice must include (i) a reasonably specific description of each Asset (or portion thereof) that is affected by the alleged Environmental Defect, (ii) a description of the alleged Environmental Defect and the facts and circumstances giving rise thereto, including all evidence compiled by Buyer which supports the existence of such alleged Environmental Defect, and (iii) a calculation of the Remediation Amount (itemized in reasonable detail) that Buyer asserts is attributable to such Environmental Defect. Buyer’s calculation of the Remediation Amount must describe the Remediation proposed for the Environmental Condition that gives rise to the asserted Environmental Defect, identify all assumptions used by the Buyer in calculating the Remediation Amount, including the standards the Buyer asserts must be met to comply with Environmental Laws.

(b)                            Seller’s Election . Without limiting or waiving Seller’s right to then or thereafter dispute Buyer’s compliance with Section 6.2(a), the existence of an Environmental Defect or the alleged Environmental Defect Amount, if Buyer timely notifies Seller in writing of an Environmental Defect as required by Section 6.2(a), Seller, at its option, shall elect, at or prior to the Closing, one of the following options with respect to the Assets affected by the alleged Environmental Defect and, at Seller’s option, any other Assets which form part of any field or other economic operating unit which includes such affected Assets (collectively, the “ Environmental Defect Property ”):

(i)                              exclude such Environmental Defect Property (together with the Incidental Rights and assets attributable or appurtenant thereto) from the Assets, in the manner provided in Section 7.5 for excluded Title Defect Properties, and reduce the Purchase Price by the portion of the Purchase Price allocated to such Environmental Defect Property in the Property Schedule;

(ii)                           leave such Environmental Defect Property in the Assets and assume responsibility for the Remediation of such Environmental Defect; provided that, all costs for Remediation shall first be borne by Buyer to the extent Seller elects to apply any of the Defect Deductible to such costs; or

(iii)                        leave such Environmental Defect Property in the Assets and reduce the Purchase Price by the Environmental Defect Amount with respect to such Environmental Defect (taking into account any application of the Defect Deductible which Seller elects to make with respect thereto).

Seller’s foregoing elections shall be subject to Seller’s right to then or thereafter dispute Buyer’s compliance with Section 6.2(a), the existence of an Environmental Defect or the alleged Environmental Defect Amount. If Seller elects the option set forth in clause (iii) above, Buyer shall be deemed to have assumed responsibility for Remediation of such Environmental Defect and such Environmental Defect shall be deemed to constitute an Assumed Liability. If Seller

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elects the option set forth in clause (ii) above, Seller shall use commercially reasonable efforts to implement such Remediation in a manner which is consistent with the requirements of Environmental Laws and shall have access to the Environmental Defect Property after the Closing Date to implement and complete such Remediation in accordance with an Access Agreement in substantially the form attached hereto as Exhibit 6.2(b) (the “Access Agreement”). Seller will be deemed to have adequately completed the Remediation required in the immediately preceding sentence (A) upon receipt of a certificate or approval from the applicable Governmental Authority that the Remediation has been implemented to the extent necessary to comply with existing regulatory requirements or (B) upon receipt of a certification from a licensed professional engineer, to the effect that the Remediation has been implemented to the extent necessary to comply with existing regulatory requirements, if the approval or certification specified in (A) cannot be obtained because provision for such approval or certification is not provided under applicable Environmental Law.

(c)                             Environmental Defect Amount . If Seller elects the option set forth in Section 6.2(b)(iii) with respect to one or more Environmental Defects, then as Buyer’s sole and exclusive remedy with respect to such Environmental Defects, Buyer shall be entitled to reduce the Purchase Price by the amount (the “ Environmental Defect Amount ”), if any, by which (i) the aggregate amount of the sum of (A) all Remediation Amounts with respect to the Environmental Conditions giving rise to such Environmental Defects plus (B) all Title Defect Amounts with respect to all Title Defect Properties exceeds (ii) the Defect Deductible (the reduction to the Purchase Price in this Section 6.2(c) shall be in conjunction with the reduction to the Purchase Price in Section  7.2(d) and Buyer shall not be entitled to duplicative reductions to the Purchase Price under either section). Seller may also apply any part of the Defect Deductible to the cost of any Remediation undertaken by Seller pursuant to the option set forth in Section 6.2(b)(ii). Any Remediation costs to which Seller elects to apply the Defect Deductible shall be borne under Section 6.2(b)(ii) by the Buyer. Seller shall have the right from time to time by written notice to Buyer to reallocate and change its application of the Defect Deductible, except to the extent of Remediation costs already incurred by Buyer based on Seller’s previous application thereof. It is expressly understood and agreed that the Defect Deductible represents an aggregate deductible for Environmental Defects and Title Defects which may be apportioned as provided in this Section 6.2(c) rather than as a separate deductible for each individual Environmental Defect.

(d)                            Waiver by Buyer . For all purposes of this Agreement, any Environmental Condition which Buyer fails to assert as an Environmental Defect by a written notice given to Seller in accordance with the requirements of Section 6.2(a) on or before the expiration of the Environmental Examination Period shall be waived by Buyer and all Environmental Liabilities arising out of or attributable to such Environmental Condition shall constitute Assumed Liabilities.

(e)                             Right of Contribution and Reimbursement . With respect to any Environmental Defect as to which Seller elects to assume responsibility pursuant to Section 6.2(b)(ii), if any Buyer Indemnified Person has a claim for or right of contribution, reimbursement, indemnity or other similar actions from or against any third Person (including any Affiliate of Buyer) with respect thereto, the Buyer Indemnified Person having such claim or right shall assign to Seller such claim or right to the extent necessary to provide to Seller the

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right to assert such claim or right up to the amount expended by Seller for the Remediation of such Environmental Defect and shall assist Seller in pursuing and enforcing same; provided that, Buyer shall retain all rights to assert such claims or rights in excess of the amounts expended by Seller for Remediation of such Environmental Defect. Furthermore, effective upon Closing, Buyer hereby releases, acquits and forever discharges Seller and the Seller Indemnified Persons from any and all claims, demands or causes of action (including all Covered Liabilities) which Buyer may have against Seller or any Seller Indemnified Person with respect to any and all Environmental Matters relating to the Assets (including, but not limited to, any right of contribution or reimbursement provided under Environmental Laws or other Laws) for which Seller has not agreed to assume responsibility for Remediation pursuant to this Agreement. At Seller’s request, Buyer shall provide Seller with a written confirmation of the foregoing release at or after Closing.

ARTICLE VII.
TITLE ADJUSTMENTS

Section 7.1                                 No Title Warranty or Representation . Without limiting Buyer’s right to adjust the Purchase Price by operation of Section 7.2, Seller makes no warranty or representation, express, implied, statutory or otherwise, with respect to Seller’s title to any of the Assets and Buyer hereby acknowledges and agrees that Buyer’s sole remedy for any defect of title, including any Title Defect, with respect to any of the Assets shall be pursuant to the procedures set forth in this Article VII, which remedies shall cease, and be deemed to be finally and conclusively satisfied, in all respects, upon the Closing.

Section 7.2                                 Buyer’s Title Review .

(a)                             Buyer’s Assertion of Title Defects . Prior to the expiration of sixty (60) days after the date of execution of this Agreement (the “ Title Examination Period ”), Buyer shall furnish Seller written notice meeting the requirements of this Section 7.2(a) (the “ Title Defect Notice ”) setting forth any matters which, in Buyer’s reasonable opinion, constitute Title Defects and which Buyer intends to assert as a Title Defect with respect to any portion of a Property Subdivision pursuant to this Article VII. For all purposes of this Agreement, Buyer shall be deemed to have waived any Title Defect which Buyer fails to assert as a Title Defect by a Title Defect Notice given to Seller on or before the expiration of the Title Examination Period. To be effective, Buyer’s Title Defect Notice of a Title Defect must include (i) a brief description of the matter constituting the asserted Title Defect, (ii) the claimed Title Defect Amount attributable thereto, and (iii) supporting documents reasonably necessary for Seller (as well as any title attorney or examiner hired by Seller) to verify the existence of such asserted Title Defect. To give Seller an opportunity to commence reviewing and curing Title Defects, Buyer agrees to give Seller, on or before Friday of each second calendar week after the date of execution of this Agreement and until the end of  the Title Examination Period, written notice of all Title Defects discovered by Buyer during such two calendar week period preceding the two-week period then ending, which may be preliminary in nature and supplemented prior to the end of the Title Examination Period. Buyer shall also promptly furnish Seller with written notice of any Seller Title Credit which is discovered by any of Buyer’s employees or representatives while

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conducting Buyer’s title review, due diligence or investigation with respect to the Subject Interests and Property Subdivisions.

(b)                            Purchase Price Allocations . A portion of the Purchase Price has been allocated to the various Subject Interests in Property Subdivisions in the manner and in accordance with the respective values set forth in the Property Schedule. If any adjustment is made to the Purchase Price pursuant to this Section 7.2 or Section 6.2, a corresponding adjustment shall be made to the portion of the Purchase Price allocated to the affected Property Subdivision in the Property Schedule.

(c)                             Seller’s Opportunity to Cure .

(i)                                    Seller shall have until two (2) days prior to the Closing Date (the “ Title Curative Period ”), at its cost and expense, if it so elects but without obligation, to cure all or a portion of such asserted Title Defects. Any asserted Title Defects which are waived by Buyer or cured within such time shall be deemed “Permitted Encumbrances” hereunder. Subject to Sections 7.2(c)(ii) and 7.2(c)(iii) and Seller’s continuing right to dispute the existence of a Title Defect and/or the Title Defect Amount asserted with respect thereto, if Seller within such time fails to cure any Title Defect of which Buyer has given timely written notice as required above, and Buyer has not and does not waive same in a written notice from Buyer to Seller, the Property Subdivision affected by such uncured and unwaived Title Defect shall be a “ Title Defect Property ”.

(ii)                                 If Buyer furnishes to Seller timely Title Defect Notice(s) of one or more asserted Title Defects and the same are not waived or cured as provided in Section 7.2(c)(i), Seller may elect to delay the Closing for a period of up to thirty (30) calendar days to afford Seller the opportunity, if it so elects, to attempt to cure any of the asserted Title Defects prior to the Closing. Seller’s election to delay the Closing pursuant to this Section 7.2(c)(ii) shall not waive Seller’s right to dispute the existence of a Title Defect and/or the Title Defect Amount asserted with respect thereto. Subject to Section 7.2(c)(iii) and Seller’s continuing right to dispute the existence of a Title Defect and/or the Title Defect Amount asserted with respect thereto, if Seller within such time period fails or refuses to cure any Title Defect of which Buyer has given a timely Title Defect Notice and Buyer has not waived and does not waive the same before the delayed Closing, the Property  Subdivision affected by such uncured and unwaived Title Defect shall be a Title Defect Property.

(iii)                              If Buyer furnishes to Seller timely Title Defect Notice(s) of one or more Title Defects and the same are not waived or cured as provided in Section 7.2(c)(i) or Section 7.2(c)(ii), as applicable, Seller may elect to close the transactions contemplated hereby and retain the right to cure any of such Title Defects after Closing (whether or not Seller elects to delay Closing pursuant to Section 7.2(c)(ii) above). In such event, but subject to Seller’s continuing right to dispute the existence of a Title Defect and/or the Title Defect Amount asserted with respect thereto, the Purchase Price shall be subject to reduction pursuant to Section 7.2(d) taking into account all Title Defect Amounts attributable to the Title Defect Properties affected by the Title Defects

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which Seller may elect to cure after Closing. The Title Defect Properties affected by the Title Defects which Seller may elect to cure after Closing shall not be excluded from the Assets pursuant to Section 7.5. Seller shall have one hundred twenty (120) calendar days after the Closing Date (as delayed pursuant to Section 7.2(c)(ii) above) in which to attempt to cure any such Title Defects and to increase or restore any Seller Title Credits. If Seller cures any such Title Defect, then Buyer shall promptly pay Seller the Title Defect Amount with respect to the Title Defect that is so cured, but not exceeding the aggregate amount of the reductions in the Purchase Price which Buyer received as a result of any Title Defects, together with interest on the amount due Seller from the Closing Date through and including the date of payment at the Agreed Rate. Furthermore, the Defect Deductible shall be restored to the extent any portion of the Defect Deductible was applied as a credit against the Title Defect Amount attributable to such cured Title Defect. If a positive balance exists in the Defect Deductible after any restorations or increases thereof pursuant to the foregoing, and Seller has suffered a reduction in the Purchase Price as a result of any one or more uncured Title Defects, Buyer shall pay to Seller an amount (together with interest thereon from the Closing  Date through and including the date of payment at the Agreed Rate) equal to the lesser of (i) the amount by which the Purchase Price was reduced as a result of such uncured Title Defects and (ii) the then existing balance of the Defect Deductible.

(d)                            Buyer’s Title Adjustments . Subject to Section 7.5, as Buyer’s sole and exclusive remedy with respect to Title Defects, Buyer shall be entitled to reduce the Purchase Price by the amount, if any, by which (i) the aggregate amount of the sum of (A) all Title Defect Amounts with respect to all Title Defect Properties in excess of the aggregate amount of Seller Title Credits (to the extent that Seller Title Credits exceed the Title Defect Amounts, Seller shall not be entitled to receive an upward adjustment of the Purchase Price) with respect to all Property Subdivisions, plus (B) all Remediation Amounts with respect to the Environmental Conditions giving rise to such Environmental Defects exceeds (ii) the Defect Deductible (the reduction in Purchase Price in this Section 7.2(d) shall be in conjunction with the reduction to the Purchase Price in Section 6.2(c) and Buyer shall not be entitled to duplicative reductions to the Purchase Price under either section). “ Title Defect Amount ” shall mean, with respect to a Title Defect Property, the amount by which the value of such Title Defect Property (as set forth in the Property Schedule) is impaired or reduced as a result of the existence of one or more uncured and unwaived Title Defects, which amount shall be determined as follows and subject to the following conditions:

(1)                         If the Title Defect results from Seller having a lesser Net Revenue Interest in such Title Defect Property than the Net Revenue Interest specified therefor in the Property Schedule, the Title Defect Amount shall be equal to the product obtained by multiplying the portion of the Purchase Price allocated to such Title Defect Property in the Property Schedule by a fraction, the numerator of which is the reduction in the Net Revenue Interest and the denominator of which is the Net Revenue Interest specified for such Title Defect Property in the Property Schedule.

(2)                         If the Title Defect results from Seller having a greater Working Interest in a Title Defect Property than the Working Interest specified therefor

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in the Property Schedule, the Title Defect Amount shall be equal to the present value (discounted at 10% compounded annually) of the increase in the costs and expenses forecasted in the Reserve Report with respect to such Title Defect Property for the period from and after the Effective Time which is attributable to such increase in Seller’s Working Interest.

(3)                         If the Title Defect results from the existence of a lien, the Title Defect Amount shall be an amount sufficient to discharge such lien.

(4)                         If the Title Defect results from any matter not described in paragraphs (1), (2) or (3) above, the Title Defect Amount shall be an amount equal to the difference between the value of the Title Defect Property (as set forth in the Property Schedule) affected by such Title Defect with such Title Defect and the value of such Title Defect Property without such Title Defect (taking into account the portion of the Purchase Price allocated in the Property Schedule to such Title Defect Property, the portion of the Title Defect Property affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the Title Defect Property and such other factors as are necessary to make a proper evaluation); provided, that if such Title Defect is reasonably susceptible of being cured, the Title Defect Amount shall not be greater than the lesser of (i) the reasonable cost and expense of curing such Title Defect or (ii) if applicable, the share of such curative work cost and expense which is allocated to such Title Defect Property pursuant to Section 7.2(d)(6).

(5)                         If a Title Defect is not effective or does not affect a Title Defect Property throughout the entire productive life of such Title Defect Property, such fact shall be taken into account in determining the Title Defect Amount.

(6)                         The Title Defect Amount with respect to a Title Defect Property shall be determined without duplication of any costs or losses included in another Title Defect Amount hereunder. For example, but without limitation, if a lien affects more than one Title Defect Property or the curative work with respect to one Title Defect results (or is reasonably expected to result) in the curing of any other Title Defect affecting the same or another Title Defect Property, the amount necessary to discharge such lien or the cost and expense of such curative work shall be allocated among the Title Defect Properties so affected (in the ratios of the respective portions of the Purchase Price allocated to such Title Defect Properties) and the amount so allocated to a Title Defect Property shall be included only once in the Title Defect Amount therefor.

(7)                         If a Title Defect affects only a portion of a Property Subdivision (as contrasted with an undivided interest in the entirety of such Property Subdivision) and a portion of the Purchase Price has not been allocated specifically to such portion of a Property Subdivision in the Property Schedule, then for purposes of computing the Title Defect Amount, the portion of the Purchase Price allocated to such Property Subdivision shall be further allocated among the portions of such Property Subdivision in the proportion that the net acreage (or net acre feet, as appropriate) of such Property Subdivision affected by such Title Defect bears to the net acreage (or net acre

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feet, as appropriate) in the entire Property Subdivision. In the event such Property Subdivision is subject to a unitization agreement, the foregoing allocation shall be made in a manner which is consistent with the allocation of production or productive acreage in such unitization agreement.

(8)                         The Title Defect Amount attributable to a Title Defect Property or any portion thereof shall not exceed the portion of the Purchase Price allocated to such Title Defect Property in the Property Schedule or such portion in Section 7.2(b) and paragraph (7) above. For example, but without limitation, if Seller does not own fifty percent (50%) of the Net Revenue Interest specified in the Property Schedule for a Title Defect Property and such unowned fifty percent (50%) interest is also burdened by a lien, the Title Defect Amount for such Title Defect Property shall not exceed the portion of the Purchase Price allocable to such fifty percent (50%) interest notwithstanding that it may be affected by multiple Title Defects.

(9)                         No Title Defect Amount shall be allowed on account of and to the extent that an increase in Seller’s Working Interest in a Property Subdivision has the effect of proportionately increasing Seller’s Net Revenue Interest in such Property Subdivision.

(10)                   Notwithstanding the foregoing, if the Title Defect Amount determined pursuant to the foregoing with respect to a Title Defect Property is $35,000.00 or less, then the Title Defect Amount with respect to such Title Defect Property shall be deemed zero.

Section 7.3                                 Determination of Title Defects . A portion of a Property Subdivision constituting a part of the Assets shall be deemed to have a “ Title Defect ” if any one or more of the following statements is untrue with respect to such portion of a Property Subdivision as of the Effective Time and as of the Closing Date:

(a)                             Seller has Defensible Title thereto.

(b)                            All royalties, rentals, Pugh clause payments, shut-in gas payments and other payments due with respect to such portion of a Property Subdivision have been properly and timely paid, except for payments held in suspense for title or other reasons which are customary in the industry and which will not result in grounds for cancellation of Seller’s rights in such portion of a Property Subdivision; provided that, royalty audits with respect to any lease shall not be considered a Title Defect.

(c)                             Seller is not in default under the terms of any leases, farmout agreements or other contracts or agreements respecting such portion of a Property Subdivision which could (1) prevent Seller from receiving the proceeds of production attributable to Seller’s interest therein, or (2) result in cancellation of Seller’s interest therein.

Notwithstanding any other provision in this Agreement to the contrary, the following matters shall not be asserted as, and shall not constitute, Title Defects:  (i) defects arising out of lack of survey, (ii) defects arising out of lack of corporate authorization, unless Buyer provides

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affirmative evidence that such corporate action was not authorized and gives rise to another Person having a right to a superior claim of title to the relevant Subject Interest or portion thereof, and (iii) defects in the early chain of title consisting of the failure to recite marital status in documents or omissions of heirship proceedings.

Section 7.4                                 Seller Title Credit . A “ Seller Title Credit ” shall mean, with respect to a Property Subdivision, the amount by which the value of such Property Subdivision is enhanced by virtue of (a) Seller having a greater Net Revenue Interest in such Property Subdivision than the Net Revenue specified therefor in the Property Schedule, (b) Seller having a lesser Working Interest in such Property Subdivision than the Working Interest specified therefor in the Property Schedule without a corresponding reduction in Net Revenue Interest with respect to such Property Subdivision specified therefor in the Property Schedule, or (c) such Property Subdivision being subject to lesser lien indebtedness than expressly disclosed in any Schedule hereto. Notwithstanding the foregoing, if a Seller Title Credit with respect to a Property Subdivision is $35,000 or less, then the Seller Title Credit with respect to such Property Subdivision shall be deemed zero. The amount of Seller Title Credits shall be determined as follows:

(1)                         If the Seller Title Credit results from Seller having a greater Net Revenue Interest in such Property Subdivision than the Net Revenue Interest specified therefor in the Property Schedule, the Seller Title Credit shall be equal to the product obtained by multiplying the portion of the Purchase Price allocated to such Property Subdivision in the Property Schedule by a fraction, the numerator of which is the increase in the Net Revenue Interest and the denominator of which is the Net Revenue Interest specified for such Property Subdivision in the Property Schedule.

(2)                         If the Seller Title Credit results from Seller having a lesser Working Interest in a Property Subdivision than the Working Interest specified therefor in the Property Schedule without a corresponding reduction in Net Revenue Interest with respect to such Property Subdivision specified therefor in the Property Schedule, the Seller Title Credit shall be equal to the present value (discounted at 10% compounded annually) of the decrease in the costs and expenses forecasted in the Reserve Report with respect to such Property Subdivision for the period from and after the Effective Time which is attributable to such decrease in Seller’s Working Interest.

(3)                         If the Seller Title Credit results from a Property Subdivision being subject to lesser lien indebtedness, the Seller Title Credit shall be equal to the amount of Seller’s proportionate share of the reduction in such lien indebtedness; provided that, if lien indebtedness affects more than one Property Subdivision, the Seller Title Credits with respect to such Property Subdivisions shall be determined in the manner provided in Section 7.2(d)(6).

(4)                         In determining the amount of Seller Title Credits, the principles and methodology set forth in paragraphs (5), (6) and (7) of Section 7.2(d) shall be applied, mutatis mutandis .

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(5)                         No Seller Title Credit shall be allowed on account of and to the extent that a decrease in Seller’s Working Interest in a Property Subdivision has the effect of proportionately decreasing Seller’s Net Revenue Interest in such Property Subdivision.

The Defect Deductible shall be restored to the extent that any portion thereof is applied as a credit against a Title Defect Amount attributable to a Title Defect which is subsequently cured by Seller or determined not to constitute a Title Defect.

Section 7.5                                 Exclusion of Defect Properties . Prior to the expiration of the Title Curative Period, Seller may elect to exclude any Title Defect Property, together with a pro rata share of all Incidental Rights, oil, gas and other hydrocarbons and other assets attributable or appurtenant thereto, from the Assets so long as the Purchase Price is reduced by the portion of the Purchase Price allocated to such Title Defect Property in the Property Schedule.

Section 7.6                                 Deferred Claims and Disputes . In the event that Buyer and Seller have not agreed by Closing upon (i) the existence of one or more Title Defects or one or more adjustments, credits or offsets claimed by Buyer or Seller pursuant to and in accordance with the requirements of this Article VII or (ii) the existence of one or more Environmental Defects, any Remediation, Remediation Amount or plan therefor, or one or more adjustments, credits or offsets claimed by Buyer or Seller pursuant to Section 6.2, any such dispute or claim (a “ Deferred Adjustment Claim ”) shall be settled pursuant to this Section 7.6 and, except as provided in Sections 10.1(f) and 10.2(f), shall not prevent or delay Closing. In no event shall any Title Defect Amount, Environmental Defect Amount or Remediation Amount asserted by Buyer as a Deferred Adjustment Claim exceed the amount asserted by Buyer therefor prior to the end of the Title Examination Period in accordance with Section 7.2 or the Environmental Examination Period in accordance with Section 6.2, as applicable. Likewise, in no event shall any Seller Title Credit exceed the amount asserted by Seller therefor prior to the Closing Date. With respect to each potential Deferred Adjustment Claim, Buyer and Seller shall deliver to the other a written notice describing each such potential Deferred Adjustment Claim, the amount in dispute and a statement setting forth the facts and circumstances that support such party’s position with respect to such Deferred Adjustment Claim. At Closing, the Purchase Price shall not be adjusted on account of and subject to Sections 10.1(f) and 10.2(f), no effect shall be given to the Deferred Adjustment Claim, except to the extent that the Deferred Adjustment Claim is with respect to an Excluded Asset excluded from the Assets pursuant to Section 6.2(b)(i) or 7.5. To the extent the Deferred Adjustment Claim relates to such an Excluded Asset, the Purchase Price at the Closing shall be adjusted to the extent provided in Section 6.2(b)(i) or 7.5 and such Excluded Asset shall not be conveyed to Buyer at the Closing, subject to the potential of a subsequent Closing with respect to such Excluded Asset as hereinafter provided in this Section 7.6. On or prior to the thirtieth (30th) calendar day following the Closing Date (the “ Deferred Matters Date ”), Seller and Buyer shall attempt in good faith to reach agreement on the Deferred Adjustment Claims and, ultimately, to resolve by written agreement all disputes regarding the Deferred Adjustment Claims. Any Deferred Adjustment Claims which are not so resolved on or before the Deferred Matters Date may be submitted by either party to final and binding arbitration in accordance with the Arbitration Procedures; provided, however, that Seller may elect at any time prior to resolution of a disputed Deferred Adjustment Claim to resolve all

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disputes relating to such Deferred Adjustment Claim, not relating to an Excluded Asset under Section 6.2(b)(i) or 7.5, by the payment to Buyer of the amount by which the Purchase Price would otherwise have been reduced at Closing (if such Deferred Adjustment Claim had been given effect at Closing at the amount claimed by Buyer) on account of the Title Defects or Environmental Defects giving rise to such Deferred Adjustment Claim, together with interest thereon from the Closing Date to the date of such payment at the Agreed Rate. Notwithstanding anything herein provided to the contrary, including Section 7.2(c), but without limiting Seller’s rights under Section 7.2(c)(ii) and 7.2(c)(iii), Seller shall be entitled to cure any Title Defect which gives rise to a Deferred Adjustment Claim at any time prior to the point in time when a final and binding written decision of the board of arbitrators is made with respect thereto in accordance with the Arbitration Procedures (provided however that, notwithstanding the provisions of Exhibit A-1 or Section 16.10, in any arbitration proceedings pursuant to this Section 7.6 the board of arbitrators shall be comprised of one arbitrator, who shall be mutually agreed upon by Buyer and Seller and who shall be a title attorney with at least ten (10) years experience in oil and gas titles involving properties in the regional area in which the Subject Interests are located). The amount of any reduction in the Purchase Price to which Buyer becomes entitled under the final and binding written decision of the board of arbitrators shall be promptly refunded by Seller to Buyer, together with interest thereon from the Closing Date to the date of payment at the Agreed Rate. If an Asset becomes an Excluded Asset by virtue of an asserted Title Defect or Environmental Defect, the existence of which is disputed by Seller as a Deferred Adjustment Claim, and such Title Defect or Environmental Defect (or both if applicable) is (or are) determined not to exist by a final and binding written decision of the board of arbitrators, then a delayed Closing shall occur with respect to such Excluded Asset on the first Business Day after the expiration of 21 days after such arbitration decision is delivered to Buyer and Seller, which delayed date of Closing shall become the new Closing Date for such Excluded Asset. At such delayed Closing, Seller shall convey such Excluded Asset to Buyer and Buyer shall pay Seller the Purchase Price allocated to such Excluded Asset, as adjusted pursuant to Section 3.1 through the new Closing Date therefor and such Excluded Asset, together with all excluded Incidental Rights, oil, gas and other hydrocarbons and other assets attributable or appurtenant thereto, shall thereafter be considered as an Asset.

Section 7.7                                 No Duplication . Notwithstanding anything herein provided to the contrary, if a Title Defect results from any matter which could also result in the breach of any representation or warranty of Seller set forth in Section 4.1, then Buyer shall only be entitled to assert such matter as a Title Defect pursuant to this Article VII and shall be precluded from also asserting such matter as the basis of the breach of any such representation or warranty.

ARTICLE VIII.
REFERENCE RIGHTS AND TRANSFER REQUIREMENTS

Section 8.1                                 Compliance . Buyer’s purchase of the Assets is expressly subject to all validly existing and applicable Preference Rights and Transfer Requirements. Within ten (10) Business Days after the date of this Agreement, Seller shall initiate all procedures which Buyer and Seller mutually agree are required to comply with or obtain the waiver of all Preference Rights and Transfer Requirements set forth in Schedule 4.1(ee) with respect to the transactions contemplated by this Agreement. Seller shall use its commercially reasonable efforts to obtain

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all applicable consents; provided, however, that Seller shall not be obligated to pay any consideration to (or incur any cost or expense for the benefit of) the holder of any Preference Right on Transfer Requirement in order to obtain the waiver thereof or compliance therewith.

Section 8.2                                 Allocations . The portion of the Purchase Price to be allocated to any Asset or portion thereof affected by a Preference Right (a “ Preference Property ”) shall be the portion of the Purchase Price allocated thereto in the Property Schedule. If a Preference Right affects only a portion of a Property Subdivision and a portion of the Purchase Price has not been allocated specifically to such portion of a Property Subdivision in the Property Schedule, then the portion of the Purchase Price to be allocated to such Preference Property shall be determined in the same manner as provided in Section 7.2(d)(7) when a Title Defect affects only a portion of a Property Subdivision.

Section 8.3                                 Preference Rights . If a third party who has been offered a Preference Property pursuant to Section 8.1 elects prior to Closing to purchase such Preference Property in accordance with the terms of such Preference Right, and Seller and Buyer receive written notice of such election prior to the Closing Date, such Preference Property will be eliminated from the Assets and the Purchase Price shall be reduced by the portion of the Purchase Price allocated to such Preference Property pursuant to Section 8.2. If a third party who has been offered a Preference Property or who has been requested to waive its Preference Right pursuant to Section 8.1 does not elect to purchase such Preference Property or waive such Preference Right with respect to the transactions contemplated by this Agreement prior to the Closing Date, such Preference Property shall be conveyed to Buyer at Closing subject to such Preference Right, unless such Preference Property has been otherwise eliminated from the Assets in accordance with other provisions of this Agreement. If a third party elects to purchase a Preference Property subject to a Preference Right and Closing has already occurred with respect to such Preference Property, Buyer shall be obligated to convey said Preference Property to such third party and shall be entitled to the consideration for the sale of such Preference Property.

Section 8.4                                 Transfer Requirements . If a Transfer Requirement applicable to the transactions contemplated by this Agreement is not obtained, complied with or otherwise satisfied prior to the Closing Date, then, unless otherwise mutually agreed by Seller and Buyer, any Asset or portion thereof affected by such Transfer Requirement (a “ Retained Asset ”) shall be held back from the Assets to be transferred and conveyed to Buyer at Closing and the Purchase Price to be paid at Closing shall be reduced by the portion of the Purchase Price which would be allocated to such Retained Asset pursuant to Section 8.2 if such Retained Asset were a Preference Property. Any Retained Asset so held back at the initial Closing will be conveyed to Buyer at a delayed Closing (which shall become the new Closing Date with respect to such Retained Asset), within ten (10) days following the date on which Seller obtains, complies with or otherwise satisfies all Transfer Requirements with respect to such Retained Asset, for a purchase price equal to the amount by which the Purchase Price was reduced on account of the holding back of such Retained Asset (as adjusted pursuant to Section 3.1 through the new Closing Date therefor); provided, however, if all Transfer Requirements with respect to any Retained Asset so held back at the initial Closing are not obtained, complied with or otherwise satisfied within one hundred and twenty (120) days after Closing has occurred with respect to any of the Assets, then such Retained Asset shall be eliminated from the Assets and this

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Agreement, unless Seller and Buyer mutually agree to proceed with a closing on such Retained Asset in which case Buyer shall be deemed to have waived any objection with respect to non-compliance with such Transfer Requirements. In connection with any subsequent conveyance of a Retained Asset (or an Excluded Asset pursuant to Section 7.6), appropriate adjustments in Net Cash Flow, proration of revenues and costs, and interest contemplated by Section 3.1 will be made to account for any delayed Closing with respect to such Retained Asset (or Excluded Asset).

Section 8.5                                 Certain Governmental Consents . Seller  and Buyer will use commercially reasonable efforts after Closing to obtain all approvals and consents from, and make all filings with, the United States Department of Interior and other applicable Governmental Authorities that may be required under the terms of (or regulations specifically applicable to) any leases as a condition to the assignment of the Subject Interests therein from Seller to Buyer. Until such approvals and consents are obtained, Seller shall continue to hold legal title to such Subject Interests as nominee for Buyer. Seller shall not be obligated to incur any expenses in Seller’s capacity as nominee. For purposes of Article XIV, Seller and Buyer shall treat and deal with such Subject Interests as if full legal and equitable title to such Subject Interests had passed from Seller to Buyer at Closing.

Section 8.6                                 Express Conditions on Sale . Buyer acknowledges that Seller desires to sell all of the Assets and would not have entered into this Agreement but for Buyer’s agreement to purchase all of the Assets as herein provided. Accordingly, it is expressly understood and agreed that Seller does not desire to sell any Preference Property unless the sale of all of the Assets is consummated by the Closing Date in accordance with the terms of this Agreement. In furtherance of the foregoing, Seller’s obligation hereunder to sell the Preference Properties to Buyer is expressly conditioned upon the consummation by the Closing Date of the sale of all of the Assets in accordance with the terms of this Agreement, either by conveyance to Buyer or conveyance pursuant to an applicable Preference Right; provided that, nothing herein is intended or shall operate to extend or apply any Preference Right to any portion of the Assets which is not otherwise burdened thereby. Time is of the essence with respect to the parties’ agreement to consummate the sale of the Assets by the Closing Date.

ARTICLE IX.
COVENANTS OF SELLER AND BUYER

Section 9.1                                 Conduct of Business Pending Closing . Subject to Section 9.2 and the constraints of applicable operating agreements and other existing agreements, from the date hereof through the Closing, except as disclosed in Schedule 9.1 or as otherwise consented to or approved by Buyer, Seller covenants and agrees that:

(a)                                  Changes in Business . Seller shall not:

(1)                         make any material change in the conduct of its business or operations with respect to the Assets;

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(2)                         except in the ordinary course of busines