ASSET PURCHASE AND SALE AGREEMENT

THIS ASSET PURCHASE AND SALE AGREEMENT dated July 17, 2009, is made by and between Segundo Navarro Drilling, Ltd. , a Texas limited partnership (" Seller "), and Vanguard Permian, LLC , a Delaware limited liability company and Vanguard Natural Resources, LLC , a Delaware limited liability company (collectively " Buyer ").

WHEREAS, Seller desires to sell, assign and convey to Buyer, and Buyer desires to purchase and accept from Seller, Seller’s interest in certain oil and gas wellbores as described on Exhibit I and a fifty percent (50%) working interest equal to a thirty-seven and one-half percent (37.5%) net revenue interest in certain oil and gas properties as described herein on Exhibit II; and

WHEREAS, Seller and Buyer deem it in their mutual best interests to execute and deliver this Agreement;

NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants and agreements contained herein, Seller and Buyer do hereby agree as follows:

Section 1.1.   Assets Included.

  Subject to Section 1.2 , Seller agrees to sell and Buyer agrees to purchase, for the consideration hereinafter set forth, and subject to the terms and provisions herein contained, the following described properties, rights and interests:

(a)   That working interest and net revenue interest in and to those wellbores described in Exhibit I attached hereto and made a part hereof for all purposes and all rights of Seller to produce oil, gas and other minerals from those wellbores and all rights of Seller in and to the oil, gas and other minerals that may be produced from those wellbores under the leases referred to in Exhibit I;

(b)   Concurrent rights, titles and interests with Seller in and to, or otherwise derived from, the leases described in Exhibit I, all presently existing and valid oil, gas or mineral unitization, pooling, and/or communitization agreements, declarations and/or orders and in and to the wellbores covered and the units created thereby (including all units formed under orders, rules, regulations, or other official acts of any federal, state, or other authority having jurisdiction, voluntary unitization agreements, designations and/or declarations) relating to the wellbores described in paragraph (a) above;

(c)   A proportionate interest in the rights, titles and interests associated with all presently existing and valid production sales (and sales related) contracts, operating agreements, and other agreements and contracts to the extent and to the extent they relate to any of the wellbores described in paragraph (a) above, or to the extent and only to the extent they relate to the development, operation, or maintenance thereof or the treatment, storage, transportation or marketing of production therefrom (or allocated thereto).

(d)   All rights, titles and interests of Seller in and to all materials, supplies, machinery, equipment, improvements and other personal property and fixtures (including all wells, wellhead equipment, pumping units, tanks and surface leases and other surface rights, all permits and licenses, and all other appurtenances being used or held for use in connection with, or otherwise related to, the exploration, development, operation or maintenance of any of the wellbores described in paragraph (a) above;

(e)   All of Seller's production records, and well files, which relate to the wellbores described in paragraph (a) above;

(f)   Without limitation of the foregoing but subject to Section 1.2 , a fifty percent (50%) working interest equal to a thirty-seven and one-half percent (37.5%) net revenue interest in and to those leases described in Exhibit II attached hereto and made a part hereof for all purposes, SAVE AND EXCEPT THE WELLBORES DESCRIBED IN EXHIBIT I ATTACHED HERETO;

(g)   Without limitation of the foregoing but subject to Section 1.2 , a fifty percent (50%) working interest equal to a thirty-seven and one-half percent (37.5%) net revenue interest in and to the oil, gas and other minerals in and under or that may be produced from the leases described in Exhibit II attached hereto (SAVE AND EXCEPT THE WELLBORES DESCRIBED IN EXHIBIT I ATTACHED HERETO);

(h)   Fifty percent (50%) of Seller’s rights, titles and interests in and to, or otherwise derived from, all presently existing and valid oil, gas or mineral unitization, pooling, and/or communitization agreements, declarations and/or orders and in and to the properties covered and the units created thereby (including all units formed under orders, rules, regulations, or other official acts of any federal, state, or other authority having jurisdiction, voluntary unitization agreements, designations and/or declarations) relating to the leases and properties described in paragraphs (f) and (g) above and none other and, with respect to such rights and interests that relate to any of the leases and properties described in paragraphs (f) and (g) above as well as other leases and properties of Seller, concurrent rights, titles and interests with Seller in and to such rights and interests to the extent and only to the extent they relate to the leases and properties described in paragraphs (f) and (g) above;

(i)    Fifty percent (50%) of Seller’s rights, titles and interests in and to all presently existing and valid production sales (and sales related) contracts, operating agreements, and other agreements and contracts to the extent and only to the extent they relate to any of the leases and properties described in paragraphs (f), (g) and (h) above, to the extent and only to the extent they relate to the exploration, development, operation, or maintenance thereof and none other or the treatment, storage, transportation or marketing of production therefrom  (or allocated thereto) and none other and, with respect to such rights and interests that relate to any of the leases and properties described in paragraphs (f), (g) and (h) above as well as other leases and properties of Seller, concurrent rights, titles and interests with Seller in and to such rights and interests to the extent and only to the extent they relate to the leases and properties described in paragraphs (f), (g) and (h) above;

(j)   Fifty percent (50%) of Seller’s rights, titles and interests in and to all easements, rights-of-way, surface leases and other surface rights, all permits and licenses, and all other appurtenances being used or held for use in connection with, or otherwise to the extent and only to the extent they relate to, the exploration, development, operation or maintenance of any of the properties described in paragraphs (f), (g) and (h) above and none other, or the treatment, storage, transportation or marketing of production therefrom and none other (or allocated thereto) and, with respect to such rights and interests that relate to any of the leases and properties described in paragraphs (f), (g) and (h) above as well as other leases and properties of Seller, concurrent rights, titles and interests with Seller in and to such rights and interests to the extent and only to the extent they relate to the leases and properties described in paragraphs (f), (g) and (h) above; and

(k)   As used herein:  (i) " Oil and Gas Properties " means the properties and interests described in paragraphs (a), (f) and (g) above, save and except for any such properties or assets that are Excluded Assets; and (ii) " Properties " or “Property” means the Oil and Gas Properties plus the properties and interests described in paragraphs (b), (c), (d), (e), (h), (i) and (j) above, save and except for any such properties or assets that are Excluded Assets.

Section 1.2.   Assets Excluded.

  Notwithstanding anything herein contained to the contrary, the Properties do not include, and there is hereby excepted and reserved unto Seller, the following:

(a)   Any accounts receivable or accounts payable accruing before the Effective Date including, but not limited to, all payments held in suspense for title or other reasons that are customary in the industry and which payments are attributable to periods of time prior to the Effective Date;

(b)   All corporate, financial, tax and legal (other than title) records of Seller;

(c)   All oil, gas or other hydrocarbon production from or attributable to the Properties with respect to all periods prior to the Effective Date, all proceeds attributable thereto, and all oil, gas or other hydrocarbons that, at the Effective Date, are owned by Seller and are in storage or within processing plants;

(d)   Any refund of costs, taxes or expenses borne by Seller or Seller's predecessors in title attributable to periods prior to the Effective Date;

(e)   Any and all proceeds from the settlements of contract disputes with purchasers of oil, gas or other hydrocarbons from the Properties, including settlement of take-or-pay disputes, insofar as said proceeds are attributable to periods of time prior to the Effective Date;

(f)   Any and all proceeds from settlements with regard to reclassification of gas produced from the Properties, insofar as said proceeds are attributable to periods of time prior to the Effective Date;

(g)   All claims (including insurance claims) and causes of action of Seller against one or more third parties arising from acts, omission or events occurring prior to the Effective Date and all claims under any joint interest audit attributable to any period prior to the Effective Date;

(h)   Any geological, geophysical or seismic data, materials or information, including maps, interpretations records or other technical information related to or based upon any such data, materials or information, and any other asset, data, materials or information, the transfer of which is restricted or prohibited under the terms of any third party license, confidentiality agreement or other agreement or the transfer of which would require the payment of a fee or other consideration to any third party; provided, however, that if any such data, materials or information is transferable upon payment of a fee or other consideration, and if Buyer has paid such fee or other consideration prior to the Closing Date, then such data, materials or information shall be transferred to Buyer;

(i)   All rights, titles, and interest of Seller in and to the properties and interests described in Section 1.1, paragraphs (a), (f) and (g) , above, BELOW THE BASE OF THE OLMOS FORMATION AS DEPICTED AT 7778’ SUBSURFACE ON THE SCHLUMBERGER GAMMA RAY/ARRAY INDUCTION LOG DATED SEPTEMBER 16, 2002 FOR THE LEWIS PETRO PROPERTIES, INC. CHATO 24 #19 WELL (API NO. 42-283-31761).

The properties and interests specified in the foregoing paragraphs (a) through (i) of this Section 1.2 are herein collectively called the " Excluded Assets ".

Section 2.1.   Purchase Price.

The purchase price for the Properties is FIFTY-TWO MILLION TWO HUNDRED AND FIFTY THOUSAND DOLLARS and NO/100 ($52,250,000.00) (the “Purchase Price”).  The Purchase Price, as adjusted pursuant to this Article II and the other applicable provisions hereof, is herein called the " Adjusted Purchase Price ".

Section 2.2.   Accounting Adjustments .

Appropriate adjustments shall be made between Buyer and Seller so that (i) all expenses (including all drilling costs, all capital expenditures, and all overhead charges under applicable operating agreements, and all other overhead charges actually charged by third parties) which are incurred in the operation of the Properties after the Effective Date will be borne by Buyer, and all proceeds (net of applicable production, severance, and similar taxes) from the sale of oil, gas or other minerals, produced from the Oil and Gas Properties after the Effective Date will be received by Buyer, including any settlements from the  hedge contract set forth on Exhibit 7.9.1 and (ii) all expenses which are incurred in the operation of the Properties before the Effective Date will be borne by Seller and all proceeds (net of applicable production, severance, and similar taxes) from the sale of oil, gas or other minerals produced therefrom before the Effective Date will be received by Seller.  It is agreed that, in making such adjustments:  (i) oil which was produced from the Oil and Gas Properties and which was, on the Effective Date, stored in tanks located on the Oil and Gas Properties (or located elsewhere but used to store oil produced from the Oil and Gas Properties prior to delivery to oil purchasers) and above pipeline connections shall be deemed to have been produced before the Effective Date (it is recognized that such tanks were not gauged on the Effective Date for the purposes of this Agreement and that determination of the volume of such oil in storage will be based on the best available data, which may include estimates), (ii) ad valorem taxes assessed with respect to a period which the Effective Date splits shall be prorated based on the number of days in such period which fall on each side of the Effective Date (with the day on which the Effective Date falls being counted in the period after the Effective Date), such proration to be adjusted after Closing in the event actual ad valorem taxes are different than projected, with appropriate payments from Seller to Buyer or from Buyer to Seller, as the case may be, (iii)  no consideration shall be given to the local, state or federal income tax liabilities of any party.

Section 2.3.   Closing and Post-Closing Accounting Settlements.

(a)           At or before Closing, the parties shall determine, based upon the best information reasonably available to them, the amount of the adjustments provided for in Section 2.2 .  If the amount of adjustments so determined which would result in a credit to Buyer exceed the amount of adjustments so determined which would result in a credit to Seller, Buyer shall receive a credit, for the amount of such excess, against the Purchase Price to be paid at Closing, and, if the converse is true, Buyer shall pay to Seller, at Closing (in addition to amounts otherwise then owed), the amount of such excess.

(b)           Operating revenues and expenses shall be settled after Closing and paid in the same manner applicable to operating revenues and expenses as provided in the Operating Agreement attached as Exhibit 7.10 .

(c)           On or before 90 days after Closing, Buyer and Seller shall review any additional information which may then be available pertaining to the adjustments provided for in Section 2.2 , shall determine if any additional adjustments (whether the same be made to account for expenses or revenues not considered in making the adjustments made at Closing, or to correct errors made in such adjustments) should be made beyond those made at Closing, and shall make any such adjustments by appropriate payments from Seller to Buyer or from Buyer to Seller in cash.  Following such additional adjustments, no further adjustments shall be made under this Section 2.3, except that, any adjustments to the proration of ad valorem taxes used at Closing shall be made after such 90 day period promptly following such time as the actual ad valorem taxes become known.

Section 2.4.   Payment of Adjusted Purchase Price.

   The Adjusted Purchase Price shall be paid to Seller as follows:

(a)           Contemporaneously with the execution and delivery of this Agreement, Buyer shall tender to Seller cash equal to $2,612,500 as a deposit (such amount to be referred to as the " Deposit ").

(b)           At Closing, Buyer shall pay to Seller by bank transfer in immediately available funds to the account designated by Seller an amount equal to the Adjusted Purchase Price, less the Deposit.

The closing of the transactions contemplated hereby (the " Closing ") shall take place (i) at the offices of Seller, at 10:00 a.m. (local time) (i) three Business Days following notice from Buyer but in no event later than August 17, 2009, or (ii) at such other time or place or on such other date as the parties hereto shall agree.  The date on which the Closing is required to take place is herein referred to as the " Closing Date ".  All Closing transactions shall be deemed to have occurred simultaneously.

Except as provided in Seller's Disclosure Schedule, Seller hereby represents and warrants to Buyer on the date of Seller’s execution of this Agreement and on the Closing Date as follows:

Section 4.1.   Organization and Existence.

  Seller is a Texas Limited Partnership duly formed, validly existing, and in good standing under the laws of the State of Texas.

Section 4.2.   Power and Authority.

  Seller has all requisite power and authority to execute, deliver, and perform this Agreement and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which it is a party and to consummate the transactions contemplated hereby and thereby.  The execution, delivery, and performance by Seller of this Agreement and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which it is a party, and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by all necessary  action of Seller.

Section 4.3.   Valid and Binding Agreement.

  This Agreement has been duly executed and delivered by Seller and constitutes, and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which it is a party has been, or when executed will be, duly executed and delivered by Seller and constitutes, or when executed and delivered will constitute, a valid and legally binding obligation of Seller, enforceable against it in accordance with their respective terms, except that such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and (b) equitable principles which may limit the availability of certain equitable remedies (such as specific performance) in certain instances.

Section 4.4.   Non-Contravention.

  Other than requirements (if any) that there be obtained consents to assignment (or waivers of preferential rights to purchase) from third parties, neither the execution, delivery, and performance by Seller of this Agreement and each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which it is a party nor the consummation by it of the transactions contemplated hereby and thereby do and will (a) conflict with or result in a violation of any provision of the charter, bylaws or other governing instruments of Seller, (b) conflict with or result in a violation of any provision of, or constitute (with or without the giving of notice or the passage of time or both) a default under, or give rise (with or without the giving of notice or the passage of time or both) to any right of termination, cancellation, or acceleration under, any bond, debenture, note, mortgage or indenture, or any material lease, contract, agreement, or other instrument or obligation to which Seller is a party or by which Seller or any of its properties may be bound, (c) result in the creation or imposition of any lien or other encumbrance upon the properties of Seller, or (d) violate any Applicable Law binding upon Seller, except, in the instance of clause (b) or clause (d) above, for any such conflicts, violations, defaults, terminations, cancellations or accelerations which would not, individually or in the aggregate, have a Material Adverse Effect.

Section 4.5.   Approvals.

  Other than requirements (if any) that there be obtained consents to assignment (or waivers of preferential rights to purchase) from third parties, no consent, approval, order, or authorization of, or declaration, filing, or registration with, any court or governmental agency or of any third party is required to be obtained or made by Seller in connection with the execution, delivery, or performance by Seller of this Agreement, each other agreement, instrument, or document executed or to be executed by Seller in connection with the transactions contemplated hereby to which it is a party or the consummation by it of the transactions contemplated hereby and thereby, except for such consents, approvals, orders, authorizations, declarations, filings or registrations which, if not obtained or made (as applicable), would not, individually or in the aggregate, have a Material Adverse Effect.

Section 4.6.   Pending Litigation.

  There are no Proceedings pending or, to Seller's Knowledge, threatened against or affecting Seller or the Properties (including any actions challenging or pertaining to Seller's title to any of the Properties), or affecting the execution and delivery of this Agreement by Seller or the consummation of the transactions contemplated hereby by Seller.

Section 4.7.   Basic Documents; Title.

  The oil, gas and/or mineral leases, Seller's interests in which comprise parts of the Oil and Gas Properties, and all other material contracts and agreements, licenses, permits and easements, rights-of-way and other rights-of-surface use comprising any part of or otherwise relating to the Properties (such leases and such material contracts, agreements, licenses, permits, easements, rights-of-way and other rights-of-surface use being herein called the " Basic Documents "), are in all material respects in full force and effect and constitute valid and binding obligations of the parties thereto.  Seller is not in breach or default (and no situation exists which with the passing of time or giving of notice would create a breach or default) of its obligations under the Basic Documents, and (to the best of Seller's knowledge) no breach or default by any third party (or situation which with the passage of time or giving of notice would create a breach or default) exists, to the extent such breach or default (whether by Seller or such a third party) could reasonably be expected to materially adversely affect the ownership, operation, value or use of any Oil and Gas Property after the Effective Date.  All payments (including all delay rentals, royalties, shut-in royalties and valid calls for payment or prepayment under operating agreements) owing under Basic Documents have been and are being made (timely, and before the same became delinquent) by Seller (and, where the non-payment of same by a third party could materially adversely affect the ownership, operation, value or use of an Oil and Gas Property after the Effective Date, have been and are being made, to Seller's Knowledge, by such third parties).  Schedule 4.7 of the Seller Disclosure Schedule is a list of all material contracts and agreements to which any of the Oil and Gas Properties are bound, including (a) joint operating agreements, (b) agreements with any Affiliate of Seller, (c) any Production Sales Contracts, (d) any agreement of Seller to sell, lease, farmout or otherwise dispose of any of its interests in the Oil and Gas Properties other than conventional rights of reassignment, (e) gas balancing agreements, (f) exploration agreements, (g) pooling, unitization or communitization agreement, (h) area of mutual interest agreements, (i) Hedges and (j) agreements containing seismic licenses, permits and other rights to geological or geophysical data and information directly or indirectly relating to the Oil and Gas Properties.  Since July 2, 2009, the Seller has not taken any action or been the subject of any event which has caused or which is likely to cause the Seller to not have Defensible Title with respect to any of the Properties.

Section 4.8.   Commitments, Abandonments or Proposals.

  Except as set forth in Schedule 4.8 of the Seller Disclosure Schedule:  (a) Seller has incurred no expenses, and has made no commitments to make expenditures in connection with the ownership or operation of the Properties after the Effective Date, other than routine expenses incurred in the normal operation of existing wells on the Oil and Gas Properties in accordance with generally accepted practices in the oil and gas industry; (b) Seller has not abandoned any wells (or removed any material items of equipment, except those replaced by items of materially equal suitability and value) on the Oil and Gas Properties since the Effective Date; and (c) no proposals are currently outstanding (whether made by Seller or by any other party) to drill additional wells, or to deepen, plug back, or rework existing wells, or to conduct other operations for which consent is required under the applicable operating agreement, or to conduct any other operations other than normal operation of existing wells on the Oil and Gas Properties, or to abandon any wells, on the Oil and Gas Properties.

Section 4.9.   Production Sales Contracts.

  There exist no agreements or arrangements for the sale of Hydrocarbons from the Oil and Gas Properties (including calls on, or other rights to purchase, production, whether or not the same are currently being exercised) other than (a) production sales contracts (in this Section, the   " Scheduled Production Sales Contracts ") disclosed in Schedule 4.9 of the Seller Disclosure Schedule or (b) agreements or arrangements which are cancelable on 90 days notice or less without penalty or detriment.  Seller is presently receiving a price for all production from (or attributable to) each Oil and Gas Property covered by a Scheduled Production Sales Contract as computed in accordance with the terms of such contract, and is not having deliveries of gas from any Oil and Gas Property subject to a Scheduled Production Sale Contract curtailed substantially below such Property's delivery capacity.

Section 4.10.   Plugging and Abandonment.

  Except for wells listed in Schedule 4.10 of the Seller Disclosure Schedule, there are no dry holes, or shut in or otherwise inactive wells, drilled by Seller, or to Seller’s Knowledge, any other party, located on the Oil and Gas Properties or on lands pooled or unitized therewith, except for wells that have been plugged and abandoned, and except for wells drilled to depths not included within the Oil and Gas Properties or within units in which the Oil and Gas Properties participate which have never been completed in such depths.

Section 4.11.   Permits.

  Seller has all Permits necessary or appropriate to own and operate the Properties as presently being owned and operated, except for such Permits the absence of which would not be reasonably expected to have a Material Adverse Effect, and such Permits are in full force and effect (and are transferable to Buyer or are subject to being routinely replaced by a license or permit issued to Buyer as a successor owner of the Properties).  Except as set forth in Schedule 4.11 of the Seller Disclosure Schedule, Seller has not received written notice of any violations in respect of any Permits and, to Seller's Knowledge, there are no violations in respect of any Permit and no one has communicated to Seller that there are any violations in respect of any Permit, except for such violations which would not reasonably be expected to have a Material Adverse Effect.

Section 4.12.   Payment of Expenses.

   All expenses (including all bills for labor, materials and supplies used or furnished for use in connection with the Properties, and all severance, production, ad valorem and other similar taxes) relating to the ownership or operation of the Properties, have been, and are being, paid (timely, and before the same become delinquent) by Seller, except such expenses and taxes as are disputed in good faith by Seller and for which an adequate accounting reserve has been established by Seller.  Seller is not delinquent with respect to its obligations to bear costs and expenses relating to the development and operation of the Oil and Gas Properties.

Section 4.13.   Compliance with Laws.

   The ownership and operation of the Properties have been in compliance with all Applicable Laws, except for such non-compliance which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.  Without limiting the foregoing, all wells on the Oil and Gas Properties have been located, drilled and completed in material compliance with all Applicable Laws relating thereto.

Section 4.14.   Environmental Matters.

(a)   Seller, and to Seller’s Knowledge, all prior owners of the Properties, have  operated the Properties in compliance with Environmental Laws, except for such non-compliance which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

(b)   To Seller’s Knowledge, there are no liabilities, responsibilities, claims, suits, losses, costs (including remedial, removal, response, abatement, clean-up, investigative, or monitoring costs and any other related costs and expenses), other causes of action, damages, settlements, expenses, charges, assessments, liens, penalties, fines, pre-judgment and post-judgment interest, attorneys' fees and other legal fees attributable to the period of Seller’s ownership of the Properties, or to Seller’s Knowledge, attributable to the period preceding Seller’s ownership of the Properties (i) pursuant to any agreement, order, notice, or responsibility, directive (including directives embodied in Environmental Laws), injunction, judgment, or similar documents (including settlements), arising out of or in connection with any Environmental Laws, or (ii) pursuant to any claim by a Governmental Entity or other Person for personal injury, property damage, damage to natural resources, remediation, or payment or reimbursement of response costs incurred or expended by the governmental authority or person pursuant to common law or statute (collectively " Environmental Liabilities ") pending or, to Seller's Knowledge, threatened by or before any Governmental Entity directed against Seller relating to the development or operation of the Properties that pertain or relate to (A) any remedial obligations under any applicable Environmental Law, (B) violations by Seller of any Environmental Law, (C) personal injury or property damage claims relating to a release of Environmental Contaminants, or (D) response, removal, or remedial costs under CERCLA, RCRA or any similar state laws.

(c)   To Seller’s Knowledge, all Environmental Permits required under Environmental Laws that are necessary to the operation of the Properties by Seller have been obtained and are in full force and effect and Seller is unaware of any basis for revocation or suspension of any such environmental permits.

(d)   To Seller’s Knowledge there has been no disposal or release of any Environmental Contaminants on, at, or under the Oil and Gas Properties by Seller, or  any other party, except in compliance with Environmental Laws.

(e)   To Seller’s Knowledge, there are no written notices of violation, non-compliance, or similar notifications relating to Environmental Liabilities currently pending or threatened, relating or pertaining to the Properties.

Section 4.15.   Imbalances; Prepayments.

  All proceeds from the sale of Hydrocarbons attributable to the Oil and Gas Properties are currently being paid in full and as of the Closing Date no imbalances exist between Seller and the third party purchasers of the Hydrocarbons.  Seller is not obligated by virtue of a take or pay payment, advance payment or other similar payment (other than royalties, overriding royalties and similar arrangements), to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to the Oil and Gas Properties at some future time without receiving payment therefor at or after the time of delivery.

Section 4.16.   State of Repair.

  All wells, wellhead equipment, pumping units, flowlines, tanks, buildings, injection facilities, saltwater disposal facilities, compression facilities, gathering systems, fixtures and equipment that are necessary to conduct normal operations on the Oil and Gas Properties are in good working condition, reasonable wear and tear excepted and are being maintained in a state adequate to conduct normal operations, except for such conditions which, individually or in the aggregate, would not be reasonably expected to have a Material Adverse Effect.

Section 4.17.   Intellectual Property.

  Seller owns or has valid licenses or other rights to use all patents, copyrights, trademarks, software, databases, geological data, geophysical data, engineering data, maps, interpretations and other technical information used in connection with its ownership and operation of the Oil and Gas Properties as presently conducted, subject to the limitations contained in the agreements governing the use of the same, which limitations are customary for companies engaged in the business of the exploration and production of Hydrocarbons.

Section 4.18.   Taxes.

(a)   All ad valorem and severance taxes due and payable for the Properties through the year 2008 have been paid.

(b)   With respect to all Taxes related to the Properties, (i) all reports, returns, statements (including estimated reports, returns or statements), and other similar filings (the " Tax Returns ") relating to the Properties required to be filed on or before the date hereof by Seller with respect to any Taxes for any period ending on or before the date hereof have been timely filed with the appropriate Governmental Entity, (ii) such Tax Returns are true and correct in all material respects, and (iii) all Taxes reported on such Tax Returns have been paid, except those being contested in good faith.

(c)   With respect to all Taxes related to the Properties (i) there are not currently in effect any extension or waiver by Seller of any statute of limitations of any jurisdiction regarding the assessment or collection of any Tax related to the Properties and (ii) there are no administrative proceedings or lawsuits pending against the Properties or Seller with respect to the Properties by any taxing authority.

(d)   None of the Properties were bound as of the Effective Date or will be bound following the Closing by any tax partnership agreement binding upon Seller.

Section 4.19.   Fees and Commissions.

  No broker, investment banker, financial advisor or other Person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller.

Section 4.20.   Disclaimer of Warranties.

  Of and from the Closing Date, other than those expressly set out in this Article IV or in the Conveyance, Seller hereby expressly disclaims and negates, any representation or warranty, express or implied, relating to the condition of the Assets (including, without limitations (a) any implied or express warranty of merchantability, (b) any implied or express warranty of fitness for a particular purpose, (c) any implied or express warranty of conformity to models or samples of materials, (d) any rights of Buyer under appropriate statues to claim diminution of consideration or return of the purchase price, (e) any implied or express warranty of freedom from patent or trademark infringement, (f) any and all implied warranties existing under applicable law now or hereafter in effect, and (g) any implied or express warranty regarding environmental laws, the release of materials into the environment or protection or the environment or health), it being the express intention of Buyer and Seller that the Assets are to be conveyed to Buyer “AS IS,” “WHERE IS” and in their present condition and state of repair.

Buyer hereby represents and warrants to Seller on the date of Buyer’s execution of this Agreement and on the Closing Date as follows:

Section 5.1.   Organization and Existence.

  Buyer is a Delaware limited liability company duly organized, legally existing and in good standing under the laws of the State of Delaware.

Section 5.2.   Power and Authority.

  Buyer has full company power and authority to execute, deliver, and perform this Agreement and each other agreement, instrument, or document executed or to be executed by Buyer in connection with the transactions contemplated hereby to which it is a party and to consummate the transactions contemplated hereby and thereby.  The execution, delivery, and performance by Buyer of this Agreement and each other agreement, instrument, or document executed or to be executed by Buyer in connection with the transactions contemplated hereby to which it is a party, and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by all necessary company action of Buyer.

Section 5.3.   Valid and Binding Agreement.

  This Agreement has been duly executed and delivered by Buyer and constitutes, and each other agreement, instrument, or document executed or to be executed by Buyer in connection with the transactions contemplated hereby to which it is a party has been, or when executed will be, duly executed and delivered by Buyer and constitutes, or when executed and delivered will constitute, a valid and legally binding obligation of Buyer, enforceable against it in accordance with their respective terms, except that such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and (b) equitable principles which may limit the availability of certain equitable remedies (such as specific performance) in certain instances.

Section 5.4.   Non-Contravention.

  The execution, delivery, and performance by Buyer of this Agreement and each other agreement, instrument, or document executed or to be executed by Buyer in connection with the transactions contemplated hereby to which it is a party and the consummation by it of the transactions contemplated hereby and thereby do not and will not (a) conflict with or result in a violation of any provision of the membership agreement or other governing instruments of Buyer, (b) conflict with or result in a violation of any provision of, or constitute (with or without the giving of notice or the passage of time or both) a default under, or give rise (with or without the giving of notice or the passage of time or both) to any right of termination, cancellation, or acceleration under, any bond, debenture, note, mortgage, indenture, lease, contract, agreement, or other instrument or obligation to which Buyer is a party or by which Buyer or any of its properties may be bound, (c) result in the creation or imposition of any lien or other encumbrance upon the properties of Buyer, or (d) violate any Applicable Law binding upon Buyer.

Section 5.5.   Approvals.

  No consent, approval, order, or authorization of, or declaration, filing, or registration with, any court or governmental agency or of any third party is required to be obtained or made by Buyer in connection with the execution, delivery, or performance by Buyer of this Agreement and each other agreement, instrument, or document executed or to be executed by Buyer in connection with the transactions contemplated hereby to which it is a party or the consummation by it of the transactions contemplated hereby and thereby.

Section 5.6.   Pending Litigation.

  There are no Proceedings pending or, to Buyer's Knowledge, threatened against or affecting the execution and delivery of this Agreement by Buyer or the consummation of the transactions contemplated hereby by Buyer.

Section 5.7.   Knowledgeable Purchaser.

  Buyer is a knowledgeable purchaser, owner and operator of oil and gas properties, has the ability to evaluate (and in fact has evaluated) the Properties for purchase, and is acquiring the Properties for its own account and not with the intent to make a distribution within the meaning of the Securities Act (and the rules and regulations pertaining thereto) or a distribution thereof in violation of any other applicable securities laws.

Section 5.8.   Fees and Commissions.

  No broker, investment banker, financial advisor or other Person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Buyer.

Section 6.1.   Access to Files.

  From the date hereof until Closing, Seller will give Buyer, and its attorneys and other representatives, access at all reasonable times to the Properties and to any contract files, lease or other title files, production files, well files, accounting records and other files of Seller pertaining to the ownership and/or operation of the Properties, and Seller will use its reasonable best efforts to arrange for Buyer, and its attorneys and other representatives, to have access to any such files in the office of Seller.  Seller shall not be obligated to provide Buyer with access to any records or data which Seller cannot provide to Buyer without, in its opinion, breaching confidentiality agreements with other parties.  All information obtained by Buyer shall be maintained in strict confidence, for use solely in connection with its evaluation of the Properties, and shall not be disclosed to any other party without Seller's prior written consent.

Section 6.2.   Conduct of Operations.

   Seller will (i) continue the routine operation of the Properties in the ordinary course of business and as would a prudent operator; (ii) operate the Properties in material compliance with all Applicable Laws and Environmental Laws, in compliance with all oil, gas or mineral leases, and in material compliance with all Basic Documents other than such leases; and (iii) fulfill all obligations (including all obligations to make payments under leases or other Basic Documents) under such leases, and under such other Basic Documents and, in all material respects, under such Applicable Laws and Environmental Laws.  Without limitation of the foregoing, the failure to perform an obligation, when such failure could result in forfeiture or termination of rights of Seller under a Basic Document, shall be considered material for purposes hereof.

Section 6.3.   Restrictions on Certain Actions.

   Seller will not, without Buyer's prior consent:

(a)   except as described on Schedule 6.3 of the Seller’s Disclosure Schedule , expend any funds in excess of twenty five thousand dollars ($25,000), or make any commitments to expend funds (including entering into new agreements which would obligate Seller to expend funds in excess of $25,000), or otherwise incur any other obligations or liabilities, in connection with the ownership or operation of the Properties after the Effective Date, other than routine expenses incurred in the normal operation of the existing wells on the Oil and Gas Properties and except in the event of an emergency requiring immediate action to protect life or preserve the Properties;

(b)   except where necessary to prevent the termination of an oil and gas lease or other material agreement governing Seller's interest in the Properties, propose the drilling of any additional wells, or propose the deepening, plugging back or reworking of any existing wells, or propose the conducting of any other operations which require consent under the applicable operating agreement, or propose the conducting of any other operations other than the normal operation of the existing wells on the Oil and Gas Properties, or propose the abandonment of any wells on the Oil and Gas Properties (and Seller agrees that it will advise Buyer of any such proposals made by third parties and will respond to each such proposal made by a third party in the manner requested by Buyer);

(c)   sell, transfer or abandon any portion of the Properties other than items of materials, supplie