ACQUISITION AND JOINT DEVELOPMENT AGREEMENT

ACQUISITION AND JOINT DEVELOPMENT AGREEMENT

THIS ACQUISITION AND JOINT DEVELOPMENT AGREEMENT (the “Agreement”) made and entered into as of this 30 ^th day of June, 2009, by and between Beard Dilworth, LLC, an Oklahoma limited liability company (“BDLLC”), RSE Energy, LLC, an Oklahoma limited liability company (“RSE”), True Energy Exploration, LLC, an Oklahoma limited liability company (“True Energy”), Royal Energy, LLC, an Oklahoma limited liability company (“Royal Energy”), The Beard Company, an Oklahoma corporation (“Beard”), Subsurface Minerals Group, LLC, an Oklahoma limited liability company (“SMG”) and Beard Oil Company, a Delaware corporation (the “Operator”). RSE, True Energy and Royal Energy are referred to collectively as the “Purchasing Parties.” The Purchasing Parties, BDLLC, Beard and SMG are referred to collectively as the “Dilworth Field Owners.” The Dilworth Field Owners and the Operator are referred to collectively as the “Parties.”

RECITATIONS

WHEREAS, BDLLC is engaged in the oil and gas industry and owns all rights, title and interest in, to and under all of the property and premises located in Kay County, Oklahoma, as more particularly described on Attachment A to this Agreement (the “Dilworth Field”), including but not limited to a 100% working interest in and to all oil, gas and other minerals (“Oil and Gas”) and all other substances, including but not limited to magnesium, bromine, and other elements (Other Substances”) underlying and which might be produced from, and certain fee interests covering land within, the Dilworth Field (the “Dilworth Field Working Interest” or “Working Interest”).

WHEREAS, the principals of SMG designed, funded, developed and demonstrated the viability of the concept for the development of the Dilworth Field.

WHEREAS, contemporaneously with the execution of this Agreement, the Parties have executed a Joint Operating Agreement in substantially the form attached hereto as Exhibit A (the “Operating Agreement”), which, among other things, establishes an area of mutual interest encompassing interests of the Parties within the area described on Attachment B hereto (the “Area of Mutual Interest”).

WHEREAS, the Purchasing Parties wish to purchase from BDLLC the percentage of the Dilworth Field Working Interest set forth in this Agreement and BDLLC wishes to sell and assign such percentages of the Dilworth Field Working Interest to the Purchasing Parties, each under the terms of this Agreement.

WHEREAS, following the Closing of this Agreement, the Dilworth Field Owners will collectively own 100% of the Dilworth Field Working Interest on both a “before Payout” and an “after Payout” basis and desire to set forth certain terms and conditions that the Dilworth Field Owners have agreed upon with respect to the exploration, development and production of Oil and Gas from the Dilworth Field.

WHEREAS, in the event that the Parties hereafter endeavor to explore for, mine, develop, produce, and/or sell Other Substances from the Dilworth Field, the Parties may enter into a new development agreement with respect to such actions.

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and upon the terms and conditions set forth below, the Parties agree as follows:

ARTICLE I

PURCHASE AND SALE; CLOSING

(a)        Purchase and Sale .  Upon the terms and subject to the conditions set forth in this Agreement, BDLLC hereby grants, bargains, and sells, and agrees to convey and assign of record to each Purchasing Party, and each Purchasing Party hereby purchases and accepts, the percentage of Dilworth Field Working Interest set forth in the table below.

(b)        Retained Interest .  The interests described above are subject to a retained reversionary interest at “Payout” as described in Section 3.5 of this Agreement

(c)        The Relative Interests of the Parties .  The Dilworth Field Working Interest Owners agree that their respective Working Interest ownership in the Dilworth Field Working Interest after Payout (“APO”) shall be as set forth in Section 3.5 hereof, and that before Payout (“BPO”) such interests shall be as follows:

(d)        Area of Mutual Interest .  In the event that the Parties determine that BDLLC or SMG owned any right, title or interest in the Area of Mutual Interest as of the date of this Agreement, other than its right, title and interest in the Dilworth Field (an “AMI Interest”), BDLLC or SMG, as applicable, shall take any and all actions necessary to transfer the AMI Interest to the Parties in the same proportion as each Party’s BPO Working Interest and such AMI Interests shall become part of the Dilworth Field for purposes of this Agreement.

1.2       Purchase Price .  At Closing and in consideration for the sale and assignment of the Dilworth Field Working Interests pursuant to Section 1.1(a) above, each Purchasing Party will pay to BDLLC by wire transfer of immediately available funds, the amounts set forth in the table below:

1.3       Special Warranty .  BDLLC warrants that no other party can claim any rights, title or interest in the Dilworth Field Working Interest, by, through or under BDLLC, but not otherwise.

1.4       Closing, Closing Place, Time and Date   The closing of the transactions contemplated by this Agreement (the “Closing”) shall be held at the offices of McAfee & Taft A Professional Corporation, Two Leadership Square, Tenth Floor, 211 N. Robinson, Oklahoma City, Oklahoma, at 10:00 a.m., local time, on the date hereof, or at such other place and such other time and/or date as the Parties hereto shall mutually agree (the actual date on which the Closing shall occur being referred to herein as the “Closing Date”).

ARTICLE II

DEVELOPMENT PLAN

2.1       Designation of Operator .  The Dilworth Field Owners hereby designate the Operator as the operator of the Dilworth Field. Contemporaneously with Closing, each of the Parties shall execute and deliver the Joint Operating Agreement. Matters with respect to the operations of the Dilworth Field not specifically addressed in this Agreement shall be governed by the terms of the Joint Operating Agreement. In the event of a conflict between the terms of this Agreement and the terms of the Joint Operating Agreement, the terms of this Agreement shall control.

2.2       Development Plan .  The Parties hereby agree that the exploration, development and production of the oil and gas in the Dilworth Field shall be undertaken and performed in all

material respects in the manner set forth in the development plan attached hereto as Exhibit B (the “Development Plan”). The estimated total costs and expenses to complete the Development Plan are $5,275,000 (the “Estimated Development Plan Costs”). The timing of expenditures set forth in the Development Plan are only estimates and the actual timing of expenditures necessary to fund the Development Plan shall be determined by the Management Committee (defined in Section 5.1 below).

(a)        Firm Capital Commitments .  Each Dilworth Field Owner hereby covenants, agrees and commits to provide capital to fund the Development Plan up to the amount set forth with respect to each Dilworth Field Owner in the table below (the “Firm Capital Commitments”). Because Beard and SMG own no BPO Working Interests, they are not required to make any Firm Capital Commitments. The Firm Capital Commitment of BDLLC is equal to the aggregate purchase price it received, pursuant to Section 1.2 of this Agreement, for the sale of the Dilworth Field Working Interests to the Purchasing Parties. The Firm Capital Commitment of each Purchasing Party is equal to each Purchasing Party’s proportionate share of the Estimated Development Plan Costs remaining after subtracting BDLLC’s Firm Capital Commitment from the Estimated Development Plan Costs ($5,275,000 - $510,921.43 = $4,764,078.57) based on each Purchasing Party’s BPO Working Interest (determined for each Purchasing Party by dividing that Purchasing Party’s BPO Working Interest by the total BPO Working Interests of all the Purchasing Parties).

(b)        Authorities for Expenditure .  Contributions of capital to meet Firm Capital Commitments shall be made pursuant to authorities for expenditure (“AFEs”) submitted to the Dilworth Field Owners by the Operator detailing the funds needed to fund a particular portion of the Development Plan. Each AFE shall provide a line-item cost estimate for the portion of the Development Plan covered by such AFE and shall specify the total dollar amount of Firm Capital Commitment required to be paid by each Dilworth Field Owner based on that Dilworth Field Owner’s proportionate share of Firm Capital Commitments (determined for each Dilworth Field Owner by dividing that Dilworth Field Owner’s Firm Capital Commitment by the Estimated Development Plan Costs).

(c)        Firm Capital Commitment Payments .  At Closing, each Dilworth Field Owner that is required to make Firm Capital Commitments shall elect to fund its Firm Capital Commitment pursuant to one of the following two alternative methods:

(1)        Full Funding Method .  Each Dilworth Field Owner that chooses to fund its Firm Capital Commitment through the “Full Funding Method” (each, a “Full Funding Owner”) shall deposit, on the Closing Date, the full amount of such Dilworth Field Owner’s Firm Capital Commitment (as set forth in Section 2.3(a) above) into an escrow account with a commercial bank or other mutually agreeable party that has agreed to serve as escrow agent (the “Escrow Agent”) with respect to such escrow account. Each such escrow account shall be managed in accordance with the terms of an escrow agreement (the “Escrow Agreement”), which shall be executed and delivered at Closing by the applicable Full Funding Owner, the Operator and the applicable Escrow Agent. Each Escrow Agreement shall provide that: (i) the funds in the escrow account are the property of the Full Funding Owner; (ii) the funds in the escrow account may only be withdrawn by the Operator upon the Operator’s submission of duly executed written instructions to the Escrow Agent to withdraw funds, and (iii) any funds remaining in the escrow account following the completion of the Development Plan shall be distributed to the Full Funding Owner upon the receipt of written notice from the Operator that the Development Plan has been completed. The Operator shall only withdraw funds from a Full Funding Owner’s escrow account in an amount equal to that Full Funding Owner’s proportionate share of the total Firm Capital Commitment set forth in an AFE submitted to the Dilworth Field Owners by the Operator. Notwithstanding the foregoing, in lieu of depositing the full amount of its Firm Capital Commitment with an Escrow Agent, a Full Funding Owner may pay such amount directly to the Operator on the Closing Date. The Operator shall use such Firm Capital Commitments only to pay such Full Funding Owner’s proportionate share of the Estimated Development Plan Costs.

(2)        Installment Funding Method .  Each Dilworth Field Owner that chooses to fund its Firm Capital Commitment through the “Installment Funding Method” (each, an “Installment Funding Owner”) shall pay its proportionate share of the Firm Capital Commitment called for in each AFE to the Operator within 15 days of the date of each such AFE (the “Installment Funding Deadline”). At Closing, each Installment Funding Owner shall deliver a letter of credit from a commercial bank for an amount equal to such Installment Funding Owner’s total Firm Capital Commitment (as set forth in Section 2.3(a) above) (the “Letter of Credit”) to fully secure the Installment Funding Owner’s obligation to fund its Firm Capital Commitment. Each Letter of Credit shall have a term of one (1) month. Thereafter, each month, the Installment Funding Owner shall obtain a Letter of Credit effective upon the date that the previous month’s Letter of Credit terminates in an amount equal to the remaining unpaid Firm Capital Commitment of such Installment Funding Owner. If an Installment Funding Owner fails to pay its proportionate share of the Firm Capital Commitment called for by an AFE by the Installment Funding Deadline, the Operator may make a demand for payment on the Letter of Credit by sending written notice of the Installment Funding Owner’s failure to pay accompanied by a copy of the AFE stating the dollar amount that such Installment Funding Owner was required to pay (the “Letter of Credit Demand”). Each Letter of Credit shall authorize the bank that issued the Letter of Credit to make payment under the Letter of Credit upon receipt of the Letter of Credit Demand.

(a)        Cost Overages .  Each Dilworth Field Owner shall also be responsible for paying its proportionate share of all costs and expenses of the Development Plan that exceed the Estimated Development Plan Costs, as applicable (the “Cost Overages”), based on each Party’s BPO Working Interest.

(b)        Payments of Cost Overages .  If the Operator submits any AFE that contains a request for any Cost Overages, the Operator shall clearly identify what part of the amount requested by the AFE represents Cost Overages and shall specify the total dollar amount of the Cost Overages attributable to each Dilworth Field Owner. The Dilworth Field Owners shall have thirty (30) days from the date of any AFE calling for a payment of Cost Overages (the “Cost Overage Deadline”) to (i) pay their proportionate share of the Cost Overages, or (ii) notify the Operator that such Dilworth Field Owner elects not to pay the Cost Overages.

(c)        Non-Consenting Owners .  Any Dilworth Field Owner that notifies the Operator of its election not to pay the Cost Overages pursuant to Section 2.4(b)(ii) above, or that does not pay its proportionate share of the Cost Overages by the Cost Overage Deadline shall be deemed to be a “Non-Consenting Owner.” Within ten (10) days of the Cost Overage Deadline, the Operator shall provide written notice to all Dilworth Field Owners that are not Non-Consenting Owners (the “Consenting Owners”) of the total amount of Cost Overages that were not paid by Non-Consenting Owners (the “Non-Consent Notice”). Each Consenting Owner shall have 10 days after delivery of the Non-Consent Notice to advise the Operator of its election to (i) not pay any portion of the Cost Overages of the Non-Consenting Owners, (ii) pay its proportionate share of the total Cost Overages of the Non-Consenting Owners (determined for each Consenting Owner by dividing that Consenting Owner’s BPO Working Interest by the BPO Working Interests of all Consenting Owners), or (iii) pay its proportionate share (as determined in (ii) above) of the total Cost Overages of the Non-Consenting Owners plus all or a portion of its proportionate share of any of the Cost Overages of the Non-Consenting Owners that any other Consenting Owner elected not to take under clause (ii) above (the “Non-Consent Election Notice”). Within 10 days of its receipt of all Non-Consent Election Notices, the Operator shall notify all Consenting Owners delivering a Non-Consent Election Notice of the total amount of