JOINT DEVELOPMENT AGREEMENT

Development Agreement

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BG US Production Company, LLC | EXCO Operating Company, LP | EXCO PARTNERS OLP GP, LLC | EXCO PRODUCTION COMPANY, LP | US Express | VAUGHN DE, LLC

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Title: JOINT DEVELOPMENT AGREEMENT
Governing Law: Texas Date: 8/6/2009
Industry: Oil and Gas Operations Law Firm: Vinson Elkins Sector: Energy

Exhibit 10.41

JOINT DEVELOPMENT AGREEMENT

BY AND AMONG

BG US PRODUCTION COMPANY, LLC,

EXCO OPERATING COMPANY, LP

AND

EXCO PRODUCTION COMPANY, LP

DATED , 2009

TABLE OF CONTENTS


ARTICLE 1 INTERPRETATION		1

ARTICLE 2 CERTAIN OBLIGATIONS		2
Section 2.1	Carry of Eligible Costs	2
Section 2.2	Payment Procedure	2
Section 2.3	Development Costs	3

ARTICLE 3 SCOPE; PARTICIPATING INTERESTS; OPERATIONS		3
Section 3.1	Scope	3
Section 3.2	Participating Interests	3
Section 3.3	Operations Subject to Laws, Leases and Operating Agreement	3
Section 3.4	Operating Agreements	4
Section 3.5	Appointment and Removal of Party Operator	5
Section 3.6	Joint Development Operator	7
Section 3.7	Liability of Operator	9
Section 3.8	Secondees	10
Section 3.9	Non-Solicitation of Joint Operator Employees	11
Section 3.10	Certain Reports	11
Section 3.11	Insurance	13
Section 3.12	Reimbursement of Joint Development Operator and Party Operators for Technical Services; Overhead	14

ARTICLE 4 OPERATING COMMITTEE; DEVELOPMENT WORK PROGRAM; ANNUAL WORK PROGRAM AND BUDGETS		16
Section 4.1	Operating Committee	16
Section 4.2	Development Work Program	22
Section 4.3	Initial Annual Work Plan and Budgets	22
Section 4.4	Subsequent Annual Work Plan and Budgets	23
Section 4.5	Statements of Estimated Expenditures	27
Section 4.6	AFEs	27
Section 4.7	Contract Awards	28
Section 4.8	Area-Wide Operations	31
Section 4.9	Third Party Operators	32
Section 4.10	HSSE	32

ARTICLE 5 DEFAULT		33
Section 5.1	Default	33
Section 5.2	Certain Consequences of Default	33
Section 5.3	Right to Costs of Enforcement	35
Section 5.4	Cumulative and Additional Remedies	35
Section 5.5	Reassignment Obligation	35


ARTICLE 6 TRANSFERS		36
Section 6.1	Maintenance of Uniform Interest; Minimum Participating Interest; Transfers by Defaulting Parties	36
Section 6.2	Requirements for Transfer	37
Section 6.3	Liability of Transferor/Transferee	37
Section 6.4	Encumbrances by Parties	38

ARTICLE 7 CONSENT TO ASSIGNMENT		38
Section 7.1	Certain Transfers during Initial Three Year Period	38
Section 7.2	Other Transfers	39
Section 7.3	Additional Consent Requirements	39
Section 7.4	Consents for Transfer of Joint Development or Party Operatorship	39

ARTICLE 8 PREFERENTIAL RIGHT TO PURCHASE; CHANGES IN CONTROL		39
Section 8.1	Preferential Right to Purchase	39
Section 8.2	Changes in Control	42

ARTICLE 9 AREA OF MUTUAL INTEREST; CERTAIN RENTALS		44
Section 9.1	Creation of Area of Mutual Interest	44
Section 9.2	Area of Mutual Interest Procedures	44
Section 9.3	Payment of Certain Rentals	48

ARTICLE 10 TAXES		48
Section 10.1	Tax Partnership	48
Section 10.2	Tax Information	49
Section 10.3	Responsibility for Taxes	49

ARTICLE 11 TERM		49

ARTICLE 12 RELATIONSHIP OF THE PARTIES		50

ARTICLE 13 GOVERNING LAW; DISPUTE RESOLUTION; EXPERT PROCEEDINGS		50
Section 13.1	Governing Law	50
Section 13.2	Dispute Resolution	50
Section 13.3	Expert Proceedings	52

ARTICLE 14 MISCELLANEOUS		53
Section 14.1	Counterparts	53
Section 14.2	Notices	53
Section 14.3	Expenses	55
Section 14.4	Waivers; Rights Cumulative	55
Section 14.5	Entire Agreement; Conflicts	55
Section 14.6	Amendment	55
Section 14.7	Parties in Interest	55
Section 14.8	Successors and Permitted Assigns	56
Section 14.9	Confidentiality	56
Section 14.10	Publicity	57
Section 14.11	Preparation of Agreement	57
Section 14.12	Conduct of the Parties; Business Principles	57
Section 14.13	Severability	58
Section 14.14	Non-Compensatory Damages	58
Section 14.15	Excluded Assets	58


APPENDICES AND EXHIBITS

Appendix I		Definitions

Exhibit “A”		East Texas/North Louisiana Area; Excluded Fields
Exhibit “B”		Form of Joint Development Operating Agreement
Exhibit “C”		Form of Secondment Agreement
Exhibit “D”		Development Work Program
Exhibit “E-1”		Calendar Year 2009 Annual Work Program and Budget
Exhibit “E-2”		Draft Calendar Year 2010 Annual Work Program and Budget
Exhibit “F”		Form of Assumption Agreement
Exhibit “G”		Tax Partnership Agreement
Exhibit “H”		Escrow Provisions
Exhibit “I”		Insurance

iii

JOINT DEVELOPMENT AGREEMENT

THIS JOINT DEVELOPMENT AGREEMENT is made this day of , 2009 (the “ Closing Date ”) by and among BG US Production Company, LLC, a limited liability company organized and existing under the Laws of Delaware (“ BG ”), EXCO Production Company, LP, a limited partnership organized and existing under the Laws of Texas (“ EPC ”), and EXCO Operating Company, LP, a limited partnership organized and existing under the Laws of the State of Delaware (“ EOC ” and together with EPC, “ EXCO ”). BG and EXCO shall sometimes be referred to herein together as the “ Parties ”, and individually as a “ Party ”. The Parties shall sometimes be referred to herein together in their capacities as working interest owners in the Subject Oil and Gas Assets as the “ Development Parties ”, and individually as a “ Development Party ”. Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in Appendix I.

RECITALS

WHEREAS, on the Closing Date, BG and EXCO consummated certain transactions contemplated in the Purchase Agreement, which transactions included the purchase by BG and the sale by EXCO of undivided interests in certain Oil and Gas Assets; and

WHEREAS, the Development Parties desire to develop the Subject Oil and Gas Assets located in the East Texas/North Louisiana Area in a coordinated manner using EXCO Operator as operator; and

WHEREAS, the Parties now desire to set forth their respective rights and obligations with respect to all such arrangements.

NOW THEREFORE, IN CONSIDERATION OF THE MUTUAL AGREEMENTS HEREIN CONTAINED, THE PARTIES HEREBY AGREE AS FOLLOWS:

ARTICLE 1

INTERPRETATION

All references in this Agreement to Exhibits, Appendices, Articles, Sections, subsections and other subdivisions refer to the corresponding Exhibits, Appendices, Articles, Sections, subsections and other subdivisions of or to this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any Articles, Sections, subsections and other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof. The words “this Agreement,” “herein,” “hereby,” “hereunder” and “hereof,” and words of similar import, refer to this Agreement as a whole and not to any particular Article, Section, subsection or other subdivision unless expressly so limited. The words “this Article,” “this Section,” and “this subsection,” and words of similar import, refer only to Article, Section or subsection hereof in which such words occur. The word “including” (in its various forms) means including without limitation. All references to “$” or “dollars” shall be deemed references to United States dollars. Each accounting term not defined herein will have the meaning given to it under GAAP as interpreted as of the date of this Agreement. Pronouns in masculine, feminine or neuter genders shall be construed to state and include any other gender, and words, terms and titles (including terms defined herein) in the

singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. Appendices and Exhibits referred to herein are attached to and by this reference incorporated herein for all purposes. References to any Law or agreement shall mean such Law or agreement as it may be amended from time to time.

ARTICLE 2

CERTAIN OBLIGATIONS

Section 2.1 Carry of Eligible Costs .

(a)

From and after the Closing Date and until the Carry Termination Event, and notwithstanding the terms of any Applicable Operating Agreement to the contrary, BG shall pay seventy-five percent (75%) of EXCO’s share under each Applicable Operating Agreement of all Eligible Costs incurred in accordance with an approved Annual Work Program and Budget or pursuant to a Sole Risk Development Operation undertaken by EXCO with respect to the Deep Rights (all such Eligible Costs that BG is obligated to pay pursuant to this Section 2.1, “ Carried Costs ”). As used herein, “ Carry Termination Event ” means the time at which the aggregate amount of Carried Costs paid by BG equals the Carried Cost Obligation. Joint Development Operator shall maintain an accurate record of the Carried Costs paid by BG from time to time, and shall provide each Development Party with a monthly statement showing the Calendar Month and inception to date payments by BG.

(b)

Until the Carry Termination Event, all Carried Costs shall be paid by BG in the same manner and at the same time it pays its share of billings or requests for advances pursuant to Section 2.2. BG shall be entitled to exercise all rights available to the parties under the Applicable Operating Agreements to contest charges and audit the accounts of the operator thereunder with respect to such payments. Any reimbursements for any Carried Costs paid by BG shall be paid by EXCO or the applicable reimbursing party to BG promptly after the determination thereof (and, to the extent reimbursable by Person other than EXCO and paid to EXCO, receipt by EXCO of such amounts), provided that any amounts so reimbursed to BG shall be deducted from the calculation of the Carried Costs paid by BG for purposes of this Agreement, including the determination of the Carry Termination Event. In the event EXCO receives a credit in respect of Carried Costs paid by BG, at the request of BG, EXCO shall request that such credit be paid directly to BG (and any such credit actually paid to BG shall be deducted from the calculation of Carried Costs paid by BG pursuant to this Agreement).

Section 2.2 Payment Procedure .

(a)

In response to each statement or invoice issued by an operator to the Participating Parties in a Development Operation under this Agreement or an Applicable Operating Agreement, each Participating Party shall pay its share of expenditures for the conduct of such Development Operations in accordance with the escrow provisions set forth in Exhibit “H” attached hereto.

(b)

Each Participating Party shall have the right to audit the Joint Development Operator’s and its Affiliates’ accounts with respect to Development Operations in which it participates or is a non-consenting party on the same basis as is provided in Exhibit “C” to the Joint Development Operating Agreement.

Section 2.3 Development Costs . Except as set forth in Section 2.1 above, each Development Party shall bear and pay its proportionate share of all Development Costs incurred from and after the Closing Date in accordance with, and subject to, the terms and conditions of this Agreement and the Applicable Operating Agreements.

ARTICLE 3

SCOPE; PARTICIPATING INTERESTS; OPERATIONS

Section 3.1 Scope . This Agreement shall govern the respective rights and obligations of the Development Parties with respect to the funding, development and operation of the Subject Oil and Gas Assets. This Agreement does not govern: (a) the funding, development or operation of any equipment, fixtures or other assets located downstream of the outlet flange of the relevant custody transfer meter (or, in the case of Hydrocarbon liquids, downstream of the outlet flange in the tanks) located on or in the vicinity of the Leases in the Subject Oil and Gas Assets; or (b) the marketing or sale of oil and gas products from the Subject Oil and Gas Assets, all of which are outside the scope of this Agreement.

Section 3.2 Participating Interests .

(a)

As of the Closing Date, the Participating Interests of the Development Parties are as follows:


Development Party		Participating Interest (%)
BG		50.0000
EXCO		50.0000

(b)

If a Development Party Transfers all or any undivided percentage of its Joint Development Interest pursuant to the provisions of this Agreement, the Participating Interests of the Development Parties shall be revised accordingly.

Section 3.3 Operations Subject to Laws, Leases and Operating Agreement . All operations conducted pursuant to this Agreement by Joint Development Operator or any Applicable Operating Agreement by any Party Operator shall be conducted in compliance with

the terms and conditions of: (a) all applicable Laws; (b) those Leases upon which such operations are conducted; (c) the Applicable Operating Agreements, to the extent applicable to such operations; and (d) once agreed in accordance with Section 4.10, appropriate HSSE guidelines and principles. Joint Development Operator, while conducting operations under this Agreement, and any Party Operator, while conducting operations under any Applicable Operating Agreement, shall conduct such activities as a reasonably prudent operator, in a good and workmanlike manner with due diligence and dispatch, in accordance with good oilfield practice and appropriate technical standards and guidelines issued by the American Petroleum Institute, the American Society of Mechanical Engineers and the American National Standards Institute, among others. Within twelve months of signing this Agreement, the Development Parties shall perform a gap analysis against a set of agreed technical standards for design, construction and operation of the wells and facilities within the East Texas/North Louisiana Area. These standards shall be submitted to the Operating Committee for its approval and shall include appropriate technical standards and guidelines (as mentioned above), including agreed exceptions, and shall adhere to HSSE guidelines and principles agreed upon pursuant to Section 4.10.

Section 3.4 Operating Agreements .

(a)

All Leases in the East Texas/North Louisiana Area: (i) in which only the Development Parties hold interests as of the Effective Date and which are not subject to a Third Party Operating Agreement; or (ii) in which the Development Parties hereafter acquire interests and which are not subject to a Third Party Operating Agreement at the time of acquisition shall be deemed to be subject to and governed by an operating agreement in the form attached hereto as Exhibit “B” (each a “ Joint Development Operating Agreement ”).

(b)

In addition, the Parties agree to use all commercially reasonable efforts to have the form attached hereto as Exhibit “B” adopted as the operative operating agreement by all working interest owners for any Leases in the East Texas/North Louisiana Area in which the Development Parties and other Persons hold working interests but which are not presently subject to a Third Party Operating Agreement.

(c)

A separate Joint Development Operating Agreement shall be deemed to cover each drilling and production unit now or hereafter designated by the Parties or by order or rule of a Governmental Authority having jurisdiction in the East Texas/North Louisiana Area for which the Development Parties hold the entirety of the working interest for such unit, provided that in the event any Person that is not a Development Party is to acquire a working interest in such unit or this Agreement terminates, the Development Parties shall execute a Joint Development Operating Agreement for such unit prior to such acquisition or termination.

(d)

There shall be no retroactive adjustment of expenses incurred or revenues received with respect to any separate Joint Development Operating Agreement which is deemed to come into existence as a consequence of the designation of a new unit.

(e)

Each Joint Development Operating Agreement in which no third party participates and, as between the Parties only, each Joint Development Operating Agreement in which a third party participates and each Third Party Operating Agreement, shall be subject to the provisions of Exhibit G hereto unless and until the applicability of such provisions to the Subject Oil and Gas Assets subject to such operating agreement terminates in accordance with the terms of Exhibit G.

Section 3.5 Appointment and Removal of Party Operator .

(a)

EXCO Operator is hereby designated and agrees to serve as the initial operator under each Joint Development Operating Agreement and to operate the Subject Oil and Gas Assets covered by such Joint Development Operating Agreement in accordance with the terms and conditions thereof, subject (in each case) to the terms of this Agreement. To the extent EOC or EPC serves as operator under any Third Party Operating Agreement, such Person is hereby designated and agrees to serve as operator under such Third Party Operating Agreement and to operate the Subject Oil and Gas Assets covered by such Third Party Operating Agreement in accordance with the terms and conditions thereof, subject (in each case) to the terms of this Agreement. The designations set forth in this Section 3.5(a) are personal to the applicable EXCO Operator, as a consequence of the specific skills it holds with respect to shale operations, and operations in the Haynesville shale in particular. For the avoidance of doubt, a Party Operator shall conduct each Sole Risk Development Operation conducted pursuant to the Joint Development Operating Agreement for which it is operator on behalf of all of the parties participating in such operation, unless otherwise agreed by such participating parties in accordance with the terms of such Joint Development Operating Agreement.

(b)

A Party Operator may be removed as operator under any Joint Development Operating Agreement, or if any Person that is not a Development Party is party to such Joint Development Operating Agreement, then a Party Operator may be required to resign as operator under such Joint Development Operating Agreement, under the following circumstances:

(i) by the affirmative vote of the Development Parties that are parties to such Joint Development Operating Agreement, other than Party Operator and its Affiliates, holding a majority of the Participating Interest held by such Development Parties: (A) if there is a Change in Control of such Party Operator; or (B) for good cause, provided that in the case of removal or a required resignation for good cause, such vote shall not be deemed effective until a written notice has been delivered to such Party Operator by another

Party that is a party to such Joint Development Operating Agreement detailing the alleged default and such Party Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an operation then being conducted, within forty-eight (48) hours of its receipt of the notice;

(ii) by the affirmative vote of the Development Parties that are parties to such Joint Development Operating Agreement holding a majority of the Participating Interest in the event that Party Operator’s and its Affiliates’ aggregate Participating Interest falls below twelve and a half percent (12.5%); or

(iii) solely with respect to those After Acquired Units for which EXCO or any Affiliate of EXCO serves as Party Operator under the relevant Joint Development Operating Agreement, upon a change in Control of the ultimate parent company of EXCO.

For purposes hereof, “good cause” shall mean not only gross negligence and willful misconduct, but also the material breach of or inability to meet the standards of operation contained in Section 3.3, or a material failure or inability of a Party Operator to perform its obligations under the relevant Joint Development Operating Agreement. As used herein, “gross negligence” and “willful misconduct” shall include material unlawful acts committed by an operator of which such operator had actual knowledge at the time in question. Notwithstanding anything to the contrary herein, (I) if there is a dispute as to whether a condition resulting in good cause to remove a Party Operator has occurred, or whether such condition has been cured, such Party Operator shall continue to serve and discharge its duties in such capacity until the dispute has been resolved in accordance with Section 13.2, and (II) a change of a corporate name or structure of a Party Operator or Transfer of a Party Operator’s interest to another direct or indirect Wholly-Owned Affiliate of the same ultimate parent company shall not be the basis for removal of such Party Operator.

During the term of this Agreement, for avoidance of doubt, as between the Parties, the provisions of this Section 3.5(b) and Section 3.5(c) shall be in lieu of any provisions in any Joint Development Operating Agreement for the removal or resignation of the operator thereunder.

(c)

Upon the occurrence of a Material Event with respect to a Party Operator, it shall be deemed to have resigned as operator under each Joint Development Operating Agreement for which it serves as operator, or if any Person that is not a Development Party is party to such Joint Development Operating Agreement, then a Party Operator shall be required to resign as operator under such Joint Development Operating Agreement, without any action by the other Parties, except the selection of a successor pursuant to the terms and conditions of the relevant Joint Development Operating Agreement.

(d)

Following any resignation or removal of EXCO Operator as operator under any Applicable Operating Agreement, if BG or one of its Affiliates is still a Party to this Agreement, EXCO shall vote for BG or BG’s designee to serve as the successor operator under such Applicable Operating Agreement.

(e)

Each Party Operator shall conduct all operations in accordance with and subject to the terms of Article 4, and Sections 3.3, 3.4, this 3.5, 3.7, 3.10 and 3.11, in addition to any terms set forth in the relevant Applicable Operating Agreements.

Section 3.6 Joint Development Operator .

(a)

EOC is hereby designated and agrees to serve as the initial Joint Development Operator in accordance with the terms and conditions of this Agreement. The designation set forth in this Section 3.6(a) is personal to EOC, as a consequence of the specific skills it holds with respect to shale operations, and operations in the Haynesville shale in particular.

(b)

Joint Development Operator may resign at any time by giving at least ninety (90) days’ prior written notice to the other Development Parties. Joint Development Operator shall be deemed to have resigned without any action by the other Development Parties, except for selection of a successor, under the following circumstances: (i) Joint Development Operator terminates its legal existence (other than as part of a reorganization that results in the Transfer of all of its rights and obligations in the East Texas/North Louisiana Area to a Wholly-Owned Affiliate of the same ultimate parent company of such Joint Development Operator); (ii) Joint Development Operator no longer possesses the corporate capability to serve as Joint Development Operator (provided that, for the avoidance of doubt, corporate capability is not a measure of Joint Development Operator’s knowledge and expertise regarding the performance of drilling operations, but instead concerns Joint Development Operator’s ability to function as a business generally); or (iii) any payment default or acceleration of debt (other than an acceleration of debt caused by a Change in Control of Joint Development Operator or any of its Affiliates) by Joint Development Operator or any of its Affiliates shall have occurred and be continuing under (in each case) any material (I) agreement for borrowed money of Joint Development Operator or any of its Affiliates or (II) guarantee by Joint Development Operator or its Affiliates of another Person’s payment or performance obligations.

(c)

Joint Development Operator may be removed under the following circumstances:

(i) by the affirmative vote of the Development Parties other than Joint Development Operator and its Affiliates holding a majority of the Participating Interest held by such Development Parties: (A) if there is a Change in Control of Joint Development Operator; or (B) for good cause, provided that in the case of removal for good cause, such vote shall not be deemed effective until a written notice has been delivered to Joint Development Operator by another Party detailing the alleged default and Joint Development Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an operation then being conducted, within forty-eight (48) hours of its receipt of the notice; or

(ii) by the affirmative vote of the Development Parties holding a majority of the Participating Interest in the event that Joint Development Operator’s and its Affiliates’ aggregate Participating Interest falls below twelve and a half percent (12.5%).

For purposes hereof, “ good cause ” shall mean not only gross negligence or willful misconduct but also the material breach of or inability to meet the standards of operation contained in Section 3.3, or material failure or inability to perform its obligations under this Agreement. Notwithstanding anything to the contrary herein, (I) if there is a dispute as to whether a condition resulting in good cause to remove Joint Development Operator has occurred, or whether such condition has been cured, Joint Development Operator shall continue to serve and discharge its duties in such capacity until the dispute has been resolved in accordance with Section 13.2, and (II) a change of a corporate name or structure of Joint Development Operator or Transfer of Joint Development Operator’s interest to another direct or indirect Wholly-Owned Affiliate of the same ultimate parent company shall not be the basis for removal of Joint Development Operator.

(d)

Upon the occurrence of a Material Event with respect to Joint Development Operator, it shall be deemed to have resigned without any action by the other Parties, except the selection of a successor pursuant to Section 3.6(e). If a petition for relief under the federal bankruptcy laws is filed by or against Joint Development Operator, and the removal of Joint Development Operator is prevented by the terms of the Bankruptcy Code or actions of the federal bankruptcy court, then, to the extent allowed by Law, the Operating Committee shall serve as Joint Development Operator until Joint Development Operator has elected to reject or assume this Agreement pursuant to the Bankruptcy Code, and an election to reject this Agreement by Joint Development Operator as a debtor in possession, or by a trustee in bankruptcy, shall be deemed a resignation as Joint Development Operator without any action by the other Parties, except the selection of a successor.

(e)

Following any resignation or removal of EOC as Joint Development Operator, if BG or one of its Affiliates is still a Party to this Agreement, BG or its designated Affiliate shall be entitled to become successor Joint Development Operator. Should BG and its Affiliates elect not to become successor Joint Development Operator, or should none of BG and its Affiliates be a Party to this Agreement, a successor Joint Development Operator shall be selected by the Parties by the affirmative vote of Parties holding collectively at least seventy-five percent (75%) of the Participating Interests eligible to vote. If Joint Development Operator has been removed for cause or is deemed to have resigned or votes only to succeed itself, it and its Affiliates shall not be entitled to vote for the successor Joint Development Operator (but any transferee of all or any part of the Joint Development Operator’s Participating Interest shall be entitled to vote for the successor Joint Development Operator). The Joint Development Operator’s resignation or removal shall not become effective until 7:00 o’clock am on the first day of the Calendar Month following the expiration of ninety (90) days after the giving of notice of resignation by the Joint Development Operator, the

deemed resignation of the Joint Development Operator or action by BG or the non-operators to remove Joint Development Operator, unless a successor Joint Development Operator has been selected and assumes the duties of Joint Development Operator at an earlier date.

(f)

Subject to the terms and conditions of this Agreement, in addition to those certain other duties and responsibilities expressly set forth herein, Joint Development Operator shall:

(i) notwithstanding the terms of any Applicable Operating Agreement to the contrary, at the option of any Development Party, pay such Development Party’s share of: (A) rentals, shut-in well payments and minimum royalties required to be paid to lessees under the Leases included in the Subject Oil and Gas Assets; and (B) royalties, overriding royalties and other burdens required to be paid to lessees and holders of overriding royalties and other burdens on the Leases included in the Subject Oil and Gas Assets, provided that the Development Party’s share of the payments described in clauses (A) and (B) shall be billed to or advanced by, as the case may be, such Development Party in accordance with Section 2.2;

(ii) at the option of any Development Party, pay such Development Party’s share of joint interest billings and cash calls (including, in the case of BG, Carried Costs) from third party operators relating to wells in the East Texas/North Louisiana Area not operated by a Party Operator, provided that the Development Party’s share of such payments shall be billed to or advanced by, as the case may be, such Development Party in accordance with Section 2.2; and

(iii) notwithstanding the terms of any Applicable Operating Agreement to the contrary, at the option of any Development Party, at such Development Party’s expense, secure any title curative matters and pooling amendments or agreements required of such Development Party under the Applicable Operating Agreement in connection with Leases or other rights to oil and gas included in the Subject Oil and Gas Assets, provided that the Development Party’s expenses for such requested actions shall be billed to or advanced by, as the case may be, such Development Party in accordance with Section 2.2.

Section 3.7 Liability of Operator .

(a)

Subject to the rights of a Development Party to remove any Party acting as Joint Development Operator under this Agreement or Party Operator under any Applicable Operating Agreement in accordance with the terms hereof, in no event shall any Party serving as Joint Development Operator or a Party Operator have any liability as Joint Development Operator under this Agreement or Party Operator under any Applicable Operating Agreement for any claim, damage, loss or liability sustained or incurred in connection with any Development Operation or any breach of Section 3.3 or any similar provision regarding the standard of performance of a Party Operator in performing operations under any Applicable

Operating Agreement, EVEN IF SUCH CLAIM, DAMAGE, LOSS OR LIABILITY AROSE IN WHOLE OR IN PART FROM THE ACTIVE, PASSIVE, SOLE OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF SUCH PARTY, ANY OF ITS AFFILIATES OR ANY OFFICER, PARTNER, MEMBER, DIRECTOR OR EMPLOYEE OF SUCH PARTY, OTHER THAN IF SUCH CLAIM, DAMAGE, LOSS OR LIABILITY AROSE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PARTY, ANY OF ITS AFFILIATES OR ANY OFFICER, PARTNER, MEMBER, DIRECTOR OR EMPLOYEE OF SUCH PARTY (WHICH CLAIM, DAMAGE, LOSS OR LIABILITY IS THE SUBJECT OF SECTION 3.7(B)) and provided further that neither Joint Development Operator nor any Party Operator shall be released from liability for a material breach of any financial, administrative or procedural (such as providing notices and voting) obligation of Joint Development Operator under this Agreement or a Party Operator under any Applicable Operating Agreement; it being understood by each Party that any such claim, damage, loss or liability (other than that caused by the gross negligence or willful misconduct of a Party, its Affiliates or any officer, partner, member, director or employee of a Party or any of its Affiliates, or the material breach of any financial, administrative or procedural (such as providing notices and voting) obligation of Joint Development Operator or a Party Operator), shall be borne severally by the Parties (including such operator) in proportion to their interests in the operations or activities giving rise to such claim, damage, loss or liability.

(b)

Any Party serving as Joint Development Operator or a Party Operator shall bear sole liability on behalf of the Parties for any claim, damage, loss or liability sustained or incurred in connection with Development Operations hereunder or under an Applicable Operating Agreement to the extent such claim, damage, loss or liability arose in whole or in part from the gross negligence or willful misconduct of such Party or any of its Affiliates or any officer, partner, member, director or employee of such Party or Affiliate of such Party.

(c)

Notwithstanding anything to the contrary herein or in any Applicable Operating Agreement, neither Joint Development Operator nor any Party Operator shall be liable for the gross negligence or willful misconduct of a Secondee, nor shall the gross negligence or willful misconduct of such a Secondee be grounds for removal of Joint Development Operator pursuant to Section 3.5(c) or such Party Operator in accordance with Section 3.5(b).

Section 3.8 Secondees . Notwithstanding the terms of any Applicable Operating Agreement to the contrary, BG shall have the right to place Secondees within the organization of EXCO Operator while it is serving as Joint Development Operator, all as set forth in Exhibit “C” attached hereto.

Section 3.9 Non-Solicitation of Joint Operator Employees . No Party may solicit any employee of Joint Development Operator for a period of twelve (12) Calendar Months after such employee’s employment with Joint Development Operator has ended without obtaining the prior written consent of Joint Development Operator, provided that this prohibition shall not apply to offers of employment made by a Party pursuant to a general solicitation of employment to the public or the industry, and no Party shall be prohibited from employing any such person who contacts such Party on his or her own initiative.

Section 3.10 Certain Reports .

(a)

Joint Development Operator and each Party Operator shall provide the following data and reports, as they are currently produced or compiled, for each Development Operation for which it serves as operator to the Participating Parties for such Development Operation:

(i) copies of all logs or surveys, including in digitally recorded format if such exists;

(ii) daily drilling and production reports;

(iii) copies of all tests and core data and analysis reports;

(iv) final well recap reports;

(v) copies of all plugging reports;

(vi) as requested by Participating Party from time to time and, except as prohibited by restrictions under third party contracts (which restrictions Joint Development Operator or Party Operator, as applicable, shall use its reasonable efforts to have waived), copies of current geological and geophysical maps, seismic sections and shot point location maps;

(vii) subject to the following sentence, engineering studies, development schedules and annual progress reports on development projects;

(viii) subject to the following sentence, field and well performance reports, including reservoir studies and reserve estimates;

(ix) copies of written notices provided by any third Person regarding violations or potential violations of applicable Law;

(x) copies of all material reports provided to any Governmental Authority;

(xi) upon written request of a Participating Party, copies of any material correspondence between such operator and any Governmental Authority;

(xii) copies of all title opinions, including drill site title opinions and division order title opinions;

(xiii) such other information as may be reasonably requested by a Participating Party; and

(xiv) such other reports as may be directed by the Operating Committee.

Notwithstanding the foregoing, if any of the foregoing data or reports under clause (vii) or (viii) above is generated, assembled or prepared by a third party that is not an Affiliate of Joint Development Operator or the applicable Party Operator (“ Third Party Prepared Information ”), then unless the costs of such third party’s services with respect to such Third Party Prepared Information are chargeable to the joint account for such Participating Parties, Joint Development Operator or Party Operator (as applicable) shall not be required to furnish such Third Party Prepared Information to any Participating Party, other than any Participating Party that pays Joint Development Operator or the applicable Party Operator its Participating Interest share of the cost of such Third Party Prepared Information.

(b)

Joint Development Operator and each Party Operator shall, in the conduct of Development Operations:

(i) report to the Participating Parties within 24 hours of the management of such Joint Development Operator or Party Operator (as applicable) receiving notice thereof, details of fatalities, lost time incidents, material environmental incidents and any other material incidents which (in each case) may present a reputational risk to such Participating Parties and also provide copies of any written notices received from Governmental Authorities or third parties with respect to such fatalities and incidents;

(ii) prepare an HSSE report to be submitted by such operator to the Participating Parties on the fifteenth (15 ^th ) day of April, July, October and January of each year in respect of the previous three months, and monthly with respect to item (ii)(c) only, with content to be agreed by the Operating Committee but containing at a minimum:

(a)

progress against the HSSE Plan applicable to such period;

(b)

status of HSSE actions relating to HSSE audits;

(c)

occupational safety indicators (fatalities and lost time incidents and frequency, recordable incidents and frequency and total man hours worked) of such operator (and as agreed to as part of the HSSE Plan in accordance with Section 4.10, its contractors and subcontractors);

(d)

known environmental incidents (e.g. leaks, spills, and cases of violations of environmental Laws and permits); and

(e)

HSSE related claims;

(iii) Contractually require its contractors, subcontractors and suppliers of services to comply with all applicable Laws and all safety rules of such Joint Development Operator or Party Operator binding on operator personnel, and provide to its contractors and subcontractors copies of the HSSE Principles and HSSE Management System generated pursuant to Section 4.10 that are then in effect and use its commercially reasonable efforts to enforce such Persons’ compliance with such principles and system; and

(iv) with reasonable advance notice, permit the Participating Parties to have access during normal business hours (at their sole risk and expense, notwithstanding anything herein or in any Associated Agreement to the contrary) to operations, design phase activities, books and records, and representatives of such operator for the purpose of conducting HSSE and asset integrity audits (provided that such Participating Parties shall (A) minimize any disruption to the operations and business of such Joint Development Operator or such Party Operator caused by such audits, and (B) adhere to all safety rules of such operator and the HSSE Principles and HSSE Management System then in effect while conducting such audits).

(c)

to the extent that a Development Party is responsible for any portion of the liability associated therewith, Joint Development Operator and each Party Operator shall promptly notify the Development Parties of any third party written claim or suit arising from Development Operations of which such operator becomes aware that exceeds (or is reasonably expected to exceed) one hundred thousand dollars (US$100,000), and, upon request of a Development Party from time to time, shall further provide, in a timely manner, the then current information regarding the progress and status of any such claims or suits.

Section 3.11 Insurance .

(a)

Joint Development Operator and each Party Operator shall also carry insurance for the benefit of the joint account of the Development Parties as outlined in Exhibit “I” attached hereto and made a part hereof (provided that no Party Operator shall be required to carry insurance for any Development Party that is not a party to the Applicable Operating Agreement for which it is operator). All such policies shall be carried with insurers maintaining a credit rating of at least “A-” by Standard & Poors or A.M. Best or “A3” by Moody’s. Joint Development Operator and each Party Operator shall provide copies of such policies to the Development Parties covered by such policies upon request, and shall notify all Development Parties to be covered by such policies if it has been unable to obtain or maintain any of such policies. Except for worker’s compensation policies, Joint Development Operator and each Party Operator shall arrange for the Development Parties, according to their respective interests, to be named as additional insureds on the relevant policies, with waivers of subrogation in favor of all parties with respect to their interests under this Agreement or such Applicable Operating Agreement, as applicable. Joint Development Operator and each Party Operator shall duly file any relevant claims and use commercially reasonable efforts to collect for the account of the relevant Development Parties

any proceeds under such policies. Joint Development Operator and each Party Operator shall require all contractors and subcontractors engaged in work for Development Operations to comply with the workers compensation Laws of the state where the Development Operations are being conducted and to maintain such other insurance as Joint Development Operator or such Party Operator may require.

(b)

Notwithstanding the foregoing, any Development Party may obtain such insurance as it deems advisable for its own account at its own expense. Such insurance shall, in so far as it relates to Development Operations, contain a waiver of subrogation by the insurers in favor of each of the other Parties. Joint Development Operator and each Party Operator shall reasonably cooperate and assist such insurers in the investigation of insurance claims made by a Development Party in connection with the operations performed hereunder.

(c)

Joint Development Operator and each Party Operator shall in respect of insurance obtained by contractors and subcontractors pursuant to Section 3.11(a): (i) if requested by any Development Party, supply such Development Party with evidence of the insurance that has been effected and is being maintained; and (ii) in connection with any Development Operations Contracts entered into on or after the Closing Date (excluding any written or oral confirmations, service orders or purchase orders entered into from or after the Closing Date under contracts existing as of the Closing Date), take all commercially reasonable steps to require that such contractors and subcontractors obtain from their insurers a waiver of subrogation in favor of Joint Development Operator or such Party Operator and each of the Development Parties.

Section 3.12 Reimbursement of Joint Development Operator and Party Operators for Technical Services; Overhead .

(a)

From and after the Closing Date and for so long as EOC serves as Joint Development Operator and does not undergo a change in Control of its ultimate parent company, Joint Development Operator shall be entitled to perform Technical Services required in connection with Development Operations conducted by Joint Development Operator or any Party Operator that is an Affiliate of EXCO, and to charge the Development Parties for Technical Services Costs incurred in connection therewith.

(b)

All Technical Services Costs chargeable with respect to Development Operations shall be chargeable to the Development Parties on a Calendar Month basis by Joint Development Operator and each Development Party shall pay its Participating Interest share thereof in accordance with Section 2.2. With respect

to any Development Operation, if any Technical Services Costs are billed under a Pre-Existing Operating Agreement or a Subsequent Operating Agreement, then such amount received by Joint Development Operator or Party Operator in connection therewith will be shared by the Development Parties in accordance with their respective Participating Interests (and Joint Development Operator or Party Operator, as applicable, shall credit to each such other Development Party the proportionate share to which such Development Party is entitled with respect to such amount received by such Joint Development Operator or Party Operator).

(c)

All employees and Secondees of Joint Development Operator and its Affiliates providing Technical Services to Development Operations that do not work solely on Development Operations shall record their time, and the time sheets of such employees and Secondees shall identify the time spent providing Technical Services to Development Operations, and only that portion of their time spent providing Technical Services to Development Operations shall be chargeable to the Development Parties. All such time sheets and related work records shall be subject to audit by the Development Parties. Notwithstanding the foregoing, from time to time the Development Parties may agree upon an allocation of time for certain employees and Secondees in lieu of requiring such employees and Secondees to record their time.

(d)

To the extent that any Development Operations are subject to a Pre-Existing Operating Agreement and EXCO or an Affiliate of EXCO is the Party Operator thereunder, then each Development Party shall be responsible for and pay its Working Interest share of the overhead rates specified in such Pre-Existing Operating Agreement for such Development Operations conducted thereunder in accordance with Section 2.2.

(e)

Except for Development Operations that are subject to a Pre-Existing Operating Agreement or a Subsequent Operating Agreement, with respect to all Development Operations conducted by EXCO or an Affiliate of EXCO as Party Operator hereunder or under any Joint Development Operating Agreement, each Development Party shall be responsible for and pay its Working Interest share of the overhead rates specified in Schedule 3.12 (subject to Section 3.12(f) below) for such Development Operations in accordance with Section 2.2.

(f)

With respect to Development Operations conducted by EXCO or an Affiliate of EXCO as a Party Operator under a Subsequent Operating Agreement each Development Party shall pay its Working Interest share of the producing well and/or drilling well overhead rates for such Development Operations specified in such Subsequent Operating Agreement (the “ Other Overhead Rates ”) in accordance with Section 2.2; provided that, in the event that the Other Overhead Rates differ from the overhead rates specified in Section 3.12(e) (the “ Section 3.12 Overhead Rates ”), then:

(i) to the extent that a Development Party’s Working Interest share of such Other Overhead Rates in any Calendar Month paid by such Development Party exceeds such Development Party’s Working Interest share of the Section 3.12 Overhead Rates for such Development Party for such Calendar Month (such Development Party’s “ Actual Operating Agreement Charges ”), then such Party Operator shall credit to such Development Party the difference between its Working Interest share of the Other Overhead Rates paid by such Development Party and its Actual Operating Agreement Charges for such Calendar Month; or

(ii) to the extent that a Development Party’s Working Interest share of such Other Overhead Rates in any Calendar Month paid by such Development Party is less than the Actual Operating Agreement Charges for such Development Party for such Calendar Month, then (upon notice by such Party Operator) such Development Party shall pay such Party Operator the difference between its Actual Operating Agreement Charges and its Working Interest share of such Other Overhead Rates for such Calendar Month in accordance with Section 2.2.

(g)

Each Development Party shall bear its Participating Interest share of the Technical Services Costs and its Working Interest share of overhead rates chargeable to each Development Party pursuant to this Section 3.12; provided that, in the case of Sole Risk Operations, the costs and expenses of such overhead shall be chargeable solely to the Participating Parties with respect to such Sole Risk Development Operations in accordance with their respective Working Interests in such Sole Risk Development Operations.

ARTICLE 4

OPERATING COMMITTEE; DEVELOPMENT WORK PROGRAM;

ANNUAL WORK PROGRAM AND BUDGETS

Section 4.1 Operating Committee .

(a)

To facilitate the creation, approval and amendment of the Development Work Program and Annual Work Program and Budgets, and the approval of certain contracts entered into by Joint Development Operator in the course of performing Development Operations, and provide for the overall direction of Joint Development Operations, there is hereby established an Operating Committee composed of representatives of each Development Party. Each Development Party shall appoint one (1) representative and one (1) alternate representative to serve on the Operating Committee, and shall appoint its initial representative and alternate representative by notice to the others on or prior to the first to occur of the first meeting of the Operating Committee or the first vote of the Operating Committee pursuant to Section 4.1(n). All actions of a Development Party taken with respect to the Operating Committee shall be taken through its representative or alternate representative.

(b)

Each Development Party shall have the right to change its representative and alternate at any time by giving notice of such change to the other Parties.

(c)

The Operating Committee shall have the powers and duties expressly ascribed to it in this Agreement.

(d)

The representative of a Development Party, or in his absence his alternate representative, shall be authorized to represent and bind such Development Party with respect to any matter which is within the powers of the Operating Committee and is properly brought before the Operating Committee. Each such representative shall have a vote equal to the Participating Interest of the Development Party that appointed such representative. Each alternate representative shall be entitled to attend all Operating Committee meetings but shall have no vote at such meetings except in the absence of the representative for whom he is the alternate. In addition to the representative and alternate representative, each Development Party may also bring to any Operating Committee meetings such advisors as it may deem appropriate.

(e)

Joint Development Operator may call a meeting of the Operating Committee by giving notice to the Development Parties at least fifteen (15) days in advance of such meeting. Any Development Party may request a meeting of the Operating Committee by giving notice to the other Development Parties and Joint Development Operator, which notice shall include any proposals being proposed by such Development Party for consideration at the meeting (including appropriate supporting information not previously distributed to the Development Parties). Upon receiving such request, Joint Development Operator shall call such meeting for a date not less than fifteen (15) days nor more than twenty (20) days after receipt of the request.

(f)

The Operating Committee may establish such subcommittees as the Operating Committee may deem appropriate. The functions of such subcommittees shall be to serve in an advisory capacity only. Each Development Party shall have the right to appoint a representative to each subcommittee. The Operating Committee is hereby deemed to have established an implementation committee whose purpose shall be to brainstorm, develop and discuss strategies for the efficient development of the Subject Oil and Gas Assets, implementation of such strategies through the Development Work Program and Annual Work Program and Budgets, and potential acquisitions (whether by leasing, purchase, farm-in or otherwise) of other Oil and Gas Assets (provided that, for the avoidance of doubt, no Development Party or Affiliate of a Development Party shall have any obligation to offer another Development Party the opportunity to participate in acquisitions of Oil and Gas Assets except as provided in Article 9).

(g)

Each notice of a meeting of the Operating Committee as provided by Joint Development Operator shall contain: (i) the date, time and location of the meeting; (ii) an agenda of the matters and proposals to be considered and/or voted upon; and (iii) copies of all proposals to be considered at the meeting (including

appropriate supporting information not previously distributed to the Development Parties). A Development Party, by notice to the other Development Parties and Joint Development Operator, which notice shall include any additional proposals being proposed by such Development Party to be considered at the meeting (including appropriate supporting information not previously distributed to the Development Parties), given not less than five (5) Business Days prior to a meeting, may add additional matters to the agenda for a meeting. On the request of a Development Party, and with the unanimous consent of all Development Parties, the Operating Committee may consider at a meeting a proposal not contained in such meeting agenda.

(h)

There shall be at least one (1) but not more than three (3) meetings of the Operating Committee per Calendar Quarter unless all Development Parties agree in writing to the contrary. The restriction on number of meetings contained in this Section shall not restrict the number of proposals that may be submitted without a meeting pursuant to Section 4.1(m). Meetings of each subcommittee shall take place as often as the Operating Committee shall determine. All meetings of the Operating Committee and each subcommittee shall be held in the offices of Joint Development Operator, or elsewhere as the Operating Committee or such subcommittee may mutually decide.

(i)

Except as provided otherwise in this Section 4.1(i) and in Section 5.2, all decisions, approvals and other actions of the Operating Committee on all proposals coming before it that are within its powers to approve or disapprove, shall be decided by the affirmative vote of Development Parties holding collectively at least seventy-five percent (75%) of the Participating Interests of the Development Parties entitled to vote on such proposals, provided that (i) any Development Operation proposed to the Operating Committee that is not approved by the Operating Committee and that may be proposed and conducted as a Sole Risk Development Operation under the terms of the Applicable Operating Agreement may be so proposed and conducted by the Development Parties desiring to participate in such Development Operation and (ii) any Area-Wide Operation proposed to the Operating Committee which is not approved by the Operating Committee may be conducted by those Development Parties desiring to participate in such Development Operation at their sole risk and expense. Notwithstanding the preceding, any proposal to reduce the quantity of work to be conducted under the Development Work Program or any Annual Work Program and Budget (to the extent relating to any Development Operations included in any Development Work Program) with respect to any period prior to the Carry Termination Event shall also require the affirmative vote of EXCO.

(j)

With respect to meetings of the Operating Committee and each subcommittee, Joint Development Operator’s duties shall include: (i) timely preparation and distribution of the agenda; (ii) organization and conduct of the meeting; and (iii) preparation of a written record or minutes of each meeting.

(k)

Joint Development Operator shall have the right to appoint the chairman of the Operating Committee and each subcommittee, provided that, for the avoidance of doubt, the chairman shall have no special casting or deciding vote on any matter presented to the Operating Committee. The chairman of the Operating Committee shall appoint a secretary who shall make a record of each proposal voted on and the results of such voting at each Operating Committee meeting. Each Development Party shall sign and be provided a copy of such record at the end of such meeting, and it shall be considered the final record of the decisions of the Operating Committee.

(l)

The secretary shall provide each Development Party with a copy of the minutes of each Operating Committee meeting within fifteen (15) Business Days after the end of the meeting. Each Development Party shall have fifteen (15) days after receipt of such minutes to give notice to the secretary of any objections to the minutes. A failure to give notice specifying objection to such minutes within said fifteen (15) day period shall be deemed to be approval of such minutes. In any event, the votes recorded under Section 4.1(j) shall take precedence over the minutes described above.

(m)

In lieu of a meeting, any Development Party may submit any proposal that is within the Operating Committee’s powers to approve or disapprove to the Operating Committee for a vote by notice. The proposing Development Party or Development Parties shall notify Joint Development Operator with written materials describing the proposal and Joint Development Operator shall provide a copy of such proposal to each Development Party. Any such proposal by a proposing Development Party shall include with such proposal adequate documentation to enable the other Development Parties to make a decision. Each Development Party (including the proposing Development Party) shall communicate its vote on the proposal by notice to Joint Development Operator and the other Development Parties within fifteen (15) days after receipt of the proposal from the Joint Development Operator, unless such proposal, together with any other increases to an approved Annual Work Program and Budget for a Calendar Year, if accepted, would result in aggregate spending pursuant to such Annual Work Program and Budget of more than ten percent (10%) in excess of the original amount of the Annual Work Program and Budget approved pursuant to Section 4.4 (or, in the case of the Annual Work Program and Budget for Calendar Year 2009, attached hereto as Exhibit “E-1”) or, once amended to increase the amount of the Annual Work Program and Budget ten percent (10%) above the then existing amount in accordance with Section 4.4(e), the amended amount of the Annual Work Program and Budget, in which case each Development Party (including the proposing Development Party) shall

communicate its vote on the proposal by notice to Joint Development Operator and the other Development Parties within sixty (60) days after receipt of the proposal from the Joint Development Operator. Any Development Party failing to communicate its vote in a timely manner shall be deemed to have voted against such proposal. Within five (5) Business Days following the expiration of the relevant time period, Joint Development Operator shall give each Development Party a confirmation notice stating the tabulation and results of the vote on such proposal.

(n)

From time to time, the Operating Committee may approve guidelines, standards or procedures regarding the implementation of Development Operations to be observed in the conduct of Development Operations by Joint Development Operator and each Party Operator.

(o)

All decisions taken by the Operating Committee pursuant to this Section 4.1 shall be conclusive and binding on all Parties.

(p)

All notices and communications required or permitted to be given under Section 3.10 or Article 4 to the Development Parties or a Party Operator or the members of the Operating Committee shall be sufficient in all respects if given in writing and delivered personally, or sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid, or sent by telex or facsimile transmission (provided any such telex or facsimile transmission is confirmed either orally or by written confirmation), or sent by pdf via e-mail, addressed to the appropriate Party at the address for such Party shown below or at such other address as such Party shall have theretofore designated by written notice delivered to the Party giving such notice:

If to EXCO:

EXCO Operating Company, LP

EXCO Production Company, LP

12377 Merit Drive, Suite 1700

Dallas, Texas 75251

Attention Michael R. Chambers

Telephone: (214) 368-2084

Fax: (214) 438-1347

E-mail: mchambers@excoresources.com

With copies to:

Attention Harold L. Hickey

Telephone: (214) 368-2084

Fax: (214) 368-8754

E-mail: hhickey@excoresources.com

Attention Stephen F. Smith

Telephone: (214) 368-2084

Fax: (214) 706-3409

Email: ssmith@excoresources.com

If to BG:

BG US Production Company, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

Attention: Jon Harris

Telephone: (713) 599-4000

Fax: (713) 599-4250

E-mail: Jon.Harris@bg-group.com

BG US Production Company, LLC

5444 Westheimer, Suite 1200

Houston, Texas 77056

Attention: Bill Way

Telephone: (713) 599-4000

Fax: (713) 599-4250

E-mail: Bill.Way@bg-group.com

Any notice given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, or transmitted by facsimile transmission or email during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail, as the case may be. The

Parties may change the address, telephone numbers, facsimile numbers and email addresses to which such communications are to be addressed by giving written notice to the other Parties in the manner provided in this Section 4.1(p).

Section 4.2 Development Work Program .

(a)

The Operating Committee shall adopt, and modify from time to time, a multi-year work program for Development Operations (the “ Development Work Program ”) as follows:

(i) The Operating Committee is hereby deemed to have approved the work program attached hereto as Exhibit “D” for Development Operations to be performed through Calendar Year 2012. Such work program shall constitute the Development Work Program applicable through Calendar Year 2012 except as otherwise revised, amended or modified by the Operating Committee.

(ii) On or before August 15 of each Calendar Year, commencing in Calendar Year 2011, Joint Development Operator shall prepare and submit to the Operating Committee a revised Development Work Program setting forth the Development Operations to be carried out during the following two Calendar Years. Such proposed Development Work Program shall automatically include any Development Operations which were approved for such period as part of the prior Development Work Program unless the Operating Committee determines to the contrary. Within sixty (60) days after distribution of the proposed Development Work Program (or such later date as may agreed by the Operating Committee), the Operating Committee shall meet to consider, modify (if necessary) and approve or reject the proposed Development Work Program. If the Operating Committee does not approve any such Development Work Program on or prior to the first day of the following Calendar Year (for purposes of this Section 4.2(a)(ii), the “ current Calendar Year ”), then the Development Work Program for the then-current Calendar Year shall be the Development Work Program, if any, approved for the then-current Calendar Year in the preceding Calendar Year.

(b)

Except as otherwise agreed in writing by the Operating Committee, the Annual Work Program and Budget for each Calendar Year shall contain not less than those Development Operations to be performed during such Calendar Year as set forth in the Development Work Program.

Section 4.3 Initial Annual Work Plan and Budgets . The Annual Work Program and Budget for the remainder of Calendar Year 2009 is hereby approved by the Operating Committee and is attached hereto as Exhibit “E-1”. The first draft of an Annual Work Program and Budget for Calendar Year 2010 attached hereto as Exhibit “E-2” is hereby deemed approved by the Operating Committee, provided that the Operating Committee shall approve such further details as would be required under the terms of Section 4.4 on or before October 15, 2009.

Section 4.4 Subsequent Annual Work Plan and Budgets . For each Calendar Year during the term of this Agreement commencing with Calendar Year 2010, each Annual Work Program and Budget shall be adopted as follows:

(a)

On or before August 15 in the Calendar Year immediately preceding the relevant Calendar Year, Joint Development Operator shall prepare and submit to the Operating Committee a proposed Annual Work Program and Budget for such applicable Calendar Year (provided that in the case of the proposed Annual Work Program and Budget for Calendar Year 2010, the draft Annual Work Program and Budget attached hereto as Exhibit “E-2” shall be basis for such proposed Annual Work Program and Budget). Each such proposed Annual Work Program and Budget shall contain at least the following:

(i) all Development Operations that are to be conducted during such Calendar Year pursuant to the Development Work Program, except with the approval of the Operating Committee to the contrary;

(ii) all lease maintenance costs and expenditures required under the terms of existing Leases or existing third party contracts held by Joint Development Operator for the benefit of Joint Development Operations (including each Development Party’s share thereof), except with the approval of the Operating Committee to the contrary;

(iii) estimates of all Technical Services Costs associated with Technical Services to be provided by Joint Development Operator;

(iv) itemized estimates of the Development Costs (including each Development Party’s share thereof) for Joint Development Operations covered by the proposed Annual Work Program and Budget by budget category and allocated between Shallow Rights and Deep Rights, and Area-Wide Operations, containing sufficient detail (to the extent available) to afford the ready identification of the nature, scope and duration of the activity in question;

(v) the number of wells to be drilled as part of the Joint Development Operations in each of the Shallow Rights and the Deep Rights during such Calendar Year, the proposed locations of such wells (to the extent reasonably ascertainable at the time such Annual Work Program and Budget is proposed), and the estimated Development Costs (including each Development Party’s share thereof) associated therewith;

(vi) estimates of the schedule pursuant to which the Development Parties’ share of Development Costs for Joint Development Operations included in the Annual Work Program and Budget are anticipated to be incurred by the Development Parties; and

(vii) any other information requested in writing by a Development Party that can reasonably be provided by the Joint Development Operator.

(b)

Itemized expenditures in an Annual Work Program and Budget may extend over more than one Calendar Year because such itemized expenditures represent activities or operations that require commitments in excess of one Calendar Year. Once itemized expenditures are approved, Joint Development Operator shall not be required to resubmit them for approval of the Operating Committee on an annual or other periodic basis, but instead all such items shall be automatically included in future Annual Work Program and Budgets as items which have already been approved.

(c)

Joint Development Operator shall regularly consult with the Operating Committee and the implementation subcommittee during the preparation of each proposed Annual Work Program and Budget. Following receipt of Joint Development Operator’s proposed Annual Work Program and Budget, each Development Party shall furnish to Joint Development Operator and the other Development Parties any comments, suggestions or proposed amendments it may have respecting the proposed Annual Work Program and Budget as soon as may be reasonably practicable, and Joint Development Operator shall consider and discuss such comments, suggestions and proposed amendments with the Operating Committee. Unless otherwise extended by the Operating Committee, within sixty (60) days after distribution of the proposed Annual Work Program and Budget for a Calendar Year, the Operating Committee and Joint Development Operator shall meet to consider, modify (if necessary) and approve or reject the proposed Annual Work Program and Budget. Subject to Section 4.4(d), approval of an Annual Work Program and Budget shall require the approval of the Operating Committee. Inclusion of an operation in an approved Annual Work Program and Budget or an approved amendment thereof shall, subject to the terms of Section 4.6: (i) bind all Development Parties to participate in such operation, and no Development Party shall have the right to make any nonconsent election under an Applicable Operating Agreement with respect to such operation; and (ii) authorize Joint Development Operator to conduct such operation for the account of all of the Development Parties under the relevant Applicable Operating Agreement (provided that, to the extent any third parties are party to such Applicable Operating Agreement, Joint Development Operator shall propose such operation to such third parties in accordance with the terms of such Applicable Operating Agreement, though, for the avoidance of doubt, Joint Development Operator need not re-propose such operation to the Development Parties), and each Party Operator to conduct such operation, subject to the budgetary provisions of such Annual Work Program and Budget and Sections 4.4(i) and 4.7, without further authorization from the Operating Committee. Each Development Party agrees to provide such notices, make such elections and take such actions as may reasonably be required under any Applicable Operating Agreement to implement this provision. For the avoidance of doubt, no Development Party shall be obligated to participate in acquisitions of Leases included in an Annual Work Program and Budget, but instead shall have the right but not the obligation to participate in such acquisitions pursuant to Article 9.

(d)

In the event that an Annual Work Program and Budget is not approved on or prior to the first day of the Calendar Year to which such Annual Work Program and Budget pertains (for purposes of this Section 4.4(d), the “ relevant Calendar Year ”), the Operating Committee shall be deemed to have approved an Annual Work Program and Budget for such relevant Calendar Year that includes the following: (i) the Development Operations scheduled to be performed during the relevant Calendar Year as set forth in the Development Work Program, if any, and associated Development Costs reasonably required to implement such Development Operations; (ii) Operating Expenses equal to the product of the amount of Operating Expenses approved in the preceding Calendar Year’s Annual Work Program and Budget and the Operating Expense Multiplier for the relevant Calendar Year; (iii) Technical Services Costs equal to the amount of Technical Services Costs approved in the preceding Calendar Year’s Annual Work Program and Budget; (iv) those multi-year expenditures previously approved by the Development Parties pursuant to Section 4.4(b) that are attributable to the relevant Calendar Year; (v) existing payment commitments to third parties under Leases and contracts binding with respect to the Subject Oil and Gas Assets; and (vi) taxes payable with respect to the Subject Oil and Gas Assets by any operator under the terms of any Applicable Operating Agreement.

(e)

Any Development Party may propose to amend the Development Work Program or an Annual Work Program and Budget by notice to the Operating Committee and Joint Development Operator. Approval of any such amendment shall require the approval of the Operating Committee. Notwithstanding any provision of Section 4.1 to the contrary, each Development Party shall have sixty (60) days to consider any proposed amendment that would increase the estimated costs of the Development Work Program for any Calendar Year or any Annual Work Program and Budget by more than ten percent (10%). To the extent that such amendment is approved by the Operating Committee, the Development Work Program and relevant Annual Work Program and Budget shall, subject to any required approvals under any Applicable Operating Agreement, be deemed amended accordingly, provided that any such amendment shall not invalidate any commitment or expenditure already made by an operator under an Applicable Operating Agreement in accordance with any previous authorization given pursuant hereto.

(f)

Notwithstanding anything to the contrary in this Section 4.4, any Development Party may propose Development Operations that are not included in the Development Work Program or a then-current approved Annual Work Program and Budget (a “ Non-Budgeted Operation ”). Any such Non-Budgeted Operation proposed by a Development Party in which all Development Parties agree to participate shall automatically be added to the Development Work Program and the applicable approved Annual Work Program and Budget(s) and shall cease to be a Non-Budgeted Operation. Any such Non-Budgeted Operation in which less than all of the Development Parties elect to participate (i) that may be undertaken

as a Sole Risk Development Operation under the terms of the relevant Applicable Operating Agreement or (ii) that is an Area-Wide Operation may be proposed and conducted as a Sole Risk Development Operation. Notwithstanding the preceding, until December 31, 2012, no Non-Budgeted Operation may be performed as a Sole Risk Development Operation for the benefit of a Development Party if the sum of the estimated costs of conducting such Non-Budgeted Operation for the account of such Development Party, together with costs incurred or to be incurred by such Development Party with respect to other Sole Risk Development Operations performed or to be performed in such Calendar Year, together with all Joint Development Operations performed or to be performed in such Calendar Year, exceeds one hundred twenty percent (120%) of the total amount of the approved Annual Work Program and Budget for such Calendar Year.

(g)

Any Development Operation proposed by a third party pursuant to an Applicable Operating Agreement shall be subject to the terms and conditions of such Applicable Operating Agreement. Any such Development Operation proposed by a third party in which all Development Parties elect to participate shall automatically be added to the Development Work Program and the applicable approved Annual Work Program and Budget(s). Any such Development Operation in which less than all of the Development Parties elect to participate that may be undertaken as a Sole Risk Development Operation under the terms of the relevant Applicable Operating Agreement may be so proposed and conducted.

(h)

Approval by the Operating Committee of an Annual Work Program and Budget shall constitute the Operating Committee’s deemed approval for any Party Operator to expend up to ten percent (10%) in excess of the authorized amount applicable to its operations within each Annual Work Program and Budget category, not to exceed in the aggregate ten percent (10%) of the aggregate amount applicable to its operations in such Annual Work Program and Budget, less, in each case, any amounts included as line items for contingencies and overruns with respect to such operations in such category or Annual Work Program and Budget. Each Party Operator shall promptly notify the Operating Committee of any expenditure made by it in the exercise of its rights pursuant to this Section 4.4(h). The ten percent (10%) deemed approval levels set forth in this Section 4.4(h) shall be calculated with respect to the original amount of an Annual Work Program and Budget or, once amended, the amended amount of the Annual Work Program and Budget, provided that no expenditures incurred pursuant to Section 4.4(i) shall be deemed to be included in an approved Annual Work Program and Budget for purposes of calculating the ten percent (10%) deemed approvals pursuant to this Section 4.4(h), nor shall any such expenditures be considered to be amounts expended in excess of the authorized amount of any Annual Work Program and Budget for purposes of calculating the ten percent (10%) deemed approval levels.

(i)

Notwithstanding anything to the contrary in this Agreement, any Party Operator is expressly authorized to make expenditures and incur liabilities without prior authorization or approval when necessary or advisable, in such Party Operator’s good faith judgment, to deal with emergencies, including well blowouts, fires, oil spills, or any other similar event, which may endanger property, lives, or the environment. Each Party Operator shall as soon as practicable report to the Development Parties the nature of any such emergency which arises, the measures it intends to take in respect of such emergency and the estimated related expenditures.

(j)

To the extent reasonably within the control of any Party Operator or the other Development Party or Development Parties conducting any Joint Development Operation, the Joint Development Operation shall be conducted at the time prescribed in the applicable Annual Work Program and Budget.

(k)

For the avoidance of doubt, any reference in this Agreement to an approved Annual Work Program and Budget shall include an Annual Work Program and Budget that is deemed to have been approved by the Operating Committee, and shall incorporate all approved amendments thereto and all modifications to Annual Work Program and Budgets described herein that require no action on the part of the Parties.

Section 4.5 Statements of Estimated Expenditures . Not later than twenty (20) days prior to the commencement of each Calendar Quarter during the term of this Agreement, Joint Development Operator shall provide the Development Parties a statement of the estimated Development Costs to be incurred in such Calendar Quarter pursuant to this Agreement, including Development Costs associated with Joint Development Operations. Such statement shall be for informational purposes only, and, except as otherwise provided in Section 4.6, no approval of the Operating Committee shall be required for any of the Development Costs identified therein to the extent such Development Costs are included in an approved Annual Work Program and Budget, or are covered by Section 4.4(h).

Section 4.6 AFEs .

(a)

Prior to: (i) spudding any well as a Joint Development Operation, (ii) making any material expenditures or incurring any material commitments for work on any Wellbore Operation to be conducted as a Joint Development Operation that is estimated to cost in excess of five hundred thousand dollars (US$500,000), or (iii) making any material expenditures or incurring any material commitments for work on any Area-Wide Operation to be conducted as a Joint Developm

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