AGREEMENT FOR PURCHASE AND SALE OF LIMITED LIABILITY COMPANY AND MEMBERSHIP INTERESTS THEREIN

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Exhibit 10.7

AGREEMENT FOR PURCHASE AND SALE OF LIMITED LIABILITY
COMPANY AND MEMBERSHIP INTERESTS THEREIN

        THIS AGREEMENT FOR PURCHASE AND SALE OF MEMBERSHIP INTERESTS (the " Agreement ") is made and entered into effective as of December 3, 2004 (the " Effective Date "), by, between and among Marquez Energy, LLC (" MELLC ") and Timothy Marquez (" Marquez "), David Christofferson ( " Christofferson " ), Terry Sherban (" Sherban ") and Kevin Morrato (" Morrato ") (Marquez, Christofferson, Sherban and Morrato collectively referred to herein as " Sellers" ) and Venoco, Inc. (" Buyer "), with reference to the following facts:

Recitals

        A.    Marquez, Christofferson, Sherban and Morroto (the " Members ") collectively own one hundred percent (100%) of the outstanding membership interests in MELLC, a Colorado limited liability company (the " Membership Interests "), in the respective percentages set forth on Schedule A hereto (" Membership Percentage Interest ").

        B.    MELLC owns the oil and gas properties, associated facilities and equipment, seismic data and other rights and interests as described on Schedule B hereto (the "Properties").

        C.    Sellers desire to sell, and Buyer desires to purchase, all of Sellers' right, title and interest in and to Sellers' Membership Interests and MELLC such that at Closing Buyer will become the sole member of MELLC.

Agreement

        NOW, THEREFORE, in consideration of the premises set forth above and subject to the mutual covenants, agreements, provisions, representations, warranties, conditions and terms of this Agreement, the parties agree as follows:

        1.      Purchase and Sale . Subject to the terms, covenants and conditions set forth in this Agreement each of the Members agrees to sell, transfer, assign and deliver to Buyer, and Buyer hereby agrees to purchase from Sellers, all of Sellers' Membership Interests in MELLC.

        2.      Deposit . Upon execution of this Agreement Buyer shall pay to each of the Members their Membership Percentage Interest share of a deposit in the amount of $2,000,000.00 (the " Deposit "), which amount shall be applied to the Purchase Price at Closing, or if Closing does not occur, either returned to Buyer or retained by Sellers as set forth in Section 11, below.

        3.      Purchase Price .

        3.1   The purchase price for Sellers' Membership Interests shall be determined as set forth in subparagraph (b), below, (the " Preliminary Purchase Price ") as adjusted in subparagraph (c), below, but in no event shall it exceed a total of Twenty Five Million Dollars ($25,000,000.00). At Closing, the Preliminary Purchase Price, less the Deposit, shall be payable to each of the Members based on their respective Membership Percentage Interests.

        3.2   The Preliminary Purchase Price shall be an amount equal to the Member's equity as set forth in the December 31, 2004 balance sheet of MELLC, as prepared pursuant to Generally Accepted Accounting Principles and audited by the public accounting firm of Hein and Associates, LLP (i) adjusted to remove any effect of the Excluded Assets, (ii) less the book value of oil and gas properties as set forth on the balance sheet, (iii) plus the value of such oil and gas properties based upon the volume of the PDP, PDNP and PUD reserve categories (other than Excluded Reserves) as determined by Netherland, Sewell and Associates (" NSA ") as of December 31, 2004, provided such reserve calculation shall be based upon NYMEX strip pricing as as set forth on Schedule 3.2 hereto (rather than December 31, 2004), multiplied by $1.75 for each MCFE of PDP

reserves; $1.00 for each MCFE of PDNP reserves, and $0.75 for each MCFE of PUD reserves(1) (the " Initial NSA Report ").

(1)

MCFE shall be calculated by converting each barrel of oil or condensate to an MCF of natural gas by using a conversion ratio of 1 barrel of oil = 6 MCF of natural gas. The converted barrels shall then be added to the MCF total as determined by NSA to calculate the MCFE.

As used herein Excluded Assets refers to rights and interests of MELLC in the Willows and Grimes Fields in California acquired pursuant to that certain Participation Rights Agreement between Buyer and MELLC dated as of September 1, 2004. For purposes of determining the Preliminary Purchase Price and any adjusted purchase price as provided in subparagraph (c), below, no capital contribution value, no reserve value and no liabilities attributable to the MELLC ownership in the Participation Rights Agreement nor any future value or liabilities attributable to any agreement between the Sellers and Merrion Oil and Gas regarding any rights Merrion Oil and Gas may have or may acquire in such Participation Rights Agreement or the assets subject thereto shall be considered; the result being that for all purposes of determining the Preliminary Purchase Price and any adjusted purchase price, it shall be as if such Participation Rights Agreement had never been executed.

        3.3   The Preliminary Purchase Price shall be subject to adjustment in January 2006 and January 2007 based on third party reserve reports prepared as of December 31, 2005 and December 31, 2006, respectively, as such reports relate to the Properties (other than Excluded Properties) as follows:

        3.3.1 In January 2006 Buyer shall instruct NSA (or another nationally recognized engineering firm) to calculate quantities of all reserves then attributable to the Properties(2). Such report (the " First Supplemental Report ") shall set forth the quantities of such reserves as of December 31, 2004, but using NYMEX pricing as of the Effective Date, as if the reservoir data known at the time such report is prepared had been known as of the date of the Initial NSA Report. If the formation evaluated was classified PDP, PDNP, or PUD on the Initial NSA Report, the comparable reserves shall be classed in the same categories on the First Supplemental Report. If the First Supplemental Report reserves are attributable to Properties which had not been given any proved reserves in the Initial NSA Report, such reserves shall be classified as PUD as of the December 31, 2004 effective date of the First Supplemental Report. The purpose of the Report is to determine what the Preliminary Purchase Price would have been if all reserves included in the First Supplemental Report had been included in the Initial NSA Report in the categories they would have been included in at December 31, 2004. In the event the information contained in the First Supplemental Report indicates a value higher than the Preliminary Purchase Price, Buyer shall within thirty (30) days of such report pay each of the Members, based on their Membership Percentage Interest, their proportionate share of such increased amount, subject to the maximum purchase price as set forth in paragraph 3(a).

(2)

For purposes of this section 3 (c), the use of the term Properties does not include Excluded Properties.

        3.3.2 In January 2007 the same process as described above shall occur and any increase in the value of the reserves as of December 31, 2004 shall result in Buyer paying such differential amount to the Sellers.

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        4.      Representations and Warranties .

        4.1    Representations and Warranties of Sellers . Sellers each represent and warrant to Buyer as follows:

        4.1.1 Seller has all requisite power and authority to execute, deliver and perform all of Sellers' obligations under this Agreement and to consummate the transactions contemplated hereby. This agreement has been duly executed and delivered by Sellers and is enforceable according to its terms except as enforceability may be limited by bankruptcy or other laws affecting creditor's rights generally and limitations on equitable remedies.

        4.1.2 Sellers each own beneficially and legally each of Sellers' Membership Percentage Interests, free and clear of all liens, encumbrances, rights, charges and assessments of every nature and Sellers' Membership Interests are not subject to any restriction which would prevent the transfer of Sellers' Membership Interests to Buyer. No Seller has granted any option or right to purchase or acquire any of Sellers' Membership Interests nor has any Seller entered into any contract, agreement, commitment, understanding or arrangement relating to the Sellers' Membership Interests, or by which Seller is or may be bound or obligated to transfer or dispose of any of Sellers' Membership Interests. The transfer and delivery of the Sellers' Membership Interests to Buyer as contemplated by this Agreement will, as of the Closing Date, transfer all of Sellers' rights to the Sellers' Membership Interests free and clear of all liens, encumbrances, rights, charges and assessments of every nature.

        4.1.3 Upon the transfer of Sellers' Membership Interests to Buyer hereunder, Buyer will have good and marketable legal and beneficial title to Sellers' Membership Interests, including any and all voting rights pertaining to Sellers' Membership Interests, free and clear of all liens, encumbrances, rights, charges and assessments of any nature whatsoever.

        4.1.4 Except with respect to MELLC's Credit Agreement with the Bank of Oklahoma, the execution, delivery and performance by Sellers of this Agreement and the consummation of the transactions contemplated hereby do not and shall not (i) conflict with or result in any breach of any of the provisions of, (ii) constitute a default under, (iii) result in a violation of, or (iv) require any authorization, consent, approval, license, permit, exemption or other action by or notice to or filing with any court or other governmental entity, under the provisions of any agreement, contract, instrument, or any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of an arbitrator or governmental entity; except where such conflict, breach, default, violation or requirement would not have a material adverse effect.

        4.1.5 There are no actions, suits, proceedings, orders or investigations pending or, to Sellers' knowledge, threatened against or affecting such Seller at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which would adversely affect Sellers' performance under this Agreement or the consummation of the transactions contemplated hereby.

        4.1.6 There are no claims for brokerage commissions, finders fees' or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of Seller.

        4.1.7 Except as set forth in Schedule 4.1.7, MELLC does not have any employees, agents or contractors with whom it has any contractual or other obligations, other than vendors whose contracts are cancelable upon notice of no more than 30 days.

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        4.1.8 MELLC is not in violation of any order of any court or governmental authority or environmental law, with respect to operations on any of its properties, and there are no pending or, to the knowledge of Sellers', threatened actions or proceedings by any regulatory entity with respect to its operations.

        4.1.9 All material notices, permits, licenses or similar authorizations, if any, required to be obtained or filed by MELLC in connection with the operation or use of any and all property of MELLC, including but not limited to past or present treatment, storage, disposal or release of a hazardous substance or solid waste into the environment, have been duly obtained or filed.

        4.2    Representations and Warranties of Buyer . Buyer has all requisite power and authority to execute, deliver and perform all of Buyer's obligations under this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Buyer and is enforceable according to its terms except as enforceability may be limited by bankruptcy or other laws affecting creditor's rights generally and limitations on equitable remedies.

        5.      Covenants of Sellers.

        5.1   Sellers covenants that from the Effective Date to the Closing Date, except (a) as provided herein, (b) as required by any obligation, agreement, lease, contract, or instrument referred to on any Exhibit hereof, or (c) as otherwise consented to in writing by Buyer, Sellers will not and will not allow MELLC to (i) act in any manner with respect to the Properties other than in the normal, usual and customary manner, consistent with prior practice; (ii) dispose of, encumber or relinquish any of the Properties (other than relinquishments resulting from the expiration of leases that Seller has no right or option to renew); (iii) waive, compromise or settle any material right or claim with respect to any of the Properties; (iv) make capital or workover expenditures with respect to the Properties, except in the ordinary course of Seller's business or when required by an emergency when there shall have been insufficient time to obtain advance consent. Seller will promptly notify Buyer of any such emergency expenditures.

        5.2   From January 1, 2005 until Closing MELLC shall not, and Sellers shall not cause MELLC to (i) make any distributions to its Members except as specifically provided in Section 13.2 hereof, (ii) pay bonuses or make any other out of the ordinary payments to its Members who are also employees of MELLC, (iii) incur any debt or material contractual commitments, without Buyer's prior written consent, or (iv) take any other action, the effect of which would be to diminish the value of MELLC.

        6.      Due Diligence.

        6.1   Sellers shall afford to Buyer and its authorized representatives reasonable access, at Buyer's sole risk and expense, from the date hereof until the Closing Date during no