AGREEMENT OF LIMITED PARTNERSHIP OKLA ENERGY PARTNERS LP

EXHIBIT 10.37

AGREEMENT OF LIMITED PARTNERSHIP

OKLA ENERGY PARTNERS LP

Dated as of May 20, 2008

TABLE OF CONTENTS

 

AGREEMENT OF LIMITED PARTNERSHIP

OKLA ENERGY PARTNERS LP

THIS AGREEMENT OF LIMITED PARTNERSHIP (this “ Agreement ”) is made and entered into this 20 ^th day of May, 2008, by and between Catena Oil & Gas LLC, a Texas limited liability company (herein sometimes called the “ General Partner ”), and EFS O&G, LLC, a Delaware limited liability company (herein sometimes called the “ Limited Partner ”). In consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

ARTICLE I

FORMATION OF PARTNERSHIP

Section 1.1. Formation. Subject to the provisions of this Agreement, the parties hereto do hereby form a limited partnership (the “ Partnership ”) pursuant to the provisions of the Texas Limited Partnership Law, as provided in §1.008 of the Texas Business Organizations Code (such provisions, as amended from time to time, or any successor statute or statutes thereto, being called the “ TLPL ”).

Section 1.2. Name. The name of the Partnership shall be OKLA Energy Partners LP. Subject to all applicable laws, the business of the Partnership shall be conducted in the name of the Partnership unless the law of some jurisdiction in which the Partnership does business requires that the business of the Partnership be conducted under another name. In such a case, the business of the Partnership in such jurisdiction may be conducted under such other name or names as the General Partner shall determine to be necessary so long as it does not affect adversely the limited liability of the Limited Partner hereunder or jeopardize in any manner the title to or ownership of any Partnership Oil and Gas Properties or other assets. The General Partner shall cause to be filed on behalf of the Partnership such partnership or assumed or fictitious name certificate or certificates or similar instruments as may from time to time be required by law.

Section 1.3. Business. Subject to the other provisions of this Agreement, the business of the Partnership shall be: (a) to acquire the Properties; (b) to acquire additional Leases; (c) to hold, maintain, renew, explore, drill, develop and operate the Oil and Gas Properties and such additional Leases; (d) to produce, collect, store, treat, deliver, market, sell or otherwise dispose of oil, gas and related hydrocarbons and minerals from the Oil and Gas Properties and such additional Leases; (e) to farm-out, sell, abandon and otherwise dispose of the Properties, additional Leases and other Partnership assets; (f) to enter into swaps, options, future contracts, notional principal contracts, and other transactions to hedge or to otherwise minimize the risk associated with the fluctuation of prices to be received by the Partnership from the sale of oil, gas and related hydrocarbons and minerals from the Oil and Gas Properties and any additional Leases acquired pursuant to the terms hereof; and (g) to take all such other actions incidental to any of the foregoing as the General Partner may determine to be necessary or appropriate. Except as approved in advance by the Limited Partner, the Partnership shall not (i) acquire (A) any carbon-dioxide removal, sulfur removal or other equipment for the processing or treatment of gas or other hydrocarbons, whether on or off the Oil and Gas Properties or additional Leases acquired pursuant to the terms hereof (other than equipment acquired as part of

and at the same time as the acquisition of the Oil and Gas Properties or an additional Lease or otherwise in accordance with this Agreement), (B) any refining facilities, or (C) any transportation facilities except pipelines and gathering systems connecting the Oil and Gas Properties or additional Leases acquired pursuant to the terms of this Agreement with other gathering systems or transmission pipelines or (ii) engage in the contract drilling business or any other business except as expressly permitted herein.

Section 1.4. Places of Business, Registered Agent and Addresses.

(a) The principal United States office and place of business of the Partnership and its street address shall be 110 Cypress Station Drive, Suite 220, Houston, Texas 77090. The General Partner, at any time and from time to time, may change the location of the Partnership’s principal United States office and place of business as the General Partner shall determine to be necessary or appropriate, provided notice thereof is concurrently given to the Limited Partner.

(b) The registered office of the Partnership in Texas shall be 110 Cypress Station Drive, Suite 220, Houston, Texas 77090, and the registered agent for service of process on the Partnership shall be the General Partner, an entity whose business address is the same as the Partnership’s registered office. The General Partner, at any time and from time to time, may change the Partnership’s registered office or registered agent or both by complying with the applicable provisions of the TLPL and giving concurrent notice thereof to the Limited Partner and may establish, appoint and change additional registered offices and registered agents of the Partnership in such other states as the General Partner shall determine to be necessary or advisable.

Section 1.5. Term. The Partnership shall be formed and commence upon the completion of filing for record of an initial certificate of formation of the Partnership with the Secretary of State of the State of Texas and shall continue in existence until May 20, 2028, unless sooner terminated in accordance with Article X .

Section 1.6. Filings. Upon the request of the General Partner, the Limited Partner shall promptly execute and deliver all such certificates and other instruments conforming hereto as shall be necessary for the General Partner to accomplish all filing, recording, publishing and other acts appropriate to comply with all requirements for the formation and operation of the Partnership as a limited partnership under the laws of the State of Texas and for the qualification or reformation and operation of the Partnership as a limited partnership in all other jurisdictions where the Partnership shall propose to conduct business. Prior to the conducting of any business in any jurisdiction, the General Partner shall: (a) to the full extent necessary to establish limited liability for the Limited Partner under the laws of such jurisdiction and otherwise to comply with the laws of such jurisdiction, cause the Partnership to comply with all requirements for the registration, qualification or reformation of the Partnership to conduct business as a limited partnership in such jurisdiction and (b) at the request of the Limited Partner, obtain an opinion of reputable counsel in such jurisdiction satisfactory in all respects to the Limited Partner as to such registration, qualification or reformation and as to the limited liability of the Limited Partner under the laws of such jurisdiction. Thereafter, the General Partner shall cause the Partnership to continue to comply with all such requirements and all other requirements necessary to maintain the limited liability of the Limited Partner in each jurisdiction where the Partnership does business and, upon request of the Limited Partner, the General Partner shall furnish to the

Limited Partner an opinion or opinions of legal counsel for the Partnership as to compliance with such requirements and such limited liability.

ARTICLE II

CERTAIN DEFINITIONS AND REFERENCES

Section 2.1. Certain Defined Terms.

(a) When used in this Agreement, the following terms shall have the respective meanings assigned to them in this Section 2.1 :

“ Acquisition Cost ” means, (i) with respect to the purchase by the Partnership from the General Partner or its Affiliates of any Lease other than the Oil and Gas Property, the costs as described in clause (ii) immediately below incurred by the General Partner and/or its Affiliates in acquiring such Lease and (ii) with respect to the acquisition by the Partnership of any Lease other than those purchased pursuant to clause (i) immediately above, the sum of (A) the price paid or contractually agreed to be paid for such Lease to the lessor, assignor or grantor of such Lease, including lease bonuses, advance rentals and other acquisition costs and (B) title examination costs, broker’s commissions, attorneys’ fees, due diligence fees, filing fees, recording costs, and transfer and sales taxes, if any, and other similar costs incurred with respect to such Lease in connection with its acquisition, but excluding any actual, allocated or imputed interest expense.

“ Adjusted Capital Account ” means the capital account maintained for each Partner as of the end of each fiscal year (i) increased by (A) the amount of any unpaid Capital Contributions unconditionally agreed to be contributed by such Partner under Article III , if any, (B) an amount equal to such Partner’s allocable share of the Partnership’s Minimum Gain, as computed on the last day of such fiscal year in accordance with applicable Treasury Regulations, and (C) the amount of Partnership liabilities allocable to such Partner under Section 752 of the Internal Revenue Code with respect to which such Partner bears the economic risk of loss to the extent such liabilities do not constitute Partner Nonrecourse Debt, and (ii) reduced by (A) the amount of all depletion deductions reasonably expected to be allocated to such Partner in subsequent years and charged to such Partner’s capital account, (B) the amount of all losses and deductions reasonably expected to be allocated to such Partner in subsequent years under Sections 704(e)(2) and 706(d) of the Internal Revenue Code and Treasury Regulation §1.751-1(b)(2)(ii), and (C) the amount of all distributions reasonably expected to be made to such Partner to the extent they exceed offsetting increases to such Partner’s capital account that are reasonably expected to occur during (or prior to) the year in which such distributions are reasonably expected to be made.

“ Adjusted Purchase Price ” means 79.25% of the “Adjusted Purchase Price”, as such term is defined in the Purchase Agreement.

“ Affiliate ” means (i) any person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities of the General Partner, (ii) any person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by the General Partner, (iii) any person directly or indirectly controlling, controlled by or under common control with the General Partner, (iv) any officer, director, member, manager or partner of the General Partner or any person described in

clause (i) , (ii) , or (iii)  of this paragraph, or (v) any person related by blood, adoption or marriage to any person referred to in clause (iii) or clause (iv) of this paragraph. As used in this Agreement, the term “ person ” shall include an individual, an estate, a corporation, a partnership, a limited liability company, an association or other entity, a joint stock company and a trust.

“ Agreed Rate ” means a rate per annum which is equal to the lesser of (i) a rate which is one percent (1%) above the prime rate of interest of JPMorgan Chase Bank, New York, New York, as announced or published by such bank from time to time (adjusted from time to time to reflect any changes in such rate determined hereunder) or (ii) the maximum rate from time to time permitted by applicable law.

“ Agreement ” means this Agreement of Limited Partnership, as hereafter changed, modified or amended in accordance with the terms hereof.

“ Area of Mutual Interest ” means the areas covered by each Lease owned by the Partnership, plus (i) all areas within a one mile radius outside of and surrounding the boundary lines of each such Lease, or (ii) the lands contained within the spacing units relating to each such Lease, as established by the Oklahoma Corporation Commission, whichever is greater.

“ Assignment Agreement ” means the letter agreement between the Partnership and the General Partner dated of even date herewith.

“ Capital Contributions ” means, for any Partner at the particular time in question, the aggregate of the dollar amounts of any cash or the fair market value of any properties (as agreed upon by the Partners) contributed to the capital of the Partnership, or, if the context in which such term is used so indicates, the dollar amounts of cash or fair market value of properties agreed to be contributed, or requested to be contributed, by such Partner to the capital of the Partnership.

“ Capital Costs ” means (i) all geological and geophysical costs (“ Geological and Geophysical Costs ”) incurred by the Partnership to the extent any of such costs are incurred in connection with Partnership wells drilled or proposed to be drilled on the Oil and Gas Properties or any additional Lease acquired pursuant to the terms hereof; (ii) all costs (“ Well Costs ”) incurred by the Partnership in locating, drilling, completing, equipping, deepening or sidetracking a well located on the Oil and Gas Properties or any additional Lease acquired pursuant to the terms hereof, including (A) the costs of surveying and staking such well, the costs of any surface damages and the costs of clearing, coring, testing, logging and evaluating such well, (B) the costs of casing, cement and cement services for such well, (C) the cost of plugging and abandoning such well (including standard and customary remediation activities associated therewith) if it is determined that such well would not produce in commercial quantities and should be abandoned, and (D) all direct charges and overhead chargeable to the Partnership with respect to such well under any applicable operating agreement until such time as all operations are carried out as required by applicable regulations and sound engineering practices to make such well ready for production, including the installation and testing of wellhead equipment, or to plug and abandon a dry hole; (iii) all costs (“ Well Plugging Costs ”) incurred by the Partnership in recompleting or plugging back any Partnership well; (iv) all costs (“ Excessive Reworking Costs ”) incurred by the Partnership in reworking any Partnership well when the Partnership’s reasonably anticipated share of such costs is greater than $25,000; (v) all costs

(“ Producer or Injector Well Costs ”) incurred by the Partnership in locating, drilling, completing, equipping, deepening or sidetracking any enhanced recovery producer or injector well (including the costs of all necessary surface equipment such as steam generators, compressors, water treating facilities, injection pumps, flow lines and steam lines) or otherwise conducting Enhanced Recovery Operations; and (vi) all costs (“ Facilities Construction Costs ”) incurred by the Partnership in constructing production facilities, pipelines and other facilities necessary to develop the Oil and Gas Properties and additional Leases acquired pursuant to the terms hereof and produce, collect, store, treat, deliver, market, sell or otherwise dispose of oil, gas and other hydrocarbons and minerals therefrom; but such term shall not include any Lease Operating and Production Costs, Acquisition Costs or Catastrophe Costs.

“ Catastrophe Costs ” means all costs, expenses and damages incurred by the Partnership as a result of the failure of the General Partner to cause the Partnership to obtain or carry the types or amounts of insurance coverage agreed upon from time to time by the Partners in accordance with Section 6.8 , but such term shall not include (i) the deductible amounts under any insurance coverage arranged by or on behalf of the Partnership or with respect to its property or operations to the extent such deductible amounts have been approved or agreed to by the Limited Partner in accordance with Section 6.8 and (ii) any costs, expenses and damages incurred by the Partnership that are in excess of or excluded from the agreed upon insurance coverage maintained in accordance with the terms hereof, including costs, expenses, and damages incurred by the Partnership as a result of a bona fide dispute with the Partnership’s insurer with respect to the insurance coverage provided.

“ CGA Report ” means that certain final engineering report with respect to the Oil and Gas Properties as of March 1, 2008, prepared by Cawley, Gillespie & Associates, Inc.

“ Change in Control ” means that point in time at which (a) a person or persons, other than Parent or GeoResources, Inc., acquires a Majority of Voting Securities of the General Partner, or (b) a Key Person ceases to serve as an executive officer of Parent or GeoResources, Inc. and (with respect to clause (b) ), within 60 days after such event, Parent or GeoResources, Inc. has not appointed a person acceptable to the Limited Partner to replace such Key Person.

“ Cumulative Payout ” means, with respect to each month, X minus Y, where:

“ X ” = the sum of (i) such month’s Monthly Payout plus (ii) all previous months’ Monthly Payouts plus (iii) any distribution received by the Limited Partner under Section 4.4(b) or Section 10.3(e) times the Payout Discount Factor for the month in which such distribution is so received; and

“ Y ” = the sum of (i) the Capital Contribution made by the Limited Partner pursuant to the terms hereof during such month times the Payout Discount Factor for such month plus (ii) each Capital Contribution previously made by the Limited Partner pursuant to the terms hereof times the Payout Discount Factor for the month in which such Capital Contribution was made.

“ Delivery Date ” means the date on which this Agreement has been fully and unconditionally executed and delivered by each of the parties hereto.

“ Enhanced Recovery Operations ” means any operations or project intended to increase the recovery of oil and/or gas from a pool by artificial means or by the application of energy extrinsic to the pool, which artificial means or application shall include pressuring, cycling, pressure maintenance, injection to the pool of a substance or form of energy, or other operations or projects that would be commonly considered secondary or tertiary operations or projects, but such term shall not include the injection in a well of a substance or form of energy for the sole purpose of (a) aiding in the lifting of fluids in the well or (b) stimulation of the pool at or near the well by mechanical, chemical, thermal or explosive means.

“ Environmental Laws ” means all applicable federal, state and local laws, rules and regulations, orders, judgments, decrees and other legal requirements relating to pollution or the regulation and protection of human health, safety, the environment or natural resources, including, but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. §9601 et seq.); the Hazardous Material Transportation Act, as amended (49 U.S.C. §180 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. §136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. §6901 et seq.); the Toxic Substance Control Act, as amended (42 U.S.C. §7401 et seq.); the Clean Air Act, as amended (42 U.S.C. §740 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. §1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. §651 et seq.); the Safe Drinking Water Act, as amended (42 U.S.C. §300f et seq.); and their state and local counterparts or equivalents and any transfer of ownership notification or approval statute.

“ Escrow Funds ” means 79.25% of the “Escrow Funds,” as such term is defined in the Purchase Agreement.

“ General Partner ” means Catena Oil & Gas LLC, a Texas limited liability company, in its capacity as general partner of the Partnership and any person who becomes a substituted general partner of the Partnership pursuant to the terms hereof.

“ GP Monthly Cash Distribution ” means, with respect to any month:

(a) the Production Sales Proceeds received during such month from the sale of hydrocarbons (other than in connection with a Hedging Transaction) multiplied by the GP Sharing Percentage for such month; less

(b) Lease Operating and Production Costs paid during such month multiplied by the GP Sharing Percentage for such month; less

(c) the amounts which the General Partner reasonably determines should be added to the Partnership’s cash reserves multiplied by the GP Sharing Percentage (it being agreed that the Partnership’s cash reserves, including all additions thereto, shall not exceed the remainder of the total Partnership costs and expenses the General Partner reasonably anticipates will be incurred within a 60-day period commencing as of the date of the determination of the GP Monthly Cash Distribution, minus the total Production Sales Proceeds the General Partner reasonably anticipates will be received by the Partnership during such period); plus

(d) any cash reserves which the General Partner reasonably believes are no longer necessary to retain multiplied by the GP Sharing Percentage for such month; plus

(e) the net proceeds derived from the sale by the Partnership of properties, fixtures and equipment (exclusive of net proceeds distributable under Section 4.4(b) ) multiplied by the GP Sharing Percentage for such month; plus

(f) any other funds received by the Partnership during such month (including insurance proceeds, to the extent not expended by the Partnership) multiplied by the GP Sharing Percentage for such month; less

(g) payments made during such month on principal and interest on permitted Partnership indebtedness multiplied by the GP Sharing Percentage for such month; less

(h) the GP Management Fee; less

(i) other direct, third party out-of-pocket costs paid by the Partnership for such month ( e.g. , costs of obtaining audits of the Partnership’s books and records, fees and expenses attributable to the preparation of the Partnership’s tax returns) multiplied by the GP Sharing Percentage for such month.

To the extent a cost or revenue appears in two subsections of this definition, the GP Monthly Cash Distribution will be adjusted to remove any such duplications.

“ GP Sharing Percentage ” means, when used with respect to any month, 100% minus the LP Sharing Percentage in effect during such month.

“ Hedge Costs ” means the costs of arranging, modifying or terminating a Hedging Transaction, or which otherwise arise in respect or as a result of a Hedging Transaction.

“ Hedging Transaction ” means any commodity hedging transaction pertaining to oil, gas and related hydrocarbons and minerals, whether in the form of a swap agreement, option to acquire or dispose of a futures contract, whether on an organized commodities exchange or otherwise, or similar type of financial transaction classified as “notional principal contracts” pursuant to Treasury Regulation Section 1.446-3. Any Hedging Transaction shall be identified in the books and records of the Partnership as a “hedging transaction” in the manner and at the times prescribed by Treasury Regulation §1.1221-2(f).

“ Internal Revenue Code ” means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute or statutes.

“ Key Person ” means each of Frank A. Lodzinski, Francis M. Mury, Robert J. Anderson, and any person appointed pursuant to the provisions of Section 9.4(a) or Section 10.1(i) .

“ Lease ” means a lease, mineral interest, royalty or overriding royalty, fee right, mineral servitude, license, concession or other right covering oil, gas and related hydrocarbons (or a contractual right to acquire such an interest) or an undivided interest therein or portion thereof, together with all appurtenances, easements, permits, licenses, servitudes and rights-of-way situated upon or used or held for future use in connection with such an interest or the exploration,

development or operation thereof. A “Lease” also means and includes all rights and interests in all lands and interests unitized or pooled therewith pursuant to any law, rule, regulation or agreement.

“ Lease Operating and Production Costs ” means all costs incurred by the Partnership in connection with the maintenance and improvement of the Oil and Gas Properties and any additional Leases acquired pursuant to the terms hereof (except drilling and similar obligations) and the production and marketing of oil, gas and related hydrocarbons from completed wells (including wells which have been involved in Enhanced Recovery Operations) in which the Partnership has an interest pursuant to this Agreement, including costs incurred for all delay rentals, shut-in royalties and similar payments, royalties on lost or flared gas or gas used for which payment is required, labor, fuel, repairs, transportation, supplies, utility charges, ad valorem, severance, excise and similar taxes, the cost of reworking any well (except to the extent provided in the definition of Capital Costs), the costs of plugging and abandoning any well (except to the extent provided in the definition of Capital Costs) and compensation to well operators, consultants and others and insurance in connection with the foregoing; but such term shall not include any Capital Costs, Catastrophe Costs, or Acquisition Costs.

“ Limited Partner ” means EFS O&G, LLC, a Delaware limited liability company, and any person who becomes a substituted limited partner of the Partnership pursuant to the terms hereof.

“ LP Monthly Cash Distribution ” means, with respect to any month:

(a) the revenues received during such month and attributable to any Hedging Transaction; plus

(b) the Production Sales Proceeds received during such month from the sale of hydrocarbons (other than in connection with a Hedging Transaction) multiplied by the LP Sharing Percentage for such month; less

(c) Lease Operating and Production Costs paid during such month multiplied by the LP Sharing Percentage for such month; less

(d) Hedge Costs paid during such month; less

(e) the amounts which the General Partner reasonably determines should be added to the Partnership’s cash reserves multiplied by the LP Sharing Percentage (it being agreed that the Partnership’s cash reserves, including all additions thereto, shall not exceed the remainder of the total Partnership costs and expenses the General Partner reasonably anticipates will be incurred within a 60-day period commencing as of the date of the determination of the LP Monthly Cash Distribution, minus the total Production Sales Proceeds the General Partner reasonably anticipates will be received by the Partnership during such period); plus

(f) any cash reserves which the General Partner reasonably believes are no longer necessary to retain multiplied by the LP Sharing Percentage for such month; plus

(g) the net proceeds derived from the sale by the Partnership of properties, fixtures and equipment (exclusive of net proceeds distributable under Section 4.4(b) ) multiplied by the LP Sharing Percentage for such month; plus

(h) any other funds received by the Partnership during such month (including insurance proceeds, to the extent not expended by the Partnership) multiplied by the LP Sharing Percentage for such month; less

(i) payments made during such month on principal and interest on permitted Partnership indebtedness multiplied by the LP Sharing Percentage for such month; less

(j) the LP Management Fee; less

(k) other direct, third party out-of-pocket costs paid by the Partnership for such month ( e.g. , costs of obtaining audits of the Partnership’s books and records, fees and expenses attributable to the preparation of the Partnership’s tax returns) multiplied by the LP Sharing Percentage for such month.

To the extent a cost or revenue appears in two subsections of this definition, the LP Monthly Cash Distribution will be adjusted to remove any such duplications.

“ LP Sharing Percentage ” means, (i) when used with respect to each month during the Phase I Period, 98%, and (ii) when used with respect to each month during the Phase II Period, 64.34%.

“ Majority of Voting Securities ” means, when used with respect to an entity, stock or other equity interests which have general voting power under ordinary circumstances to elect a majority of the board of directors (if the entity is a corporation) or to otherwise control the management and policies of such entity (if the entity is not a corporation).

“ Minimum Gain ” means (i) with respect to Partnership Nonrecourse Liabilities, the amount of gain that would be realized by the Partnership if it disposed of (in a taxable transaction) all Partnership properties which are subject to Partnership Nonrecourse Liabilities in full satisfaction of such liabilities, computed in accordance with applicable Treasury Regulations and (ii) with respect to each Partner Nonrecourse Debt, the amount of gain that would be realized by the Partnership if it disposed of (in a taxable transaction) the Partnership property that is subject to such liability in full satisfaction of such liability, computed in accordance with applicable Treasury Regulations.

“ Monthly Payout ” means, with respect to any month, an amount equal to the LP Monthly Cash Distribution received by the Limited Partner during such month times the Payout Discount Factor.

“ Oil and Gas Properties ” means that portion of the “Oil and Gas Properties,” as such term is defined in the Purchase Agreement, that the Partnership is acquiring pursuant to the Assignment Agreement.

“ Parent ” means Southern Bay Energy, LLC, a Texas limited liability company.

“ Partner Nonrecourse Debt ” means any nonrecourse debt of the Partnership (or portions thereof) for which any Partner bears the economic risk of loss.

“ Partner Nonrecourse Deductions ” means the amount of deductions, losses and expenses equal to the net increase during the year in Minimum Gain attributable to a Partner Nonrecourse Debt, reduced (but not below zero) by proceeds of such Partner Nonrecourse Debt distributed during the year to the Partners who bear the economic risk of loss for such debt, as determined in accordance with applicable Treasury Regulations.

“ Partners ” means the General Partner and the Limited Partner.

“ Partnership Nonrecourse Liabilities ” means any nonrecourse liabilities (or portions thereof) of the Partnership for which no Partner bears the economic risk of loss.

“ Payout Discount Factor ” means, as of any given month, the value for such month as set forth in Exhibit 2.1—Payout Discount Factor Table .

“ Performance Deposit ” means 79.25% of the “Earnest Money,” as such term is defined in the Purchase Agreement.

“ Phase I Period ” means the period from the Delivery Date until the end of the first calendar month in which Cumulative Payout is greater than or equal to zero; provided, that in the event Cumulative Payout is greater than or equal to zero as a result of a sale of property or other similar transaction occurring at a point in time during any calendar month, the Phase I Period shall be deemed to have expired as of such point in time and with respect to all amounts in excess of the amount required to cause the Cumulative Payout to be greater than or equal to zero.

“ Phase II Period ” means the period commencing immediately upon the expiration of the Phase I Period and ending upon the termination and liquidation of the Partnership.

“ Production Sales Proceeds ” means revenues received from the sale of production from the Partnership Oil and Gas Properties and any additional Leases acquired pursuant to the terms hereof, net of (i) any royalties, overriding royalty interests and other similar interests burdening such Oil and Gas Properties and Leases and (ii) production taxes and ad valorem taxes attributable to such Oil and Gas Properties and Leases.

“ Properties ” means 82% of the “Properties,” as such term is defined in the Purchase Agreement.

“ Purchase Agreement Closing Date ” means the “Closing Date,” as such term is defined in the Purchase Agreement.

“ Treasury Regulations ” means regulations promulgated by the United States Treasury Department under the Internal Revenue Code.

(b) In addition to the defined terms set forth in Section 2.1(a) , the following terms used in this Agreement are defined in the sections of this Agreement, as referenced below:

Section 2.2. References and Construction.

(a) All references in this Agreement to articles, sections, subsections and other subdivisions refer to corresponding articles, sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise.

(b) Titles appearing at the beginning of any of such subdivisions are for convenience only and shall not constitute part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions.

(c) The words “this Agreement,” “this instrument,” “herein,” “hereof,” “hereby,” “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited.

(d) Words in the singular form shall be construed to include the plural and vice versa , unless the context otherwise requires.

(e) Examples shall not be construed to limit, expressly or by implication, the matter they illustrate.

(f) The word “or” is not exclusive and the word “includes” and its derivatives means “includes, but is not limited to” and corresponding derivative expressions.

(g) No consideration shall be given to the fact or presumption that one party had a greater or lesser hand in drafting this Agreement.

(h) All references herein to $ or dollars means to United States dollars.

(i) Unless the context otherwise requires or unless otherwise provided herein, the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions, modifications, amendments or restatements of such agreement, instrument or document, provided that nothing contained in this subsection shall be construed to authorize such renewal, extension, modification, amendment or restatement.

ARTICLE III

CAPITALIZATION

Section 3.1. Capital Contributions of General Partner.

(a) Contemporaneously with the execution of the Purchase Agreement and subject to the Assignment Agreement, the General Partner shall make a Capital Contribution to the Partnership in an aggregate amount equal to $47,972.87, which Capital Contribution shall be used exclusively by the Partnership for the payment of the General Partner’s allocated share (in accordance with Section 4.1 ) of the Performance Deposit.

(b) Contemporaneously with the Capital Contribution of the Limited Partner provided for in Section 3.2(b) , the General Partner shall make a Capital Contribution to the Partnership in an aggregate amount not to exceed the quotient obtained by multiplying (i) 0.02 times (ii) (A) the amount of the Adjusted Purchase Price minus (B) the Escrow Funds, which Capital Contribution shall be used exclusively by the Partnership for the payment of the General Partner’s allocated share (in accordance with Section 4.1 ) of the Adjusted Purchase Price less the Escrow Funds.

(c) In addition to the Capital Contribution described in subsections (a) and (b)  above, the General Partner shall contribute in cash to the Partnership such amounts as shall be necessary to pay timely the costs and expenses allocated and charged to the General Partner in Section 3.3 and Section 4.1 . Such Capital Contributions shall be paid to the Partnership by the General Partner from time to time in the appropriate amounts concurrently with each payment to the Partnership by the Limited Partner of its Capital Contributions or, with respect to costs allocated solely to the General Partner, when necessary for the Partnership to pay timely such costs.

Section 3.2. Capital Contributions of Limited Partner.

(a) Contemporaneously with the execution of the Purchase Agreement and subject to the Assignment Agreement, the Limited Partner shall make a Capital Contribution to the Partnership in an aggregate amount equal to $2,350,670.75, which Capital Contribution shall be used exclusively by the Partnership for the payment of the Limited Partner’s allocated share (in accordance with Section 4.1 ) of the Performance Deposit.

(b) Subject to the provisions of this Section 3.2 and Section 3.5(b) and except as otherwise provided herein, the Limited Partner shall make a Capital Contribution to the Partnership in an aggregate amount not to exceed the quotient obtained by multiplying (i) 0.98 times (ii) (A) the amount of the Adjusted Purchase Price minus (B) the Escrow Funds, which Capital Contribution shall be used exclusively by the Partnership for the payment of the Limited Partner’s allocated share (in accordance with Section 4.1 ) of the Adjusted Purchase Price less the Escrow Funds.

(c) Subject to the provisions of this Section 3.2 and Section 3.5(c) and except as otherwise provided herein, the Limited Partner shall make a Capital Contribution to the Partnership in an aggregate amount not to exceed $343,000, which Capital Contributions shall be used exclusively by the Partnership for the payment of the Limited Partner’s allocated share (in accordance with Section 4.1 ) of Organization and Third Party Acquisition Costs.

(d) Subject to the provisions of this Section 3.2 and Section 3.5(d) and except as otherwise provided herein, the Limited Partner shall make Capital Contributions to the Partnership in an aggregate amount equal to Hedge Costs, which Capital Contributions shall be used exclusively by the Partnership for such purpose.

(e) Notwithstanding anything to the contrary herein, the obligation of the Limited Partner to make the Capital Contributions referenced in subsections (b) , (c) , and (d) , above shall be expressly conditioned upon the following:

(i) the Limited Partner shall have determined in its sole discretion that (A) the Partnership should not exercise its right to terminate the Purchase Agreement in accordance with the terms thereof, and (B) all conditions precedent to the obligation of the Partnership to consummate the transactions contemplated under the Purchase Agreement have been satisfied;

(ii) without limiting paragraph (vi) below, the General Partner shall have performed its obligations under Section 5.7 ;

(iii) the Limited Partner shall have received:

(A) an opinion of a law firm reasonably acceptable to the Limited Partner, dated the Purchase Agreement Closing Date and in form, scope and content acceptable to the Limited Partner and covering the matters described in Exhibit 3.2(e)(iii) and such other matters as the Limited Partner shall reasonably request;

(B) an officer’s certificate of the General Partner dated the Purchase Agreement Closing Date with respect to (1) the attached certificate of formation of the General Partner, and all amendments thereto, (2) the attached company agreement of the General Partner, and all amendments thereto, (3) the attached resolutions of the managers of the General Partner authorizing the execution, delivery and performance of all documents to be executed by the General Partner in connection with the formation of the Partnership, the execution and delivery of the Purchase Agreement, the Assignment Agreement, and related documents and the consummation of the transactions contemplated hereunder and thereunder, (4) the attached certificate of formation of Parent, and all amendments thereto, (5) the attached limited liability company agreement of Parent, and all amendments thereto, and (6) the incumbency and specimen signature(s) of the persons signing the documents to be executed by the General Partner in connection with the formation of the Partnership, the execution and delivery of the Purchase Agreement, the Assignment Agreement, and the consummation of the transactions contemplated hereunder and thereunder;

(C) a tax opinion of Thompson & Knight LLP, or such other law firm as is reasonably acceptable to the Limited Partner, dated the Purchase Agreement Closing Date and in form, scope and content acceptable to the Limited Partner;

(D) a partnership formation opinion of Thompson & Knight LLP, or such other law firm as is reasonably acceptable to the Limited Partner, dated the Purchase Agreement Closing Date and in form, scope and content acceptable to the Limited Partner;

(E) a certificate of existence confirming the existence of the Partnership under the laws of the State of Texas;

(F) certificates of existence and good standing confirming the existence and good standing of the General Partner and Parent under the laws of the State of Texas; and

(G) such other certificates, documents, and other instruments in respect to the General Partner and its owners as shall be reasonably requested by the Limited Partner;

(iv) the Partnership and the General Partner shall have qualified to do business in the states in which the Properties are located and provided evidence of same satisfactory to the Limited Partner;

(v) all the representations and warranties of the General Partner contained in this Agreement shall be true and correct in all material respects as of the date made and (having been deemed to have been made again on and as of the Purchase Agreement Closing Date in the same language) shall be true and correct in all material respects on and as of the Purchase Agreement Closing Date (and the Limited Partner shall have received a certificate acceptable to it from the General Partner dated the Purchase Agreement Closing Date to that effect);

(vi) the General Partner shall have performed and complied with in all material respects all covenants and agreements required by this Agreement to be performed or complied with by it on or prior to the Purchase Agreement Closing Date (and the Limited Partner shall have received a certificate acceptable to it from the General Partner dated the Purchase Agreement Closing Date to that effect);

(vii) no preliminary or permanent injunction or other order, decree, or ruling issued by any governmental entity, and no statute, rule, regulation, or executive order promulgated or enacted by any governmental entity, shall be in effect which restrains, enjoins, prohibits or otherwise makes illegal the consummation of the transactions contemplated under this Agreement, the Purchase Agreement, or the Assignment Agreement;

(viii) all consents, approvals, orders, authorizations, and waivers of, and all declarations, filings, and registrations with, third parties (including governmental entities) required to be obtained or made by or on the part of the parties hereto or to the Purchase Agreement or otherwise necessary for the consummation of the transactions contemplated hereunder or under the Purchase Agreement and the Assignment Agreement, shall have been obtained or made and shall be in full force and effect on and as of the Purchase Agreement Closing Date (excluding consents of third parties to assignments of the Properties as provided for in the Purchase Agreement); and

(ix) the Limited Partner shall have received a Phase I environmental report with respect to the Oil and Gas Properties satisfactory to it in form, scope and content.

(f) Notwithstanding anything to the contrary herein, the Capital Contributions referenced in subsections (a) , (b) , (c) , and (d)  above shall be the maximum contribution to the Partnership that the Limited Partner shall be required to make (unless the Limited Partner otherwise elects as provided in Section 3.3 ) and shall be subject to reduction as provided in Section 3.4 .

Section 3.3. Request for Additional Capital Contributions of Limited Partner.

(a) Subject to this Section 3.3 and the other terms and provisions hereof, the General Partner may request additional Capital Contributions from the Limited Partner to be used exclusively for the payment of each of its allocated share (pursuant to Section 4.1 ) of (i) Geophysical and Geological Costs, (ii) Well Costs, (iii) Well Plugging Costs, (iv) Excessive Reworking Costs, (v) Producer or Injector Well Costs, (vi) Facilities Construction Costs, (vii) Acquisition Costs under the circumstances described in Section 5.3 ( “Additional Lease Acquisition Costs” ), and (viii) cost overruns associated with any project or operation with respect to which the Limited Partner has previously agreed to make Capital Contributions hereunder ( “Funded Cost Overruns” ). Each of the categories of expenditures described in clauses (i) , (ii) , (iii) , (iv) , (v) , (vi) , (vii) , and (viii)  of this Section 3.3(a) may include such contingent amounts as the General Partner in good faith shall determine to be appropriate under the circumstances.

(b) Requests for additional Capital Contributions pursuant to this Section 3.3 shall be made by the General Partner and agreed to by the Limited Partner separately with respect to each

operation or acquisition included in any given category of expenditures as specified in subsection (a) above. Requests pursuant to this Section 3.3 shall not be made more often than quarterly each year unless approved by the Limited Partner (i) except for requests for Additional Lease Acquisition Costs or Funded Cost Overruns, (ii) except in the event the request is attributable to a proposal from an unrelated third party, or (iii) unless an emergency or some other urgent need for funds exists outside of the reasonable control of the General Partner. Payments of any additional Capital Contributions agreed to be made by the Limited Partner pursuant to this Section 3.3 shall be requested by the General Partner and made by the Limited Partner in the manner provided for in Section 3.5(f) .

(c) Notice of any request for additional Capital Contributions made by the General Partner shall be made on the online reporting system selected by the Limited Partner. With respect to Geophysical and Geological Costs, Well Costs, Well Plugging Costs, Excessive Reworking Costs, Producer or Injector Well Costs, or Facilities Construction Costs, each request shall cover all of the Capital Costs intended to be incurred during the next three months (and with respect to any Partnership well or Enhanced Recovery Operation or facility, the costs estimated to be incurred in connection with such well or operation or facility). With respect to Additional Lease Acquisition Costs, each request shall contain the information specified in Section 5.3 . With respect to Funded Cost Overruns, each request shall cover the reasonably anticipated overruns associated with the subject operation or project. Each such request shall set forth, in addition to any information requested by such online reporting system, (i) the date by which the Limited Partner must elect in writing to make the requested additional Capital Contributions, which date shall not be less than 30 days from the date the General Partner mails or sends such request, unless a shorter period is provided to the General Partner under any applicable “authority for expenditure” submitted by an operator other than the General Partner or an Affiliate, in which event such shorter period shall also be applicable to the election period of the Limited Partner (provided that in no event shall such shorter period be less than 15 days), (ii) the purpose or purposes for which the proceeds of the requested additional Capital Contributions are to be used, (iii) a copy of the applicable “authority for expenditure” submitted in connection with the well or operation, (iv) to the extent practicable, a summary of the pertinent geological data relating to each well or operation with respect to which the proceeds that are requested are to be expended and financial projections with respect to the expenditure of such additional Capital Contributions and the revenue projected to be received therefrom, (v) with respect to any well or operation with respect to which the proceeds requested are to be expended, a statement as to whether or not the General Partner recommends the Partnership participate therein, and (vi) a summary of the action that the General Partner anticipates it will take under Section 3.3(d) and any applicable operating agreement if the Limited Partner does not elect to make such requested additional Capital Contributions. In connection with any request pertaining to an Enhanced Recovery Operation, the General Partner shall endeavor to confine such request to the extent possible in accordance with generally accepted industry standards to those matters or items which should be conducted in conjunction with each other. Thereafter, the General Partner shall promptly furnish to the Limited Partner such additional information concerning the use and application of the requested additional Capital Contributions as the Limited Partner shall reasonably request. In the event the Limited Partner does not elect to pay all of the categories of requested additional Capital Contributions (or operations or acquisitions within a given category), it may elect to pay all of the Capital Contributions requested to be used for any of the remaining categories of costs designated in the General Partner's request as provided above (or, as to a given category, the costs associated with any other operation or

acquisition within such category). The General Partner shall not use any Capital Contributions received from the Limited Partner pursuant to this Section 3.3 and designated for payment of one category of costs to pay any other category of costs, except to the extent multiple categories of costs are included in the same approved additional Capital Contribution request, in which case the total amount reflected in such request may be used to pay any of the category of costs included in that request.

(d) If the Limited Partner declines to make any additional Capital Contributions requested by the General Partner or fails to give timely notice to the General Partner pursuant to a request for additional Capital Contributions made pursuant to Section 3.3(a) , the General Partner may elect to take any action specified in paragraphs (1) through (7)  below with respect to each Lease, Partnership well, operation or project to which the request pertains, if appropriate:

(1) With respect to the acquisition of Leases pursuant to Section 5.3 , the General Partner or its Affiliates may purchase or retain for its or their own account the Leases not acquired by the Partnership.

(2) The General Partner may cause the Partnership (to the extent it can do so under any applicable operating agreement) to abandon the operation or project, in which event all costs (if any) thereafter incurred in abandoning the operation or project shall be borne by the Partnership.

(3) The General Partner may cause the Partnership to sell, farm-out or otherwise dispose of the well or Lease (or the applicable part thereof) to which such operation or project pertains to any person; provided, however, that no such sale, farm-out or other disposition may be made to the General Partner or any Affiliate thereof without the prior written consent of the Limited Partner.

(4) In the event a well or Lease to which such proposed operation or project pertains is subject to an operating agreement, the General Partner may cause the Partnership to elect not to participate in a proposed operation and to assume the status of a “non-consenting party” under such operating agreement; provided, however, that neither the General Partner nor any of its Affiliates shall be permitted to pay or shall pay the Partnership’s non-consenting share of costs or expenses or any part thereof with respect to such operation or project under such operating agreement.

(5) The General Partner may (provided that it has recommended under Section 3.3(c) that the Partnership participate in such proposed operation or project) pay the requested additional Capital Contributions the Limited Partner declined to pay, and the amount so paid by the General Partner with respect to such operation or project shall be credited to a separate account, which separate account shall be charged and credited as follows:

(x) Subject to subparagraph (y) of this Section 3.3(d)(5) , all of the Limited Partner’s share of costs and expenses with respect to such operation or project shall be charged to such separate account, and such separate account shall be credited with the Limited Partner’s share of revenues from such operation or project (after deducting all production, severance, excise and similar taxes relating

thereto). Until the total amount credited to such separate account equals the amount specified in subparagraph (y) of this Section 3.3(d)(5) with respect to such operation or project, the General Partner shall be allocated all of the costs and expenses charged to such separate account, and the Limited Partner shall be deemed to have relinquished to the General Partner, and the General Partner shall have allocated to it and be entitled to receive, all of the revenues credited to such separate account.

(y) If, as and when the total amount of revenues received by and credited and allocated to the General Partner under subparagraph (x) of this Section 3.3(d)(5) shall equal the sum of the following to the extent they are appropriate:

a. 300% of the amount charged to such separate account for Capital Costs; and

b. 100% of the amount charged to such separate account for Lease Operating and Production Costs;

no further amounts shall be charged or credited to such separate account, and the Limited Partner’s share of all revenues and costs and expenses thereafter arising or accruing with respect to such operation or project shall be allocated, charged and credited to the Limited Partner.

(6) With respect to a request pertaining to Facilities Construction Costs, the General Partner shall take such action as shall be mutually agreed upon by the Partners.

(7) The General Partner may take such other actions as may be mutually agreed upon by the Partners.

Section 3.4. Reduced Capital Contributions of a Partner. In the event the Partnership or the General Partner properly retains a portion of a Partner’s share of Partnership revenues in accordance with Section 4.4 for the purpose of paying any Acquisition Costs, Capital Costs, Hedge Costs, or Organization and Third Party Acquisition Costs allocated to such Partner hereunder, the amount so retained and not distributed shall reduce pro tanto the amount of Capital Contributions such Partner is required to thereafter make for the purpose of paying such costs.

Section 3.5. Payments of Capital Contributions.

(a) The General Partner shall pay the Capital Contributions referenced in Section 3.1(a) and the Limited Partner shall pay the Capital Contributions referenced in Section 3.2(a) so that the Partnership can comply with its obligations to pay the Performance Deposit in accordance with the terms of the Purchase Agreement and the Assignment Agreement.

(b) The General Partner shall pay the Capital Contributions referenced in Section 3.1(b) and the Limited Partner shall pay the Capital Contributions referenced in Section 3.2(b) on the Purchase Agreement Closing Date.

(c) The Limited Partner shall pay the Capital Contributions referenced in Section 3.2(c) within five business days of the Limited Partner’s receipt of a request from the General Partner for such purpose.

(d) The Limited Partner shall pay the Capital Contributions referenced in Section 3.2(d) promptly after receipt of a request from the General Partner for such purpose.

(e) Except as otherwise provided in subsections (a) , (b) , (c) , and (d)  above, the Limited Partner shall pay its Capital Contributions monthly upon request by the General Partner in such amounts as are required to pay its share of all costs and expenses properly allocated to it hereunder. The General Partner may request on a monthly basis additional payments of the Capital Contributions agreed to be made by the Limited Partner for the Limited Partner’s share of (i) all costs and expenses estimated to have been and/or to be incurred by the Partnership during that calendar month except those for which advances have previously been made or for which payment will be made from another source and (ii) those costs and expenses estimated to be incurred by the Partnership during the next succeeding calendar month. Each monthly request for payment shall be adjusted to the extent the Limited Partners’ cumulative share of actual Partnership disbursements for the preceding calendar month’s costs and expenses is either greater or less than the amounts previously contributed by the Limited Partner for such purpose. Any request for payment by the Limited Partner of Capital Contributions shall be in writing and shall set forth (1) the type, nature or items of Partnership costs or expenses for which such payment will be used by the Partnership, including a division of the costs and expenses as contemplated in clauses (i) and (ii)  of this Section 3.5(e) and the adjustment referred to in this Section 3.5(e) , (2) the net amount of the Capital Contributions to be paid by the Limited Partner, and (3) the date by which payment of such Capital Contributions shall be received, which shall not be less than five business days from the date the notice is received by the Limited Partner.

(f) Payments by the Limited Partner of its Capital Contributions shall be made by wire transfer of immediately available funds to the Partnership’s account as designated by the General Partner by notice to the Limited Partner pursuant to Section 12.1 .

(g) Any additional Capital Contributions agreed to be made by the Limited Partner pursuant to Section 3.3 may be requested only during the period commencing on the date they were originally requested by the General Partner under Section 3.3 and ending three months thereafter with respect to Capital Contributions to be used to pay Acquisition Costs and six months thereafter with respect to Capital Contributions to be used to pay Capital Costs and shall only be requested for and expended on the respective purposes for which they were agreed to be made.

Section 3.6. Non-Payment of Capital Contributions.

(a) Except as otherwise provided in the following sentence, the Partnership shall have the right to pursue the remedies described in this Section 3.6 and any remedy existing at law or in equity for the collection of the unpaid amount of the Capital Contributions agreed to be made in Section 3.1 and Section 3.2 or hereafter agreed to be made in accordance with Section 3.3 , including the prosecution of a suit against a defaulting Partner. In the event of a default by the Limited Partner of its obligation to make Capital Contributions with respect to Hedge Costs, the

provisions of subsection (d) below and any guaranty of General Electric Capital Corporation under Section 5.7 shall be the exclusive remedies of the Partnership and the General Partner.

(b) In the event that the Limited Partner fails or refuses to make when due its share of Capital Contributions, the General Partner shall be entitled (but shall not be obligated) to make such Capital Contributions to the Partnership which the Limited Partner is obligated to make and the amount so advanced shall be treated as a loan from the General Partner to the Limited Partner and shall bear interest from the date of such advance at a rate equal to the Agreed Rate. The General Partner shall notify the Limited Partner of any such advance and request payment by the Limited Partner of the amount so advanced, together with interest thereon from the date of the advance. If the Limited Partner fails or refuses to pay to the General Partner the amount so advanced, together with interest thereon from the date of the advance, and if such failure or refusal persists for a period of 30 days following notice from the General Partner to the Limited Partner, it shall be deemed an “Event of Default” ) hereunder.

(c) Upon the occurrence of an Event of Default, the Partnership may retain any revenues otherwise distributable to the Limited Partner pursuant to this Agreement in an amount equal to the amount the Limited Partner failed or refused to contribute as required pursuant to the terms of this Agreement, together with interest on such past-due amounts at a rate equal to the Agreed Rate. Any amount so withheld shall be deemed, for all purposes of this Agreement, to have been distributed to the Limited Partner and, other than that portion of such amounts representing interest, be deemed to have been recontributed by the Limited Partner to the capital of the Partnership for the purposes for which contributions were initially requested. To the extent that the General Partner has advanced funds to the Partnership as a result of the default of the Limited Partner, the General Partner shall be entitled to be reimbursed and paid the amount of such advance plus interest at the Agreed Rate from the amounts so withheld from the Limited Partner. If any dispute as to whether an Event of Default existed is resolved in favor of the Limited Partner, then the General Partner shall pay to the Partnership for distribution to the Limited Partner an amount equal to any amounts wrongly paid by the Limited Partner to the Partnership which should have instead been paid to the Partnership by the General Partner, or any amounts distributed by the Partnership to the General Partner instead of the Limited Partner, in connection with such Event of Default together with interest thereon at a rate equal to the Agreed Rate, and all costs and expenses of the Limited Partner in resolving such dispute, including all attorneys’ fees expended in connection therewith. The General Partner shall be free at any time also to proceed under this Section 3.6(c) in addition to any other remedies hereunder or as provided by law.

(d) If a Partner (the “Defaulting Partner” ) fails or refuses to make Capital Contributions to the Partnership hereunder when due to pay its allocable share hereunder of Hedge Costs and the other Partner (the “Contributing Partner” ) in the Defaulting Partner’s stead makes such Capital Contributions to the Partnership, then the terms and provisions of this Section 3.6(d) shall be operative. Specifically, in the instance described above, the Contributing Partner may exercise either of the following options:

(i) The Contributing Partner may treat the payment by it of the Defaulting Partner’s Capital Contributions as a loan to the Defaulting Partner, which loan shall bear interest from the date the payment is made at a rate equal to the Agreed Rate. Further, as

between the Contributing Partner and the Defaulting Partner, the terms and provisions of Section 3.6(b) and Section 3.6(c) shall be applicable, mutatis mutandis .

(ii) The Contributing Partner may treat the payment by it of the Defaulting Partner’s Capital Contributions as Capital Contributions from the Contributing Partner, in which case the Contributing Partner shall be entitled to receive all of the distributions that would otherwise be paid to the Defaulting Partner hereunder until that point in time at which the Contributing Partner has received from such distributions an amount equal to 300% of the amount of the Capital Contributions made by the Contributing Partner in the Defaulting Partner’s stead; provided, however, that if this option is elected, the Defaulting Partner’s share of the Hedge Costs paid with such Capital Contributions, and any deductions or losses relating thereto for state or federal income tax purposes, shall be allocated to the Contributing Partner; and provided further, that the Defaulting Partner’s share of Partnership revenues, and any income or gain relating thereto for state or federal income tax purposes, shall be allocated to the Contributing Partner until the revenues so allocated equal the distributions to be made to the Contributing Partner under this paragraph (ii) .

(iii) If the Contributing Partner borrows funds in order to make the payment required by the Defaulting Partner, the Contributing Partner may pledge its right to receive distributions under this Section 3.6(d) which would have been made to the Defaulting Partner to secure such borrowings.

Section 3.7. Interest on and Return of Capital Contributions.

(a) No interest shall accrue on any contributions to the capital of the Partnership; however, all interest which accrues on Partnership funds shall be allocated and credited to the Partners in accordance with Section 4.2 .

(b) No Partner shall have the right to withdraw or be repaid any capital contributed by such Partner except (a) as provided in Section 4.4(b) , Section 10.2 , and Section 10.3 or (b) in the instance when the Partnership receives a return of cash funds under the Purchase Agreement due to a return of the Performance Deposit a post-closing adjustment to the Adjusted Purchase Price, as determined pursuant to the Purchase Agreement (in which event the General Partner shall cause the Partnership to refund immediately to each of the Limited Partner and the General Partner its respective allocable share of such cash funds).

Section 3.8. Payments and Advances by General Partner. The General Partner shall have the right to pay any indebtedness or obligation of the Partnership out of funds of the General Partner, and may bill the Partnership therefor. Further, if at any time the General Partner advances funds to or on behalf of the Partnership or the General Partner is required to pay any indebtedness or obligation of the Partnership in excess of the Capital Contributions of the General Partner agreed to be made in this Article III , such advance or payment shall constitute a loan by the General Partner to the Partnership. If any such advance or payment is outstanding for more than 30 days, such advance or payment shall bear interest from the date first made at a rate equal to the Agreed Rate. No such advance or payment by the General Partner shall be deemed to be a contribution by the General Partner to the capital of the Partnership. Any loan made by the General Partner hereunder to pay any costs or expenses

allocated and charged to any Partner shall be repaid (with payments to be applied first to the payment of interest and then to the repayment of principal) from the revenues that would otherwise be next distributed to such Partner hereunder.

ARTICLE IV

ALLOCATIONS AND DISTRIBUTIONS

Section 4.1. Allocation of Costs and Expenses. Except as provided in Section 3.3 and Section 3.6 , all costs and expenses of the Partnership shall be allocated and charged to the Partners as follows:

(a) All Catastrophe Costs incurred by the Partnership shall be allocated 100% to the General Partner.

(b) In the event the transactions contemplated by the Purchase Agreement are consummated, Organization and Third Party Acquisition Costs shall be allocated two percent to the General Partner and 98% to the Limited Partner. In the event the transactions contemplated by the Purchase Agreement are not consummated, Organization and Third Party Acquisition Costs shall be allocated 100% to the General Partner.

(c) Hedge Costs shall be allocated 100% to the Limited Partner.

(d) All other costs and expenses of the Partnership not specifically allocated above shall be allocated (i) to the General Partner in accordance with its GP Sharing Percentage and (ii) to the Limited Partner in accordance with its LP Sharing Percentage.

Section 4.2. Allocation of Revenues.

(a) Except as provided in Section 3.3 and Section 3.6 , all revenues of the Partnership (which shall not include Capital Contributions and loans to the Partnership) shall be allocated and credited to the Partners as follows:

(i) Insurance proceeds, to the extent not otherwise expended by the Partnership to preserve and protect Partnership property in the event of an accident or other occurrence or to pay Partnership liabilities or other obligations arising from an accident or other occurrence, shall be allocated between the Partners in the same manner as the revenues from the sale of the property to which such insurance proceeds related would be allocated under this Section 4.2 .

(ii) All revenues used to repay any principal, interest or other amounts owing with respect to any Partnership borrowings or indebtedness shall be allocated to the Partners in the same proportions as the costs and expenses paid with such borrowings or indebtedness were allocated to the Partners (and, with respect to any indebtedness to which any property acquired by the Partnership is subject at the time of its acquisition, in the same proportions as costs are allocated under Section 4.1(b) at the time such property is acquired by the Partnership).

(iii) After making the allocation provided for in Section 4.2(a)(ii) and taking into account the revenues allocated therein, all additional revenues resulting from the sale

or other disposition of Depletable Property (as defined in Section 4.3(b) ) shall be allocated to the Partners in the same percentages as the costs of the property sold were allocated, to the extent such revenues constitute a recovery of Simulated Basis of such Depletable Property, up to an amount equal to the Partnership’s Simulated Basis in such property at the time of such sale or disposition. Thereafter, revenues resulting from any such sale or disposition shall be allocated to the Partners in a manner which will cause the aggregate of all revenues allocated to the Partners from such sale or disposition (to the extent possible) to equal the amounts which would have been allocated under Section 4.2(a)(v) in the absence of this Section 4.2(a)(iii) .

(iv) Revenues attributable to any Hedging Transaction shall be allocated 100% to the Limited Partner.

(v) All other revenues of the Partnership not specifically allocated above shall be allocated (A) to the General Partner in accordance with its GP Sharing Percentage and (B) to the Limited Partner in accordance with its LP Sharing Percentage.

(b) All dry hole and bottom hole and similar contributions shall not be considered to be revenues hereunder but shall be applied to reduce the Capital Costs of the respective wells to which they relate.

Section 4.3. Income Tax Allocations. Except as otherwise provided herein, for purposes of any applicable federal, state or local income tax law, rule or regulation items of income, gain, deduction, loss, credit and amount realized shall be allocated to the Partners as follows:

(a) Income from the sale of oil or gas production shall be allocated in the same manner as revenue therefrom is allocated and credited pursuant to Section 4.2 .

(b) Cost and percentage depletion deductions and the gain or loss on the sale or other disposition of property the production from which is subject to depletion (herein sometimes called “Depletable Property ”) shall be computed separately by the Partners rather than the Partnership. For purposes of Section 613A(c)(7)(D) of the Internal Revenue Code, the Partnership’s adjusted basis in each Depletable Property acquired by the Partnership shall be allocated to each Partner in an amount equal to the portion of the costs and expenses which entered into such basis actually paid by such Partner or paid by the Partnership with funds contributed by or allocated to such Partner. The amount realized on the sale or other disposition of each Depletable Property shall be allocated to the Partners in proportion to each Partner’s respective share of the revenue from the sale or other disposition of such property provided for in Section 4.2(a)(iii) or Section 4.2(a)(v) , as applicable. For purposes of allocating amounts realized upon any such sale or disposition which are deemed to be received for federal income tax purposes and are attributable to Partnership indebtedness or indebtedness to which the Depletable Property is subject at the time of such sale or disposition, such amounts shall be allocated in the same manner as Partnership revenues used for the repayment of such indebtedness would have been allocated under Section 4.2(a)(ii) .

(c) Items of deduction, loss and credit not specifically provided for above (other than loss from the sale or other disposition of Partnership property), including depreciation, cost

recovery and amortization deductions, shall be allocated to the Partners in the same manner that the costs and expenses of the Partnership that gave rise to such items of deduction, loss and credit were allocated pursuant to Section 4.1 .

(d) Gain from the sale or other disposition of Partnership property that is not specifically provided for above shall be allocated to the Partners in a manner which reflects each Partner’s allocable share of the revenue from the sale of the Partnership property provided for in Section 4.2 , and loss from the sale or other disposition of Partnership property that is not specifically provided for above shall be allocated to the Partners in a manner which reflects each Partner’s allocable share of the costs and expenses of the Partnership property provided for in Section 4.1 .

(e) All recapture of income tax deductions resulting from the sale or other disposition of Partnership property shall, to the maximum extent possible, be allocated to the Partner to whom the deduction that gave rise to such recapture was allocated hereunder to the extent that such Partner is allocated any gain from the sale or other disposition of such property.

(f) Income resulting from the Partnership’s receipt of dry hole, bottom hole or similar contributions shall be allocated in the same manner as the costs to which they were applied were allocated.

(g) Any other items of Partnership income or gain not specifically provided for above shall be allocated in the same manner as the revenue that resulted in such income or gain is allocated and credited pursuant to Section 4.2 .

(h) Notwithstanding any of the foregoing provisions of this Section 4.3 to the contrary:

(i) If during any fiscal year of the Partnership there is a net increase in Minimum Gain attributable to a Partner Nonrecourse Debt that gives rise to Partner Nonrecourse Deductions, each Partner bearing the economic risk of loss for such Partner Nonrecourse Debt shall be allocated items of Partnership deductions and losses for such year (consisting first of cost recovery or depreciation deductions with respect to property that is subject to such Partner Nonrecourse Debt and then, if necessary, a pro rata portion of the Partnership’s other items of deductions and losses, with any remainder being treated as an increase in Minimum Gain attributable to Partner Nonrecourse Debt in the subsequent year) equal to such Partner’s share of Partner Nonrecourse Deductions, as determined in accordance with applicable Treasury Regulations.

(ii) If for any fiscal year of the Partnership there is a net decrease in Minimum Gain attributable to Partnership Nonrecourse Liabilities, each Partner shall be allocated items of Partnership income and gain for such year (consisting first of gain recognized, including Simulated Gain, from the disposition of Partnership property subject to one or more Partnership Nonrecourse Liabilities and then, if necessary, a pro rata portion of the Partnership’s other items of income and gain, and if necessary, for subsequent years) equal to such Partner’s share of such net decrease (except to the extent such Partner’s share of such net decrease is caused by a change in debt structure with such Partner commencing to bear the economic risk of loss as to all or part of any Partnership

Nonrecourse Liability or by such Partner contributing capital to the Partnership that the Partnership uses to repay a Partnership Nonrecourse Liability), as determined in accordance with applicable Treasury Regulations.

(iii) If for any fiscal year of the Partnership there is a net decrease in Minimum Gain attributable to a Partner Nonrecourse Debt, each Partner shall be allocated items of Partnership income and gain for such year (consisting first of gain recognized, including Simulated Gain, from the disposition of Partnership property subject to Partner Nonrecourse Debt, and then, if necessary, a pro rata portion of the Partnership’s other items of income and gain, and if necessary, for subsequent years) equal to such Partner’s share of such net decrease (except to the extent such Partner’s share of such net decrease is caused by a change in debt structure or by the Partnership’s use of capital contributed by such Partner to repay Partner Nonrecourse Debt) as determined in accordance with applicable Treasury Regulations.

(i) The General Partner shall use all reasonable efforts to prevent any allocation or distribution from causing a negative balance in the Limited Partner’s Adjusted Capital Account. Consistent therewith, and notwithstanding any of the foregoing provisions of this Section 4.3 to the contrary, if for any fiscal year of the Partnership the allocation of any loss or deduction (net of any income or gain) to any Partner would cause or increase a negative balance in such Partner’s Adjusted Capital Account as of the end of such fiscal year (the “Deficit Partner” ) after taking into account the provisions of subsection (h) of this Section 4.3 , only the amount of such loss or deduction that reduces the balance to zero shall be allocated to such Deficit Partner and the remaining loss or deduction shall be allocated to the Partner whose Adjusted Capital Account has a positive balance remaining at such time (the “Positive Partner” ). After any such allocation, any Partnership income or gain (including Simulated Gain) that would otherwise be allocated to the Deficit Partner shall be allocated instead to the Positive Partner up to an amount equal to the Partnership loss or deduction allocated to the Positive Partner under the preceding sentence; provided, however, that no allocation of income or gain realized shall be made under this sentence if the effect of such allocation would be to cause the Adjusted Capital Account of the Deficit Partner to be less than zero. If, after taking into account the allocation in the first sentence of this Section 4.3(i) , the Adjusted Capital Account balance of the Deficit Partner remains less than zero at the end of a fiscal year, a pro rata portion of each item of Partnership income or gain (including Simulated Gain) otherwise allocable to the Positive Partners for such fiscal year (or if there is no such income or gain allocable to the Positive Partners for such fiscal year, all such income or gain (including Simulated Gain) so allocable in the succeeding fiscal year or years) shall be allocated to the Deficit Partner in an amount necessary to cause its Adjusted Capital Account balance to equal zero; provided, that no allocation under this sentence shall have the effect of causing the Positive Partner’s Adjusted Capital Account to be less than zero. After any such allocation, any Partnership gain (including Simulated Gain) resulting from the sale or other disposition of Partnership property that would otherwise be allocated to the Deficit Partner for any fiscal year under this Section 4.3 shall be allocated instead to the Positive Partner until the amount of gain so allocated equals the amount of gain (including Simulated Gain) previously allocated to such Deficit Partner under the preceding sentence of this Section 4.3(i) ; provided, however, that no allocation of gain (including Simulated Gain) shall be made under this sentence if the effect of such allocation would be to cause the Adjusted Capital Account of a Deficit Partner to be less than zero.

(j) In accordance with Section 704(c) of the Internal Revenue Code and the Treasury Regulations thereunder, income and deductions with respect to any property carried on the books of the Partnership at a value that differs from such property’s adjusted tax basis shall, solely for federal income tax purposes, be allocated among the Partners in a manner to take into account any variation between the adjusted tax basis of such property to the Partnership and its fair market value at the time of contribution or its book value, as applicable. In making such allocations, the General Partner shall use such method or methods permitted under applicable Treasury Regulations as may be approved by the Limited Partner in accordance with Section 6.9(a) .

Section 4.4. Distributions.

(a) Within 30 days after the end of each month, the General Partner shall cause the Partnership to make a distribution (i) to the Limited Partner of its LP Monthly Cash Distribution for such month and (ii) to the General Partner of its GP Monthly Cash Distribution for such month.

(b) The General Partner shall cause the Partnership to make a distribution to the Partners of their allocable share (as determined under Section 4.2(a) ) of the net proceeds of sale resulting from any permitted sale or disposition of Leases or other Partnership assets (other than in connection with the liquidation of the Partnership) within two business days after the closing of such sale or disposition; provided, that the General Partner shall be entitled to reserve from such distribution such amount which is, or which the General Partner reasonably anticipates will be, subject to any post-closing adjustment and which reserve shall be approved by the Limited Partner; provided, further, that the General Partner shall distribute such reserve or portions thereof at such times as it reasonably determines that the contingencies for which such reserve has been established have been satisfied.

(c) Notwithstanding the foregoing or any other provision contained in this Agreement, (i) unless the Limited Partner otherwise consents in writing or defaults in the payment of any Capital Contributions previously agreed to be made by it, the General Partner shall not be entitled to cause the Partnership to retain any of the Limited Partner’s share of Partnership revenues for the purpose of paying (directly or indirectly) any Acquisition Costs, Capital Costs, Hedge Costs, or Organization and Third Party Acquisition Costs or (ii) the Partnership may retain such insurance proceeds and other amounts as the General Partner shall reasonably determine are necessary to pay Partnership liabilities and expenses upon the occurrence of an accident ( e.g. , a blowout), catastrophe or similar event (and, in connection therewith, to restore, preserve or protect Partnership property) or to comply with all applicable Environmental Laws, ordinances, rules and regulations.

(d) Payment of all distributions made by the Partnership to the Limited Partner shall be made by wire transfer of immediately available funds in accordance with such written instructions to the General Partner as may be provided by the Limited Partner from time to time.

(e) Nothing contained in this Section 4.4 shall relieve the General Partner from its obligation to bear 100% of Catastrophe Costs pursuant to Section 4.1(a) .

(f) All distributions in liquidation of a Partner’s interest in the Partnership shall be made in accordance with Section 10.3 .

ARTICLE V

PARTNERSHIP PROPERTY

Section 5.1. Title to Partnership Property. All property owned by the Partnership, whether real or personal, tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually, shall have any ownership of such property. The Partnership shall hold all of its assets in the name of the Partnership unless under the law of some jurisdiction in which the Partnership owns assets such assets must be held in another name. In such a case, such assets in such jurisdiction shall be held under such other name or names (except the name of the General Partner, any Affiliate of the General Partner or the name of the Limited Partner) as the General Partner shall determine to be necessary so long as it does not affect adversely the limited liability of the Limited Partner hereunder or jeopardize in any manner the title to or ownership of any Partnership Leases or other assets. The General Partner shall promptly take all such action as it shall deem necessary or appropriate, or as may be required by law, to perfect and preserve the ownership interest of the Partnership in all Leases, and (if requested by the Limited Partner) upon recordation of title to a Lease shall