PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (“Agreement”), dated as of September 27, 2006 (the “Execution Date”), is made and entered into between W. B. OSBORN OIL & GAS OPERATIONS, LTD., d/b/a W.B. Osborn Oil & Gas Operations (“WBO”), and ST. JO PIPELINE, LIMITED, both Texas Limited Partnerships and both located at P.O. Box 8C, San Antonio, TX 78217, herein collectively called “Seller”, and Ignis Barnett Shale, LLC, a Texas limited liability company, 100 Crescent Court, 7 ^th Floor, Dallas, TX 75201, herein called “Buyer”. Seller and Buyer are hereinafter sometimes individually referred to as a “Party” hereto and together as “Parties” hereto.

WHEREAS, Seller owns and WBO operates certain oil and gas producing properties and a related pipeline facility as more fully described herein; and

WHEREAS, Buyer desires to purchase and Seller desires to sell, pursuant to the terms hereof, an undivided interest in such properties and facility owned by Seller;

NOW, THEREFORE, in consideration of the mutual agreements, covenants, promises, and payments for which provision is herein made, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Parties hereto, Buyer and Seller hereby agree as follows:

1.1       PURCHASE AND SALE . Seller agrees to sell and convey, and Buyer agrees to purchase, a forty-five percent (45%) undivided interest in Seller’s interest in and to the Properties (as defined in Paragraph 1.2), pursuant to the terms and conditions of this Agreement.

1.2       PROPERTIES . The Properties which are the subject of this Agreement, and in which said forty-five percent (45%) undivided interest is being herein conveyed, are comprised of all of the following (collectively, the “Properties”):

(a)       LEASES, WELLS, UNITS, AND LANDS . The interests described on Exhibit “A”, attached hereto and made a part hereof by this reference for all purposes, as to all depths and formations, in and to (i) the oil, gas and mineral leases listed on Exhibit “A” (collectively, the “Leases” and any of which, singularly, a “Lease”); (ii) the units, whether pooled, acreage spacing or proration units, or other allocations of acreage, and all rights associated therewith, which are applicable to the Leases and have been established by, or in accordance with (A) applicable contractual provisions regarding unitization, communitization, pooling, spacing or proration, or (B) applicable state or federal law (collectively, the “Units”); and (iii) the oil and/or gas wells, salt water disposal wells, and water wells (collectively, the “Wells”) located on either (A) the lands subject to the Leases or (B) the lands included within the lateral bounds of any of the Units (all of such lands being hereinafter called the “Lands”);

(b)       PRODUCTION . For each of the Leases, the interest set forth on Exhibit “A” corresponding to such Lease in and to all oil, gas, casinghead gas, condensate, distillate or other liquid or gaseous hydrocarbons (collectively, the “Hydrocarbons”), and other minerals which are in, under, upon, or produced from or allocable (or to be produced from or allocable) to that portion of the Lands attributable to such Lease (such Hydrocarbons and other minerals being hereinafter referred to as “Production”), including without limitation (i) Production constituting “line fill” and inventory below the pipeline connection in tanks, attributable to such interest described in Exhibit “A”, and (ii) the proceeds from the sale of such Production referenced in item (i), immediately above;

(c)       CONTRACTS. All farmout and farmin agreements, unitization or communitization agreements or orders, pooling agreements (or applicable governmental regulations or orders), unit declarations (or applicable governmental regulations or orders), division orders, transfer orders, gas sales or purchase contracts, crude oil purchase and sale agreements, agreements for the transportation of Production, agreements for the exchange of Hydrocarbons or Production, operating agreements, licenses and/or agreements to perform seismic testing, licenses to or agreements granting rights to the use of seismic data or other intellectual property relating to the Leases, the Lands, or both, contract operating agreements, unit operating agreements, participation agreements, processing agreements, options, or other agreements and instruments, including all amendments thereto and any agreements settling claims asserted thereunder) to the extent that the same relate, appertain, belong or are incidental to the Leases, the Lands, or both (collectively, the “Contracts”), including without limitation the Surface Leases, Operating Agreements, Pooling Declarations, Gas Contracts, and Miscellaneous Agreements (as those terms are defined in Exhibit “A”);

(d)       FIXTURES, EQUIPMENT, AND ASSOCIATED PERSONAL PROPERTY . All fixtures and equipment attached or appurtenant to the Leases, the Lands, and/or the Wells, including, but not limited to, any water source wells, water wells, injection wells, tanks, tank batteries, pipelines, gas plants, disposal facilities, operating warehouses (including parts, supplies and other inventory items), buildings, structures, roads, power lines, telephone lines, field separators and liquid extractors, pumps, pumping units, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, appliances, cables, wires, towers, casing, tubing and rods, and gathering lines, to the extent that the same are used in connection with the ownership or operation of the Leases, the Wells, or both (collectively, the “Equipment”);

(e)       EASEMENTS. All lands, tenements, appurtenances, surface leases, easements, permits, licenses, servitudes and rights-of-way in any way appertaining, belonging, affixed or incidental to or used in connection with the ownership or operation of the Leases, the Wells, or both (collectively, the “Easements”), including without limitation the Pipeline Easements and Roadway Easements (as those terms are defined in Exhibit “A”);

(f)       FILES . Copies of all of the following (collectively, the “Files”): Seller’s lease files, land files, well files, division order files, transfer order files, abstracts, title opinions, curative, ownership reports, reports on divisions of interest, accounting records and other similar documents and records which relate to the Leases, the Lands, the Wells, the Units, the Production, the Hydrocarbons, the Contracts, the Equipment, the Easements, the Records (as that term is defined below), and/or the Remaining Interests (as that term is defined below), Buyer being entitled to inspect and review same during Buyer’s due diligence period as described hereinbelow, and to make copies of any documents contained therein as may be requested by Buyer;

(g)       RECORDS. Copies of all of the following (collectively, the “Records”): Seller’s geological, geophysical or seismic prospect maps, electric logs, survey maps, geological profiles, geological and geophysical interpretative data, production records, accounting records, engineering data, logs, core data, pressure data, decline curves and similar data, to the extent that the foregoing relate to the Leases, the Lands, the Wells, the Units, the Production, and/or the Hydrocarbons; and

(h)       REMAINING INTERESTS . Without limiting the generality of the foregoing, the interest of Seller, whether now owned or hereafter acquired by operation of law, in any of the above, even though such interest may be incorrectly described in or omitted from Exhibit “A” (collectively, the “Remaining Interests”), including, but not limited to, interests in or derived from all oil, gas and mineral leases and leaseholds, fee and mineral interests, overriding royalties and all other interests of whatsoever character, insofar as the same cover or relate to the Lands, even though said interests or Lands may be incorrectly described in or omitted from Exhibit “A”.

The term “Properties” shall not include, and Seller shall retain, all liability for all Litigation (as defined in Section 4.1[d]), if any, pending or threatened in writing before any court or governmental agency as of the date of Closing (as defined in Paragraph 7.1), to the extent it relates to the period of time prior to the Effective Date (collectively, the “Retained Obligations”).

1.3       EFFECTIVE DATE . The transfer of the Properties shall occur at Closing (as defined in Paragraph 7.1), effective as of 7:00 a.m. local Texas time, on June 1, 2006 (“Effective Date”).

1.4       ALLOCATION OF REVENUES AND EXPENSES :

(a)       ALLOCATION OF REVENUES AND EXPENSES PRIOR TO EFFECTIVE DATE . Seller shall receive all proceeds from the sale of Production physically produced prior to the Effective Date, and Seller shall be entitled to receive all other revenues and benefits attributable to the Properties accruing or relating to all periods before the Effective Date. Seller alone shall bear and be solely responsible for all expenses incurred with respect to the Properties relating to periods before the Effective Date.

(b)       ALLOCATION OF REVENUES AND EXPENSES AFTER EFFECTIVE DATE . Subject to Paragraph 1.5 (a), (b) and (c) hereof, the working interest share (net revenue interest) of all proceeds from the sale of Production physically produced after the Effective Date, and all other revenues and benefits attributable to the Properties accruing or relating to all periods after the Effective Date shall be owned and received by Seller and Buyer in the proportions of Seller - fifty-five percent (55%) and Buyer - forty-five percent (45%). Likewise, all expenses incurred with respect to the Properties relating to all periods after the Effective Date shall be borne by Seller and Buyer in the same proportions.

(c)       AD VALOREM TAXES . WBO, as operator, shall be responsible for the payment of all ad valorem property taxes on the personal property and/or reserves which comprise a portion of the Properties. Such taxes shall be allocated between Buyer and Seller, with Seller being liable for all such taxes attributable to the period ending on the Effective Date and Buyer being liable for all Buyer’s prorata forty-five percent (45%) share of such taxes for the period beginning on the Effective Date, Seller being liable for Seller’s prorata fifty-five percent (55%) share of such taxes for the period beginning on the Effective Date. Following payment of said taxes by WBO, Seller shall bill Buyer for its said prorata share and Buyer shall promptly remit such payment to Seller. Ad valorem taxes based upon Production shall be allocated on the basis of the time when such Production physically occurred, without regard to the year in which such taxes were assessed, Seller being liable for taxes on production occurring prior to the Effective Date and each Party being liable for its respective prorata share (Seller - 55%, Buyer - 45%) of taxes on production occurring beginning on the Effective Date.

(d)       SURVIVAL . The provisions of this Section 1.4 shall survive the Closing.

1.5       OPERATION OF PROPERTIES AFTER EFFECTIVE DATE:

(a)       LEASEHOLD PROPERTIES ON WHICH SELLER OWNS LESS THAN 100%.   Operations on   Properties with existing Operating Agreements (being those as set forth on Exhibit “A” attached hereto) and on Properties where Seller owns less than one hundred percent (100%) working interest and Seller is contracted to enter into a certain form of Operating Agreement, will continue to be governed by those agreements, with the Exhibit “A’s” to such agreements revised to include Buyer’s working interest, Buyer hereby taking such interests in the Properties subject to said existing Operating Agreements.

(b)       LEASEHOLD PROPERTIES ON WHICH SELLER OWNS 100%.  Operations on Properties where no Operating Agreement currently exists and Seller owns one hundred percent (100%) working interest, and on all new leasehold, if any, acquired jointly by Seller and Buyer will be governed by the form of Operating Agreement attached hereto as Exhibit “B”, a recordable Notice of which is attached hereto as Exhibit “B-1”, both exhibits being incorporated herein by this reference for all purposes.

(c)       PIPELINE PROPERTIES . Operations of that portion of the Properties comprising the pipeline and pipeline-related facilities will be governed by the Joint Ownership Agreement (with the Contract Operating Agreement attached thereto) attached hereto as Exhibit “C” and made a part hereof by this reference for all purposes, Buyer hereby taking such interests in the pipeline and pipeline-related facilities subject to said Joint Ownership Agreement and Contract Operating Agreement.

2.1       PURCHASE PRICE AND EARNEST MONEY .

(a)       EARNEST MONEY . Contemporaneously with Buyer’s execution and delivery of this Agreement to Seller, but in no event later than 5:00 PM, September 28, 2006, Buyer shall deposit with Seller, by wire transfer to Seller’s account (being account number 010181838 in the name of W. B. Osborn Oil and Gas Operations at Frost National Bank of San Antonio, bank routing number 114000093) the sum of Fifty Thousand ($50,000.00) Dollars in funds immediately available to Seller before the close of business on September 28, 2006 (the “Earnest Money”). The Earnest Money will be applied to the Purchase Price, as defined in Paragraph 2.1 (b) hereinbelow if this transaction is closed as herein provided, and will otherwise be subject to the provisions of Section 7.1 and 7.4, below. Seller shall retain, disburse, apply, or otherwise deal with the Earnest Money as provided in this Agreement.

(b)       PURCHASE PRICE . The purchase price for said forty-five percent (45%) interest in the Properties (“Purchase Price”) shall be the sum of Seventeen Million Six Hundred Thousand ($17,600,000.00) Dollars, to be paid by Buyer to Seller at Closing, in immediately available funds or in another manner acceptable to Seller, subject to adjustment at Closing as provided in this Paragraph 2.1, plus the sum of Eight Hundred Fifty Thousand ($850,000.00) Dollars, payable in thirty-six (36) monthly installments of Twenty Three Thousand Six Hundred Eleven ($23,611.00) Dollars each, beginning November 1, 2006, which shall be evidenced by, and further detailed in the Promissory Note attached hereto as Exhibit “D” and made a part hereof by this reference for all purposes, plus the commitment to fund additional lease acquisitions in the Area Of Mutual Interest, described in Exhibit “B”, (“AMI”) up to a total of Five Million ($5,000,000.00) Dollars, to be spent on behalf of both Seller’s and Buyer’s respective working interests hereunder, for a period of two (2) years, all as further defined, detailed and set forth in the Operating Agreement attached hereto as Exhibit “B”, under Article XVI.Q.

(c)      The Seventeen Million Six Hundred Thousand ($17,600,000.00) Dollars to be paid to Seller at Closing shall be reduced by the amount of:

(i)       Forty-five percent (45%) of the revenue received by Seller from the Effective Date to the date of Closing (as defined in Paragraph 7.1) and attributable to (a) the sale of Production attributable to Seller’s working interest and (b) fees collected by Seller for gas gathering, treating and transportation during such period;

(ii)      Forty-five percent (45%) of the Allocated Value of any Defective Interest, as determined pursuant to Article III;

(iii)     any reduction in value of the Properties resulting from the existence of any casualty defect occurring prior to Closing.

(d)      The Seventeen Million Six Hundred Thousand ($17,600,000.00) Dollars to be paid at Closing shall be increased by the amount of:

(i)       Forty-five percent (45%) of any capital expenditures which Seller has incurred and paid from the Effective Date to the date of Closing (as defined in Paragraph 7.1) with respect to the Properties, including, but not limited to, drilling, completion, and equipping costs on well(s) spudded after the Effective Date and gathering system pipeline extensions or improvements. It is understood and agreed that on any wells spudded after the Effective Date to the date of Closing (as defined in Paragraph 7.1), Buyer is considered a consenting party pursuant to the terms of the governing Operating Agreement.

(ii)      Forty-five percent (45%) of any expenses Seller has incurred and paid from the Effective Date to the date of Closing (as defined in Paragraph 7.1) with respect to the Properties, including, but not limited to, lease and pipeline operating expenses, pipeline right-of-way consideration, damage payments, regulatory compliance expenses, rig mobilization costs, administrative expenses, overhead expenses pursuant to applicable operation agreements, and all other costs or fees.

(e)      At the Closing, the Purchase Price shall be adjusted in accordance with Paragraph 2.1(c) and (d) above, based upon the best information and estimates then available. A post-Closing accounting shall thereafter take place, in accordance with the provisions of Paragraph 8.2, to arrive at a definite settlement of any discrepancies between the estimated and actual amounts of the items contained in Paragraph 2.1(c) and (d) above. All production of Hydrocarbons from the Properties and all fees collected for gas gathering, treating and transportation prior to the Effective Date, and all proceeds from the sale of such production, shall be the property of Seller. All such production attributable to working interests after the Effective Date, all proceeds from the sale thereof, and all fees collected for gas gathering, treating and transportation shall be the property of, owned and received by Seller and Buyer in the proportions of Seller - fifty-five percent (55%) and Buyer - forty-five percent (45%). Such allocation of production shall be made based upon the most reliable measurement method or allocation calculation information available and mutually acceptable to the Parties. Buyer shall pay Seller for 45% of the Hydrocarbons in inventory, including “line fill” and inventory below pipeline connections in tanks, at the Effective Date at Seller’s posted field price for Hydrocarbons of like grade and gravity in the field at the Effective Date.

3.1       TITLE INFORMATION

(a)       RECORDS TO BE PROVIDED .   From the date of this Agreement until Closing, Buyer (and any person designated by Buyer) shall have reasonable access to the following records relating to the Properties:

(i)       all title opinions, title curative material, title reports, run sheets, title policies and abstracts of title in the possession of Seller;

(ii)      all Leases, water rights arrangements, conveyances of interests relating to the Leases, unit declarations, division and transfer orders, mortgages, deeds of trust, security agreements, chattel mortgages, financing statements and all other instruments affecting title to or the operation or value of the Properties in the possession of Seller;

(iii)     all rentals, royalties, shut-in gas royalty receipts and receipts with respect to other payments attributable to the Leases, or other documents or information relating to or reflecting payment of the foregoing in the possession of Seller;

(iv)     records reflecting assessment or payment of all ad valorem , property, production, severance, or other similar taxes and assessments against the Properties based on or measured by the ownership of Property or the production of Hydrocarbons or the receipt of proceeds therefrom in the possession of Seller;

(v)      all lease records and data sheets relating to the Leases and to bonuses and rentals payable thereunder in the possession of Seller;

(vi)     all Contracts and all correspondence or other documents relating to the Properties in the possession of Seller;

(vii)       all instruments relating to the Easements in the possession of Seller;

(viii)     all pleadings, briefs, motions and similar documents filed with any court, arbitration panel, federal or state government agency, or other tribunal, and all correspondence related thereto, in connection with any lawsuit, arbitration, or administrative proceedings affecting either Seller or any of the Properties in the possession of Seller;

(ix)     all ownership maps, plats, and surveys relating to the Properties in the possession of Seller;

(x)      all seismic, geological and geophysical, engineering and reserve data in the possession of Seller;

(xi)     an inventory of all personal property and fixtures included within the Properties in the possession of Seller;

(xii)        all bonds and other policies of insurance obtained by Seller relating to the operation of the Properties in the possession of Seller;

(xiii)         all plans for exploration  and development, applications, inspection reports, environmental impact statements, assessments and studies, permits, licenses, orders, consents, notices, correspondence, and other statements and instruments pertaining to environmental matters and requirements that have been filed with or supplied to or by a local, state or federal body, authority or agency which relate to the Properties in the possession of Seller; and

(xiv)         all production records, and all other books, records, information, contracts and documents (including but not limited to records relating to accounting and engineering data) relating to the Properties in the possession of Seller.

(b)       OTHER INFORMATION . From date of this Agreement until Closing, Seller shall provide Buyer (and any person designated by Buyer) with reasonable access, at Buyer’s sole risk, cost and expense, to the Properties, including but not limited to the Files, the Records, the Lands, and the Wells.

(c)       ACCESS TO INFORMATION . Seller’s obligations under Paragraph 3.1 (a) and (b) shall be limited only to such matters, data and information as are in Seller’s actual possession, or to which Seller has reasonable access. Seller shall use all reasonable diligence to secure copies of any such information to which Seller has access or to which it is legally entitled except to the extent that it is prohibited from doing so by any agreement or contract to which it is a party; provided that Seller shall use all reasonable diligence to obtain the waiver of any such prohibition.

3.2       TITLE DEFECTS . Exhibit “A” contains, among other information, a schedule of the Leases. The Leases are organized according to the respective portions of the Lands covered thereby. Each Lease is identified by a serial number. The first four digits in each serial number are the same for each of the Leases (being “0506”), representing the general area in Montague County and/or Cooke County in which the Lands are located. The following three digits represent a distinct parcel out of the Lands covered by the Lease. (Note that the first four digits and following three digits are separated by a hyphen.) In those instances where a serial number ends with a capital letter, the capital letter designates a specific Lease in a group of Leases that cover a distinct parcel out of the Lands. By way of example, Lease number 0506-005A is one of two Leases (the other being 0506-005B) which purport to cover 640 acres of land out of the B.B.B.&C. R.R. Co. Survey, Abstract No. 91, Montague County, Texas. The digits “005” indicate the distinct parcel comprised of that 640 acres. For the purposes of this Agreement, the parcel out of the Lands represented by the three digits following the hyphen in each serial number shall be referred to herein generically as a “Parcel”; provided, however, that with respect to Lease No. 0506-006A, the term “Parcel” shall refer to each of the specified acreage amounts set forth in the Lease Interest Table (as that term is defined below) in Exhibit “A”. When there is only one Lease covering a Parcel, its serial number will not contain a capital letter, thus indicating that it is the only Lease covering that identified Parcel. Each group of Leases which covers lands out of the same distinct Parcel is referred to herein as a “Group” of Leases; provided, however, that (i) when only one Lease covers a distinct Parcel, it will still be referred to herein as a “Group” of the Leases, even though in that instance the “Group” is only comprised of one Lease, and (ii) Lease Nos. 0506-006A and 0506-006B will each constitute a separate and distinct “Group”. Following the Schedule of Leases on Exhibit “A” is a table setting forth the “Net Revenue Interest” and “Working Interest” covered by and/or attributable to each Group of Leases (the “Lease Interest Table”)

(a)      For the purpose of the Agreement, “Defensible Title” shall mean as to the Properties and each of them, such title which

(i)       is free and clear (except for Permitted Encumbrances [as that term is defined below]) of mortgages, liens, security interests, pledges, charges, encumbrances, claims, limitations, irregularities, burdens or defects, and (A) is otherwise only subject to contractually binding arrangements which are conventional and which are customarily experienced in the oil and gas industry and (B) is not subject to any matters which will result in a breach of any warranty or representation made by Seller hereunder;

(ii)      as to each Group of Leases, entitles Seller to receive (and, but for the transaction contemplated by this Agreement, continue to receive) not less than the “Net Revenue Interest” corresponding to such Group (as set forth in the Lease Interest Table in Exhibit “A”) of all Hydrocarbons produced, saved, and marketed from, and attributable to, the Parcel covered by such Group, after deducting all royalty, overriding royalty and other leasehold burdens;

(iii)     as to each Group of Leases, obligates Seller to bear costs and expenses relating to the maintenance, development and operation of the Parcel covered by such Group in an amount not greater than the “Working Interest” corresponding to such Group (as set forth in the Lease Interest Table in Exhibit “A”);

(iv)     is free of any default by Seller under a material provision of a lease, agreement or other contract affecting the Properties; and

(v)      does not represent rights or interests that are subject to being reduced by virtue of the exercise by a third party of a reversionary, back-in or similar right.

(b)      For purposes of this Agreement, “Permitted Encumbrances” shall mean (i) any liens encumbering the Properties which are required herein to be released by Seller at the time of the Closing and (ii) any valid and subsisting contracts for the purchase of production from the Property;

(c)      For the purposes of this Agreement, “Title Defect” shall mean any encumbrance, encroachment, irregularity, defect in, or objection to Seller’s title to any of the Properties (expressly excluding Permitted Encumbrances), that alone or in combination with other defects renders Seller’s title thereto less than Defensible Title.

(d)      “Defective Interest” shall mean

(i)       that portion of the Properties affected by a Title Defect;

(ii)      that portion of the Properties materially and adversely affected by Seller’s noncompliance with the material laws, rules, regulations, ordinances or orders of any governmental agency or authority having jurisdiction over any portion of the Properties;

(iii)     that portion of the Properties with respect to which any preferential right to purchase is exercised unless Buyer elects to receive the consideration received from the exercise of such preferential right to purchase;

(iv)     that portion of the Properties affected by any suit, action or other proceeding before any court or government agency that would result in substantial loss or impairment of Seller’s title to any material portion of the Properties, or a material portion of the value thereof; or

(v)      that portion of the Properties with respect to which Seller has the obligation under a take-or-pay contract to deliver gas without receiving full payment at the time of delivery, or with respect to which Seller has produced more than its share of gas thereby creating an imbalance unless Buyer and Seller can agree to an appropriate adjustment to the Purchase Price.

3.3      NOTICE AND ALLOCATION OF VALUE REGARDING TITLE DEFECTS:

(a)       NOTICE OF TITLE DEFECT . Buyer shall give Seller notice of Defective Interests (a “Defect Notice”) not later than ten days prior to the date of Closing (as defined in Paragraph 7.1). A Defect Notice shall be in writing and shall include (i) a description of the Defective Interest, (ii) a general explanation of the reason Buyer believes such portion of the Properties constitutes a Defective Interest, and (iii) the allocation of that portion of the Purchase Price affected by the Defective Interest (the “Allocated Value”) such allocation of value being proposed in accordance with the provisions of Sections 3.3(b) and/or (c) hereinbelow, as applicable. Buyer shall be deemed to have waived all Defective Interests of which Seller has not been so given such Defect Notice. On or before the expiration of five (5) days following Buyer’s delivery of a Defect Notice to Seller, Seller shall give written counter-notice to Buyer that it (i) intends to cure the asserted Defective Interest, (ii) does not intend to cure the Defective Interest, or (iii) disagrees that either the asserted Defective Interest exists and/or that the Allocated Value for the Defective Interest set forth in the Defect Notice is accurate. If Seller gives counter-notice of intent to cure such asserted Defective Interest, it shall have a period of thirty (30) days following delivery of Buyer’s Defect Notice (the “Cure Period”) to cure such asserted Defective Interest at its own expense; provided, however, that (i) the date of Closing (as defined in Paragraph 7.1) will not be extended as a result of such procedure, or as a result of arbitration with respect to the Allocated Value of the asserted Defective Interest (if applicable); and (ii) if Seller is unable to cure the asserted Defective Interest on or before the expiration of the Cure Period, the Allocated Value of the Defective Interest (as set forth in the Defect Notice or as determined via arbitration, as applicable) will be handled in a post-closing adjustment in Buyer’s favor pursuant to Section 8.2 hereinbelow. If Seller gives counter-notice that is does not intend to cure the Defective Interest, the Purchase Price shall be adjusted pursuant to Section 2.1(c)(ii), above, by the Allocated Value of the Defective Interest as set forth in the Defect Notice. If Seller gives counter-notice that it either disagrees there is a Defective Interest or disagrees with the Allocated Value set forth in the Defect Notice, then the existence and/or the Allocated Value thereof (and hence the amount of the post-closing adjustment in Buyer’s favor pursuant to Section 8.2, below, as a result of the Defective Interest ), as the case may be, will be determined by arbitration pursuant to Section 3.5, below without any delay in Closing. The failure of Seller to deliver written counter-notice shall be deemed to be (i) an admission of the existence of such Defective Interest and a waiver of its right to cure such Defective Interest (which waiver shall be deemed to be an intent to not cure), and (ii) an admission that the Allocated Value of the Defective Interest, and hence the amount by which the Purchase Price will be reduced pursuant to Section 2.1(c)(ii) because of the Defective Interest should Buyer elect to proceed, is the amount stated in Buyer’s Defect Notice relating thereto.

(b)       ALLOCATION OF VALUE REGARDING TITLE DEFECTS RELATING TO LEASES, WELLS, LANDS, AND UNITS . Each Lease by its terms covers a specific number of gross acres; and each of the Wells has a number of acres allocated to such Well pursuant to proration rules promulgated by the Texas Railroad Commission. Acreage so allocated to a Well is considered herein to be Proved Developed Producing acreage (“PDP”). All remaining acreage is considered herein to be Proved Undeveloped acreage (“PUD”). With respect to PUD, the Net Acreage (herein so called) in each separate tract covered by a given Lease shall be equal to the product of (i) the amount of gross acreage included within the separate tract, multiplied by (ii) the undivided interest in the mineral fee estate in such tract covered by the Lease, multiplied by (iii) Seller’s working interest in the Group of Leases of which the Lease is a part as reflected on Exhibit “A”. With respect to PDP, the Beneficial Acreage (herein so called) in each separate tract covered by a given Lease that has been allocated to a Well pursuant to proration rules promulgated by the Texas Railroad Commission shall be equal to the product of (i) the amount of gross acreage included within such separate tract, multiplied by (ii) the undivided interest in the mineral fee estate in such tract covered by the Lease, multiplied by (iii) Seller’s net revenue interest in the Group of Leases of which the Lease is a part as reflected on Exhibit “A”. Beneficial Acreage attributable to a PDP is hereby assigned a value of Five Thousand Four Hundred and Four ($5,404.00) Dollars per acre, and Net Acreage attributable to a PUD is hereby assigned a value of Five Thousand Five Hundred Seventy-Six ($5,576.00) Dollars per acre. The Allocated Value of a Defective Interest, insofar as it affects PUD, shall be determined by multiplying the Net Acreage affected by such Defective Interest by Five Thousand Five Hundred Seventy-Six ($5,576.00) Dollars. The Allocated Value of a Defective Interest, insofar as it affects PDP shall be determined by multiplying the Beneficial Acreage affected by the Defective Interest by Five Thousand Four Hundred and Four ($5,404.00) Dollars.

(c)       ALLOCATION OF VALUE REGARDING TITLE DEFECTS RELATING TO PROPERTIES OTHER THAN LEASES, WELLS, LANDS, AND UNITS . Notwithstanding the above, Buyer shall propose the Allocated Value of a Defective Interest in the exercise of its reasonable business judgment whenever either (i) a Defective Interest relates to Properties other than Leases, Wells, Lands, or Units, or (ii) in the exercise Buyer’s reasonable business judgment, the allocation formula set forth in Section 3.3(b), above, either cannot be applied accurately to the Defective Interest in question or results in an allocation of value to the Defective Interest which is unfair and/or inaccurate; provided, however, that prior to proposing the Allocated Value pursuant to this Section 3.3(c) and if time permits, Buyer shall use its reasonable business efforts to consult with Seller about the Allocated Value to see if a consensus can be reached regarding its amount.

3.4       REMEDIES FOR TITLE DEFECTS . Subject to Buyer’s termination rights set forth in Section 3.6, below, with respect to any Defective Interest, the Purchase Price shall be reduced in accordance with Section 2.1(c)(ii) hereof by an amount equal to the Allocated Value thereof, determined in accordance with Section 3.3, unless (i) prior to expiration by the Cure Period, the basis for treating such Properties as Defective Interests has been removed, or (ii) the existence of the Defective Interest and/or the Allocated Value thereof is being determined by arbitration pursuant to Section 3.5   hereof, in which case Buyer shall receive a post-closing adjustment pursuant to Section 8.2. If the parties disagree as to whether the basis of an asserted Defective Interest has been eliminated, the matter shall be submitted to the arbitrator pursuant to Section 3.5 hereof. In determining which portions of the Properties are Defective Interests, it is the intent of the parties to include, when possible, only that portion of the Properties affected by the defect.

3.5       ARBITRATION PROCEDURES . If any matter is required to be arbitrated, such arbitration shall be conducted as set forth in this Section 3.5.

(a)      The parties shall jointly select a mutually acceptable person as the sole arbitrator under this Agreement. If the parties are unable to agree upon the designation of a person as arbitrator, then either Seller or Buyer, or both of such parties, may in writing request the judge of the United States District Court for the Western District of Texas senior in term of service to appoint a qualified arbitrator.

(b)      Any arbitration hearing shall be held at a place in San Antonio, Texas, acceptable to the arbitrator.

(c)      The arbitrator shall settle disputes regarding existence and value of Defective Interests and Seller’s attempts to cure any Title Defect in accordance with the Texas General Arbitration Act and the Rules of the American Arbitration Association, to the extent such rules do not conflict with the terms of such act and the terms hereof. Such arbitrator shall hear all arbitration matters arising hereunder. The decision of the arbitrator shall be binding upon the parties, and may be enforced in any court of competent jurisdiction. Seller and Buyer, respectively, shall bear their own legal fees and other costs incurred in presenting their respective cases. The charges and expenses of the arbitrator shall be shared equally by Seller and Buyer.

(d)      The arbitration shall commence within ten days after the arbitrator is selected as set forth in Section 3.5(a), above. In fulfilling his duties hereunder, the arbitrator shall be bound by the terms of this Agreement. In fulfilling any of his arbitration duties, the arbitrator may consider such other matters as in the opinion of the arbitrator are necessary or helpful to make a proper evaluation. Additionally, the arbitrator may consult with and engage disinterested third parties, including without limitation petroleum engineers, attorneys and consultants, to advise the arbitrator.

(e)      If any arbitrator selected hereunder (whether selected by Seller and Buyer or the senior judge) should die, resign or be unable to perform his duties hereunder, the parties or senior judge (or such judge’s successor selecting such arbitrator) shall select a replacement arbitrator. The aforesaid procedure shall be followed from time to time as necessary.

3.6       TERMINATION RIGHT . If Buyer determines in the exercise of its sole discretion that the Properties are unsuitable for its purposes for any reason, or for no reason at all, Buyer may, upon written notice to Seller delivered no later than four (4) business days prior to the date of the Closing, cancel and terminate this Agreement, in which event this Agreement shall be of no further force and effect, neither party thereafter having any further claim, obligation, or rights hereunder, provided, however that (i) Buyer shall still comply with the provisions of Section 10.3, (ii) Buyer shall remain obligated under the terms of the Confidentiality Agreement heretofore executed between the parties, and (iii) Seller shall retain the Earnest Money as provided in Paragraph 7.4 hereinbelow.

3.7       SCOTT AND PAYNE TITLE OPINIONS . Prior to Closing, Seller shall use its reasonable business efforts to obtain the following (collectively, the “Pending Title Opinions”) from a licensed attorney at law: (i) a drilling title opinion or opinions, addressed to both WBO and Buyer, covering that portion of the Lands covered by the Group of Leases designated on Exhibit “A” as Group 0506-011 (collectively, the “Scott Title Opinions”), and (ii) a drilling title opinion or opinions, addressed to both WBO and Buyer, covering that portion of the Lands covered by the Group of Leases designated on Exhibit “A” as Group 0506-013 (collectively, the “Payne Title Opinions”). Buyer agrees to pay Seller 45% of the cost of obtaining the Pending Title Opinions. If Seller receives an invoice or invoices for the costs of any of the Pending Title Opinions prior to the date of Closing, the Purchase Price shall be adjusted pursuant to Section 2