PURCHASE AND SALE AGREEMENT

Section 1.1.    Agreement to Purchase and Sell Interests .   Seller agrees to sell and Buyer agrees to purchase, for the consideration hereinafter set forth and subject to the terms, provisions and conditions herein, the Interests.

Section 1.2.    Consideration .   In consideration of the sale of the Interests to Buyer, Buyer shall, based on and subject to the conditions in Section 8.2 herein being fulfilled, (i) pay Seller an aggregate cash purchase price of one billion twenty five million dollars ($1,025,000,000) in immediately available funds (the “ Base Cash Purchase Price ”) (the parties acknowledge that Riata delivered ten million dollars ($10,000,000) to Seller on September 7, 2006 pursuant to the Letter of Intent, and for the avoidance of doubt, such $10 million amount shall be applied as a credit pursuant to Section 2.3(a) against the cash amount required to be paid by Buyer hereunder (the “ $10 Million Credit ”)) and (ii) deliver to Seller 12,842,000 shares of common stock of Riata (the “ Consideration Shares ”). 

Section 1.3.    Adjustments to Base Cash Purchase Price . The Base Cash Purchase Price shall be adjusted as follows:

(a)    Estimated Amounts . Based on the parties’ discussions and preliminary review of the books and records of the Company prior to the execution of this Agreement, $30,084,461 is a good faith estimate of the Net Working Capital as of the Closing Date (the “ Estimated Net Working Capital ”) and $28,050,309 is a good faith estimate of the Cash Amount as of the Closing Date (the “ Estimated Cash Amount ”). If the Estimated Net Working Capital is less than $0, then the Base Cash Purchase Price shall be decreased at Closing by the amount of such deficit. If the Estimated Net Working Capital is greater than $0, then the Buyer shall cause the payment of the amount of such excess (including, at Buyer’s election, by distributing cash from the Company) into an escrow account (the “ Escrow Account ”) to be maintained by JP Morgan Chase Bank, N.A. If the Estimated Cash Amount is less than $50 million, then the Base Cash Purchase Price shall be decreased at Closing by the amount of such deficit. If the Estimated Cash Amount is greater than $50 million, then the Buyer shall cause the payment of the amount of such excess (including, at Buyer’s election, by distributing cash from the Company) into the Escrow Account. Based on the Estimated Net Working Capital, Estimated Cash Amount and the foregoing, the Base Cash Purchase Price shall not be decreased pursuant to this Section 1.3(a) and $8,134,770 shall be the aggregate amount to be paid to the Escrow Account by Buyer. In determining the amount of Cash and Net Working Capital, the distributions of cash contemplated in this Section 1.3 shall not be taken into account. For the avoidance of doubt, to the extent that the Seller Parties are required to cause the Company to pay down any amounts of interest, commitment fees, breakage costs and other fees under the Credit Facility prior to or contemporaneously with Closing, Cash will be reduced by such amounts and Net Working Capital will not include as a current liability such amounts, nor will such amounts be treated as Indebtedness.

(b)    Final Amounts . Within sixty (60) days after the Closing Date, Buyer shall submit to Seller its written calculations of the Net Working Capital as of the Closing Date (subject to the procedures set forth in Sections 1.3(b) and 1.3(c) , the “ Final Net Working Capital ”) and the Cash Amount as of the Closing Date (subject to the procedures set forth in Sections 1.3(b) and 1.3(c) , the “ Final Cash Amount ”), together with the work papers used in the preparation thereof. Buyer shall cause the Company to provide Seller and its designees access to all materials, records and personnel of the Company necessary for Seller to verify the amount of the Final Net Working Capital and the Final Cash Amount. The calculations of the Final Net Working Capital and the Final Cash Amount submitted by Buyer to Seller shall become final and binding upon the Seller thirty (30) days after they are delivered to Seller (the “ Purchase Price Review Period ”), unless Seller, within the Purchase Price Review Period, provides written notice to Buyer disputing the amount of the Final Net Working Capital or the Final Cash Amount (the “ Protest Letter ”), in which case the Final Net Working Capital and the Final Cash Amount shall not be binding upon the Seller and Buyer and such dispute shall be resolved pursuant to Section 1.3(c) .

(c)    Dispute . After the receipt of the Protest Letter by Buyer, Seller and Buyer shall meet by telephone, or at a mutually agreeable location, to discuss and attempt to reconcile their differences with respect to the amount of the Final Net Working Capital or Final Cash Amount (the “ Challenged Amounts ”). If the parties are unable to mutually resolve the dispute within fifteen (15) days after receipt of the Protest Letter by Buyer, then an independent auditing firm mutually selected by Seller’s independent accounting firm and Buyer’s independent accounting firm (the “ Arbiter ”) will be engaged to determine the Challenged Amounts. The Arbiter: (i) will be jointly engaged by Buyer and Seller; (ii) will be provided, within three (3) Business Days of accepting the engagement, with a definitive written statement from Seller and Buyer of their respective positions; (iii) will be advised in the engagement letter that the parties accept the Arbiter as the appropriate Person to interpret this Agreement for all purposes relevant to the resolution of the Challenged Amounts; (iv) will be granted access to all books, records and personnel of the Company and its Subsidiaries and (v) will have thirty (30) days to carry out a review and prepare a written statement of its decision regarding the Challenged Amounts, which shall be binding and final upon the Seller and Buyer. Each party will be afforded the opportunity to present to the Arbiter any material such party deems relevant to the determination. The decision of the Arbiter shall not exceed the Challenged Amounts submitted by Seller nor be less than the Challenged Amounts submitted by Buyer. The decision of the Arbiter shall be final and binding upon the parties and shall be in substitution for and precludes the bringing of any Proceedings in any court in connection with any dispute under Section 1.3(b) or this Section 1.3(c) . The fees and expenses of the Arbiter incurred in resolving the disputed matter shall be shared equally by Buyer and Seller.

(d)    Final Adjustment . Not later than five (5) Business Days after the determination of the Final Net Working Capital and the Final Cash Amount pursuant to Section 1.3(b) or Section 1.3(c) , as the case may be (the “ Adjustment Payment Date ”), (i) if the Final Net Working Capital is less than the Estimated Net Working Capital, then the Seller shall pay to Buyer in immediately available funds the amount of the difference, plus interest thereon at the Applicable Rate from (and including) the Closing Date to (but excluding) the date paid and (ii) if the amount of the Final Net Working Capital is greater than the Estimated Net Working Capital, then Buyer shall pay to the Seller, by wire transfer of immediately available funds to the account designated in writing by Seller, the amount of the difference, plus interest thereon at the Applicable Rate from (and including) the Closing Date to (but excluding) the date paid. In addition, not later than the Adjustment Payment Date, (i) if the Final Cash Amount is less than the Estimated Cash Amount, then the Seller shall pay to Buyer in immediately available funds the amount of the difference, plus interest thereon at the Applicable Rate per annum from (and including) the Closing Date to (but excluding) the date paid and (ii) if the amount of the Final Cash Amount is greater than the Estimated Cash Amount, then Buyer shall pay to the Seller, by wire transfer of immediately available funds to the account designated in writing by Seller, the amount of the difference, plus interest thereon at the Applicable Rate from (and including) the Closing Date to (but excluding) the date paid. In the event a party that is obligated to make a payment pursuant to this Section 1.3(d) fails to make such payment in full on or before the Adjustment Payment Date, the unpaid amount shall bear interest at the Applicable Rate plus 2% per annum from (and including) the Adjustment Payment Date to (but excluding) the date on which such unpaid amount is paid. Any amount which is due from Seller to Buyer pursuant to this Section 1.3(d) may be paid by releasing funds from the Escrow Account to Buyer (and any amounts in the Escrow Account remaining after Seller’s obligations to Buyer under this Section 1.3(d) have been fully satisfied shall be released to Seller). If no amount is due from Seller to Buyer pursuant to this Section 1.3(d) , all amounts in the Escrow Account shall be released to Seller.

Section 2.1.    Closing .   The closing of the transactions contemplated hereby (the “ Closing ”) shall take place (i) at the offices of Simpson Thacher & Bartlett LLP in New York City as promptly as practicable after the satisfaction (or waiver by the party or parties entitled to benefit thereof) of each of the conditions set forth in Sections 8.1 and 8.2 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions at the Closing)   or (ii) at such other time or place as the parties hereto shall agree. The date on which the Closing is required to take place is herein referred to as the “ Closing Date .” All Closing transactions shall be deemed to have occurred simultaneously.

Section 2.2.    Deliveries by Seller Parties . At the Closing, the Seller Parties shall deliver or cause to be delivered to Buyer the following:

(a)    an assignment of the Interests in the form attached hereto as Exhibit A , duly executed by Seller;

(b)    if Buyer has caused the payoff of the Credit Facility, the Pay-Off Letters for the Credit Facility and evidence reasonably satisfactory to Buyer of the release of all Liens under the Credit Facility;

(c)    evidence reasonably satisfactory to Buyer of the full payment, discharge, settlement or satisfaction of all Indebtedness and any other obligations owed by the Company or any of its Subsidiaries to Seller or any Affiliate of Seller (including NEGI) (other than the Company or any of its Subsidiaries) and elimination of all guarantees or other similar obligations by the Company or any of its Subsidiaries to Seller or any Affiliate of Seller (including NEGI) or for the benefit of Seller or any Affiliate of Seller (including NEGI) (other than the Company or any of its Subsidiaries);

(d)    evidence reasonably satisfactory to Buyer of the completion of the Restructuring (to be completed prior to or contemporaneously with, but not after, the Closing) in accordance with Section 7.11 ;

(e)    a certificate of non-foreign status of Seller (or Tax owner of Seller) which meets the requirements of the Department of Treasury (“ Treasury ”) Regulation Section 1.1445-2(b)(2), duly executed by Seller (or Tax owner of Seller);

(f)    the certificate described in Section 8.2(c) ;

(g)    all documentation evidencing the termination or assumption by the Seller Parties of the Hedges as required by Section 7.17 ;

(h)    the Stockholders Agreement in the form attached hereto as Exhibit B , duly executed by the Seller Parties;

(i)    the Release in the form attached hereto as Exhibit C , duly executed by each Seller Party; and

(j)    an escrow agreement in form and substance reasonably satisfactory to Buyer and Seller pursuant to which the Escrow Account shall be established (the “ Escrow Agreement ”).

Section 2.3.    Deliveries by Buyer . At the Closing, Buyer shall deliver or cause to be delivered to Seller the following:

(a)    immediately available funds in an amount equal to $1,025,000,000   ( minus the $10 Million Credit previously delivered to Seller on September 7, 2006 pursuant to the Letter of Intent);

(b)    the Escrow Agreement and evidence that immediately available funds in an amount equal to $8,134,770 have been deposited into the Escrow Account pursuant to Section 1.3(a) ;

(c)    stock certificates representing the Consideration Shares bearing legends required under the terms of the Stockholders Agreement;

(d)    the certificate described in Section 8.1(c) ; and

(e)    the Stockholders Agreement in the form attached hereto as Exhibit B , duly executed by Riata and the stockholders of Riata signatories thereto.

Section 3.1.    Organization

(a)    Seller is duly organized, validly existing and in good standing as a limited liability company under the laws of the State of Delaware.

(b)    Seller has full power and authority to own, lease and operate its properties and to conduct its business as it is now being conducted and to own the Interests.

(c)    Seller is duly qualified to do business as a limited liability company and is in good standing in each jurisdiction in which such qualification is necessary under applicable Law as a result of the conduct of its business, the ownership or lease of its properties or the ownership of the Interests, except where the failure to be so qualified, licensed or in good standing, individually or in the aggregate, has not had and would not reasonably be likely to have, a Material Adverse Change on the Seller or the Company.

Section 3.2.    Title to Interests .   Except as set forth on Company Schedule 3.2 , Seller is (and at the Closing will be) the record and beneficial owner of, and upon consummation of the transactions contemplated hereby Seller will transfer good, valid, and marketable title to the Interests, free and clear of all Liens other than (A) liens that may arise by virtue of any actions taken by or on behalf of Buyer or its Affiliates, (B) restrictions on transfer that may be imposed by federal or state securities Laws.

Section 3.3.    Authority

(a)    Each Seller Party has all requisite corporate, limited liability company or partnership power and authority, as the case may be, to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by each Seller Party of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate, limited liability company or partnership action, as the case may be, on the part of each Seller Party, and no other proceedings on the part of any Seller Party are necessary to authorize the execution or delivery of this Agreement or to consummate the transactions contemplated hereby.

(b)    This Agreement has been duly and validly executed and delivered by each Seller Party and constitutes each Seller Party’s valid and legally binding obligation, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, moratorium or other similar Laws affecting or relating to the enforcement of creditors’ rights generally and the application of general principles of equity (regardless of whether that enforceability is considered in a proceeding at Law or in equity). 

Section 3.4.    Non-Contravention

(a)    Neither the execution, delivery and performance by the Seller Parties of this Agreement nor the consummation by them of the transactions contemplated hereby will (with or without the giving of notice or the passage of time or both) (A) conflict with or result in a violation of any provision of, or constitute a breach of or default under, or give rise to a right to impose any fine or penalty, a right to purchase or foreclose upon any Interests, any right of termination, cancellation, amendment, modification, payment or acceleration, the loss of a material benefit, or result in the creation of any Lien on any Interests, under any provision of any bond, debenture, note, mortgage, lease, license, franchise, indenture, or any other Contract or other instrument or obligation to which any Seller Party is a party or by which any Seller Party or any of its properties may be bound or subject, (B) conflict with or result in a violation of any provision of the Governing Documents of any Seller Party or (C) violate any applicable Law binding upon any Seller Party or any of its properties, including the Interests, other than , in the case of clauses (A) or (C) above, any such event or matter, which individually or in the aggregate, has not had and would not reasonably be likely to have a Material Adverse Change on the Seller or the Company.

(b)    Except in connection with any filings required under the Securities Exchange Act of 1934, as amended (the “ 1934 Act ”), or as set forth on Company Schedule 3.4(b) , no consent, approval, order, or authorization of, or declaration, filing, or registration with, any Governmental Entity is required to be obtained or made by any Seller Party in connection with the execution, delivery, or performance by the Seller Parties of this Agreement or the consummation by the Seller Parties of the transactions contemplated hereby.

Section 3.5.    Proceedings . Except as set forth on Company Schedule 3.5(i) , there are no Proceedings pending or, to the Knowledge of any Seller Party, threatened in writing, or to the Knowledge of the persons set forth on Company Schedule 3.5(ii) , threatened orally, in which any Seller Party or any Affiliate thereof is a party, affecting the execution and delivery of this Agreement by the Seller Parties or the consummation by the Seller Parties of the transactions contemplated hereby.

Section 3.6.    Investment Experience .   Seller acknowledges that it can bear the economic risk of its investment in the Consideration Shares, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Buyer.

Section 3.7.    Restricted Securities .   Seller understands that the Consideration Shares will not have been registered pursuant to the Securities Act or any applicable state securities Laws, that the Consideration Shares will be characterized as “restricted securities” under federal securities Laws, and that under such Laws and applicable regulations the Consideration Shares cannot be sold or otherwise disposed of without registration under the Securities Act or an exemption therefrom.

Section 3.8.    Accredited Investor; Investment Intent .   Seller is an accredited investor as defined in Regulation D under the Securities Act. Seller is acquiring the Consideration Shares for its own account for investment and not with a view to, or for sale or other disposition in connection with, any distribution of all or any part thereof within the meaning of the Securities Act, except in compliance with applicable federal and state securities Laws.

Section 3.9.    Acknowledgement by Seller Parties . Each Seller Party acknowledges and agrees that: (a) it has conducted its own independent review and analysis of the business, assets, condition, operations and prospects of the Buyer and its Subsidiaries; and (b) it is not relying on any statement or representation made by or on behalf of the Buyer except as set forth in this Agreement.

Section 4.1.    Organization .  

(a)    The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite limited liability company power and authority to carry on its business as now being conducted.

(b)    The Company is duly qualified or licensed to do business and in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, and all such jurisdictions are set forth on Company Schedule 4.1(b) , except where the failure to be so qualified, licensed or in good standing, individually or in the aggregate, has not had and would not reasonably be likely to have, a Material Adverse Change on the Seller or the Company.

(c)    Except as set forth on Company Schedule 4.1(c) , the Company does not have any Proceedings pending, or to the Knowledge of the Seller Parties and the Company, threatened in writing, or to the Knowledge of the persons set forth on Company Schedule 3.5(ii) , threatened orally, against it to dissolve or liquidate the Company.

Section 4.2.    Authority

(a)    The Company has all requisite limited liability company power and authority to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by the Company of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary limited liability company action on the part of the Company and no other proceedings on the part of the Company are necessary to authorize the execution or delivery of this Agreement or to consummate the transactions contemplated hereby.

(b)    This Agreement has been duly executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar Laws affecting or relating to the enforcement of creditors’ rights generally and the application of general principles of equity (regardless of whether that enforceability is considered in a proceeding at Law or in equity).

Section 4.3.    Governing Documents .   Accurate and complete copies of (A) the Governing Documents of the Company and each of its Subsidiaries, as amended through the date hereof, and (B) the minutes of all meetings of the respective board of managers (or other similar governing body) of the Company and its Subsidiaries, any committees of such boards or other bodies, and the members, shareholders or other equity holders of the Company and its Subsidiaries (and all consents in lieu of such meetings) have heretofore been delivered, or have been made available, to Buyer. Such Governing Documents, minutes, and consents, taken as a whole, accurately reflect, in all material respects, the equity ownership of the Company and its Subsidiaries and all actions taken by the board of managers, other governing body, committees, shareholders and other equity owners.

Section 4.4.    Capital Structure

(a)    No membership interests or other Equity Interests of the Company are subject to, nor have any been issued in violation of, preemptive rights, preferential rights of subscription or purchase or similar rights.

(b)    Except for the Interests and the rights created by this Agreement, there are (and as of the Closing Date there will be) outstanding or in existence:

(1)    no membership interests or other Equity Interests of the Company; and

(2)    no Equity Interest Equivalents of the Company.

(c)    No Equity Interests or Equity Interest Equivalents of the Company, other than the Equity Interests contemplated to be issued pursuant to the Merger Agreement (which will terminate simultaneously with the Closing), are reserved for issuance or for any other purpose, and there are no agreements or arrangements providing for the issuance of Equity Interests or Equity Interest Equivalents of the Company.

(d)    There are no issued or outstanding bonds, debentures, notes or other indebtedness having the right to vote on any matters pertaining to the Company.

(e)    There are (and as of the Closing Date there will be) no outstanding obligations of the Company to repurchase, redeem, or otherwise acquire any Interests or other Equity Interests of the Company.

Section 4.5.    Non-Contravention .  

(a)    Except as set forth on Company Schedule 4.5(a) , neither the execution, delivery and performance by the Seller Parties and the Company of this Agreement, nor the consummation by them of the transactions contemplated hereby will (with or without the giving of notice or the passage of time or both):

(1)    conflict with or result in a violation of any provision of the Governing Documents of the Company or any of its Subsidiaries;

(2)    result in the creation or imposition of any Lien on any of the properties or other assets of the Company or any of its Subsidiaries;

(3)    (with or without the giving of notice or the passage of time or both) conflict with or result in a violation of any provision of, or constitute a breach of or default under, or give rise to a right to impose any fine or penalty, a right to purchase or foreclose upon any Properties, any right of termination, cancellation, amendment, modification, payment or acceleration, the loss of a material benefit, or result in the creation of any Lien on any Interests under any provision of any bond, debenture, note, mortgage, lease, license, franchise, indenture, or any other Contract or other instrument or obligation to which the Company or any of its Subsidiaries is a party or by which the Company, any of its Subsidiaries or any of their properties may be bound or subject; or

(4)    violate in any material respect any applicable Law binding upon the Company or any of its Subsidiaries or any of their respective properties, including the Properties;

(b)    Except for any filings required under   the 1934 Act and except as set forth on Company Schedule 4.5(b) , no consent, approval, order, or authorization of, or declaration, filing, or registration with, any Governmental Entity is required to be obtained or made by the Company or any of its Subsidiaries in connection with the execution, delivery, or performance by the Seller Parties and the Company of this Agreement or the consummation by them of the transactions contemplated hereby.

Section 4.6.    Ownership; Capitalization of Subsidiaries

(a)    Except for the Company’s direct or indirect ownership in its Subsidiaries, and the redemption/call right in section 5.4 of the Operating Agreement of NEG Holding, the Company does not own, directly or indirectly, or have the right to acquire, by Contract or otherwise, any capital stock of, or other Equity Interest in, any Person.

(b)    Company Schedule 4.6(b) sets forth a true and complete list of each Subsidiary of the Company, the jurisdiction of incorporation or organization of each such Subsidiary and the number and percentage of each such Subsidiary’s outstanding Equity Interests owned by the Company or another Subsidiary of the Company.

(c)    Each Subsidiary of the Company:

(1)    is duly formed, validly existing and, if applicable, in good standing under the laws of the jurisdiction of its formation;

(2)    except as set forth on Company Schedule 4.6(c) , is duly qualified or licensed to do business as a foreign entity and in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, except where the failure to be so qualified or in good standing, individually or in the aggregate, has not had and would not reasonably be likely to have, a Material Adverse Change on the Seller or the Company; and

(3)    has all requisite corporate, limited liability company or partnership power and authority, as the case may be, to carry on its business as now being conducted.

(d)    No Subsidiary of the Company has any Proceedings pending, or to the Knowledge of the persons set forth on Company Schedule 3.5(ii) , threatened, against it to dissolve or liquidate such Subsidiary.

(e)    No Equity Interests of any Subsidiary of the Company are subject to, nor have any been issued in violation of, preemptive rights, preferential rights of subscription or purchase of any Person or similar rights.

(f)    Except for liens securing the Credit Facility or as set forth on Company Schedule 4.6(f) , all the outstanding Equity Interests of each Subsidiary of the Company, except for the membership interest in NEG Holding held by NEGI, are owned directly or indirectly by the Company, free and clear of all Liens.

(g)    There are no outstanding Equity Interest Equivalents, interests in the ownership or earnings, or other similar rights of or with respect to any Subsidiary of the Company, except for the membership interest in NEG Holding held by NEGI.

(h)    No Equity Interests or Equity Interest Equivalents of any Subsidiary of the Company are reserved for issuance or for any other purpose, and there are no agreements or arrangements providing for the issuance of Equity Interests or Equity Interest Equivalents of any Subsidiary of the Company.

(i)    There are no issued or outstanding bonds, debentures, notes or other indebtedness having the right to vote on any matters pertaining to any Subsidiary of the Company.

(j)    There are (and as of the Closing Date there will be) no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any Equity Interests of any Subsidiary of the Company, except the purchase or redemption of the membership interests in NEG Holding pursuant to the Restructuring.

Section 4.7.    SEC Reports; Financial Statements

(a)    Except as set forth on Company Schedule 4.7(a) , the Most Recent SEC Reports filed with the SEC prior to September 7, 2006 (as of September 7, 2006), the Most Recent SEC Reports filed with the SEC prior to the date hereof (as of the date hereof) and the Most Recent Reports filed with the SEC prior to the Closing Date (as of the Closing Date) are not (or will not be) materially untrue or incomplete and do not (or will not) include a materially untrue statement of material fact nor omit to state a material fact required to be stated therein or necessary in order to make the statements therein not materially misleading; provided , that no representation or warranty is being made pursuant to this Section 4.7(a) regarding matters relating to acreage on Longfellow Ranch for which Riata is the operator of which matters Riata had Knowledge as of September 7, 2006. As used in this Agreement, the term “ Most Recent SEC Reports ” means, as of any date, the Company’s most recent Form S-1 registration statement, NEG, Inc.’s most recent Form S-1 registration statement and Form S-4 registration statement, or the most recent public filing by AREP on Form 10-K and Form 10-Q to the extent regarding segment information of the Company and its Subsidiaries, in each case filed with the SEC prior to such date, taken as a whole, excluding the financial statements contained therein (which are addressed in Section 4.7(b) below) (and excluding the effect of any general disclaimers, risk factors or forward-looking statements, but after taking into account any disclosure in such provisions that are matters of fact) (and provided that the failure to update financial and accounting information since the date of filing of such report or to respond to SEC comments shall not in and of itself be conclusive of such Most Recent SEC Reports being materially untrue or incomplete or be deemed to be a material omission).

(b)    The financial statements of the Company and its Subsidiaries contained in the Most Recent SEC Reports filed with the SEC prior to the date hereof (the “ SEC Financial Statements ”) (provided that the failure to update financial and accounting information since the date of filing of such report or to respond to SEC comments shall not in and of itself be conclusive of such financial statements being materially untrue or incomplete or be deemed to be a material omission) or the Company’s June 30, 2006 and September 30, 2006 financial statements that have been provided to Buyer (the “ Interim Financial Statements ”; together with the SEC Financial Statements, the “ Financial Statements ”) are not materially untrue or incomplete and do not include a materially untrue statement of material fact nor omit to state a material fact required to be stated therein or necessary in order to make the statements therein not materially misleading (and have been prepared in all material respects in compliance with GAAP applied on a consistent basis and present fairly in all material respects the consolidated financial position and the consolidated results of operations and cash flows for the Company and its Subsidiaries), in each case as of the date of such financial statements; other than liabilities adequately reflected or reserved against in the Financial Statements and liabilities incurred in the Ordinary Course of Business since September 30, 2006, there are no liabilities or obligations of any kind, whether accrued, absolute, secured, unsecured, fixed, contingent, or otherwise, of the Company or any of its Subsidiaries which, individually or in aggregate have had, and are reasonably likely to have, a Material Adverse Change on the Seller or the Company. No representation or warranty is being made pursuant to this Section 4.7(b) regarding matters relating to acreage on Longfellow Ranch for which Riata is the operator of which matters Riata had Knowledge as of September 7, 2006.

Section 4.8.    Absence of Certain Changes or Events . (a) Since September 30, 2006, there has not been any Material Adverse Change with respect to the Seller or the Company; provided , that no representation or warranty is being made pursuant to this Section 4.8(a) regarding matters relating to acreage on Longfellow Ranch for which Riata is the operator of which matters Riata had Knowledge as of September 7, 2006.

Section 4.9.    Pending Litigation . All environmental representations and warranties are covered exclusively by Section 4.18 and not by this Section 4.9 or any other representation or warranty contained herein other than in Section 4.18 , and no representation or warranty is being made pursuant to this Section 4.9 regarding matters relating to acreage on Longfellow Ranch for which Riata is the operator of which matters Riata had Knowledge as of September 7, 2006:

(a)    Except as set forth on Company Schedule 4.9(a) , (i) no Proceeding is pending or, to the Knowledge of the Seller Parties and the Company, threatened against the Company, its Subsidiaries or any of the assets or properties owned, used by or licensed to the Company or any of its Subsidiaries or their respective businesses, other than those which individually or in the aggregate have not had, and would not reasonably be likely to have, a Material Adverse Change on the Seller or the Company, and (ii) neither the Company nor any of its Subsidiaries is subject to any (x) outstanding injunction, judgment, order or decree or (y) compliance or settlement agreement, conciliation agreement, memorandum of understanding, writ, letter of commitment, deficiency letter or ruling (other than routine oil and gas field regulatory orders), in each case, other than those which individually or in the aggregate have not had, and would not reasonably be likely to have, a Material Adverse Change on the Seller or the Company,.

(b)    Except as set forth on Company Schedule 4.1(c) , there are no Proceedings pending or, to the Knowledge of the Seller Parties and the Company, threatened in writing, in which the Company or any of its Subsidiaries is a party affecting the execution and delivery of this Agreement by the Seller Parties and the Company or the consummation of the transactions contemplated hereby.

Section 4.10.    Compliance with Laws; Permits

Section 4.12.    Taxes . Except as set forth on Company Schedule 4.12 :

(a)    Except for Galveston Bay Pipeline Company and Galveston Bay Processing Corporation (collectively, the “ Galveston Subsidiaries ”), each of which is taxable as a corporation for federal income tax purposes, each of the Company and its Subsidiaries is a partnership or a disregarded entity for federal income tax purposes.

(b)    Each of the Company and its Subsidiaries has timely filed (taking into account all properly granted extensions) all material Tax Returns required to be filed by it with respect to all material Taxes, and all such material Tax Returns are true, correct and complete in all material respects.

(c)    All material Taxes of the Company and each of its Subsidiaries, and all material Taxes of any other Person for which the Company or any of its Subsidiaries could be liable (whether or not shown on any Tax Return), have been paid in full when due or have been accrued for on the Closing Balance Sheet. All material Tax withholding and deposit requirements imposed on or with respect to the Company and its Subsidiaries, or for which the Company or any of its Subsidiaries could be liable, have been satisfied in full in all material respects.

(d)    There are no material Liens for Taxes upon the assets or properties of any of the Company and its Subsidiaries other than Liens for Taxes not yet due and payable, and those which are being contested in good faith by appropriate proceedings.

(e)    Neither the Company nor any of its Subsidiaries has granted (or is subject to) any waiver or extension that is currently in effect for the period of limitations for the assessment or payment of any material Tax or the filing of any material Tax Return. No unpaid material Tax assessment, deficiency or adjustment has been assessed or asserted against or with respect to the Company or any of its Subsidiaries, by any Governmental Entity; there are no currently pending audits, administrative or judicial proceedings, or any deficiency or refund litigation, with respect to material Taxes owed by the Company or any of its Subsidiaries.

(f)    No written claim has ever been made by any Governmental Entity in any jurisdiction in which the Company or any of its Subsidiaries does not file Tax Returns that any such Person is or may be subject to Taxation by that jurisdiction.

(g)    Neither the Company nor any of its Subsidiaries will be required to include any amount in, or exclude any item of deduction from, income for any Taxable period (or portion thereof) ending after the Closing Date as a result of (i) a change in accounting method for any Taxable period ending on or before the Closing Date, (ii) pursuant to any agreement with any Governmental Entity executed on or prior to the Closing Date or (iii) the installment method of accounting, the completed contract method of accounting, the long-term contract method of accounting, the cash method of accounting, or otherwise.

(h)    To the Knowledge of the Seller Parties and the Company, neither the Company nor any of its Subsidiaries is party to or has any obligation under any Tax-sharing, Tax indemnity or Tax allocation agreement or similar arrangement, nor does the Company or any of its Subsidiaries have any liability or potential liability to another party under any such agreement or arrangement, other than the $2.7 million payable of National Onshore, L.P. referenced in Section 7.11(a) .

(i)    Neither of the Galveston Subsidiaries have consummated, have participated in, or are currently participating in any transaction that was or is a “tax shelter,” “listed transaction” or to the Knowledge of the Seller Parties and the Company, a “reportable transaction” as defined in Sections 6662, 6662A, 6011, 6012, 6111 or 6707A of the Code or the Treasury Regulations promulgated thereunder, including, but not limited to, transactions identified by the IRS by notice, regulation or other form of published guidance as set forth in Treasury Regulation Section 1.6011-4(b)(2).

(j)    Neither the Company nor any of its Subsidiaries is a party to any safe harbor lease within the meaning of Section 168(f)(8) of the Code, as in effect prior to amendment by The Tax Equity and Fiscal Responsibility Act of 1982. None of the assets of the Company or any of its Subsidiaries (directly or indirectly) secures any debt the interest on which is exempt from Tax under Section 103(a) of the Code, and none of the property owned by the Company or any of its Subsidiaries is “tax-exempt use property” within the meaning of Section 168(h) of the Code.

(k)    To the Knowledge of the Seller Parties and the Company, neither the Company nor any of its Subsidiaries (1) is or has been a member of an affiliated group or (2) has any liability for the Taxes of any Person under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise.

(l)    The Company has previously made available to Buyer true, correct and complete copies of (1) all income and other material Tax Returns filed by the Company or any of its Subsidiaries for all completed Tax years of the Company and its Subsidiaries that remain open for audit or review by the relevant Taxing authority and (2) all ruling requests, private letter rulings, notices of proposed deficiencies, closing agreements, settlement agreements and any similar documents or communications sent or received by the Company or any of its Subsidiaries relating to Taxes.

Section 4.13.    Contracts

(a)    Except (i) for Oil and Gas Contracts and (ii) for those Contracts that will be terminated or rendered inapplicable to the Company and its Subsidiaries and their assets at or prior to the Closing, Company Schedule 4.13(a) sets forth all of the following Contracts to which the Company or any of its Subsidiaries is a party or to which any of their assets are subject (excluding the Contracts described as exceptions above, collectively, the “ Company Contracts ”):

(1)    any Contract covering the employment or service of any director, officer or employee, or relating to any loan from the Company or any of its Subsidiaries to any director, officer or employee;

(2)    other than the Credit Facility and any intercompany indebtedness (which for the avoidance of doubt means, indebtedness between the Company or any of its Subsidiaries and any other Subsidiary of the Company), any indenture, loan, credit or similar Contract pursuant to which the Company or any of its Subsidiaries has borrowed any money or issued any note or other evidence of Indebtedness, sold and leased back assets or guaranteed Indebtedness for others and any Hedge or other similar Contracts;

(3)    any Contract under which the Company or any of its Subsidiaries has granted any Person any registration rights (including demand and piggyback registration rights);

(4)    any Contract respecting any partnership, joint venture, or, with respect to the Interests or any Equity Interests in any Subsidiary of the Company, any option, put or call, or right of first refusal;

(5)    any Contract that would reasonably be expected to result in aggregate expenditures by the Company or any of its Subsidiaries or aggregate revenues to the Company or any of its Subsidiaries of an amount in excess of $100,000 after the date of this Agreement;

(6)    any non-competition Contract or any other Contract or obligation that restricts, limits or prohibits the manner in which, or the localities in which, the business of the Company or any of its Affiliates is conducted;

(7)    any Contract with NEGI, Seller or any Affiliate of Seller (other than the Company or any Subsidiary);

(8)    any Contract that constitutes a lease (other than any Lease) under which the Company or any Subsidiary of the Company is the lessor or the lessee of real or personal property which lease (A) cannot be terminated by Seller without penalty upon thirty (30) days or less notice and (B) involves an annual base rental of more than $50,000; and

(9)    any plan, Contract or arrangement providing for bonuses, pensions, deferred compensation, retirement plan payments, profit sharing, incentive pay or any other employee right or benefit.

(b)    Except for (i) any Lease and (ii) any Contract that is terminable by the Company on thirty (30) days or less notice, Company Schedule 4.13(b) sets forth all of the following Contracts to which the Company or any of its Subsidiaries is a party or to which any of their assets are subject (excluding the Contracts described as exceptions above, collectively, the “ Oil and Gas Contracts ”): 

(1)    Hydrocarbon purchase and sale Contracts, processing or treatment Contracts, transportation or gathering Contracts and all other similar Contracts;

(2)    farmin or farmout Contracts, exploration contracts, participation Contracts and all other similar Contracts; and

(3)    Contracts for geological or geophysical data relating to the Leases held by the Company or any of its Subsidiaries.

(c)    Except as set forth on Company Schedule 4.13(c) , (i) each Company Contract and each Oil and Gas Contract is in full force and effect, (ii) none of the Company or any of its Subsidiaries is in material breach or default under any Company Contract or Oil and Gas Contract and, to the Knowledge of the Seller Parties and the Company, no other party to any Company Contract or Oil and Gas Contract is in material breach thereunder, and (iii) none of the Company or its Subsidiaries has received from any other party to a Company Contract or any Oil and Gas Contract any written notice of the termination or intention to terminate such Contract; provided , however , that no representation or warranty is being made pursuant to this Section 4.13(c) regarding matters relating to acreage on Longfellow Ranch for which Riata is the operator of which matters Riata had Knowledge as of September 7, 2006.

Section 4.14.    Real Property .  Company Schedule 4.14 contains a complete and correct list, in all material respects, as of the date of this Agreement, of all real property and interests in real property owned by the Company and its Subsidiaries, other than the Properties. To the extent not constituting leased property, except as set forth on Company Schedule 4.14 , the Company and its Subsidiaries have good, valid fee simple title to such real property, free and clear of any Liens other than Permitted Encumbrances. Each of the Company and its Subsidiaries has good and valid title to the leasehold estate or other interest created under its respective leases (other than the Leases), free and clear of any Liens other than Permitted Encumbrances.

Section 4.15.    Oil and Gas Properties

(a)    Except as set forth on Company Schedule 4.15(a) :

(1)    neither the Company nor any of its Subsidiaries has received any payment for Hydrocarbons that is subject to refund or recoupment out of future production;

(2)    neither the Company nor any of its Subsidiaries has received written notice regarding any change proposed in the production allowables for any Wells;

(3)    neither the Company nor any of its Subsidiaries is in default under any Lease, except for any defaults that, individually or in the aggregate, have not had, and would not reasonably be likely to have, a Material Adverse Change on the Seller or the Company;

(4)    there is no material Imbalance associated with the Company and its Subsidiaries or their interests in the Properties;

(5)    proceeds from the sale of Hydrocarbons produced from and attributable to the Properties are being received by the Company or its Subsidiaries in a timely manner and are not being held in suspense for any reason (except for amounts, individually or in the aggregate, of less than $100,000 and held in suspense in the Ordinary Course of Business); and

(6)    to the Knowledge of the Seller Parties and the Company, all royalties, overriding royalties, compensatory royalties and other payments due from or in respect of production with respect to the Properties have been properly and correctly paid or provided for in all material respects, except for those for which the Company or any of its Subsidiaries has a right to suspend.

(b)    Except as set forth on Company Schedule 4.15(b) , the Company and its Subsidiaries have Defensible Title to each of the Properties.

(c)    Except as set forth on Company Schedule 4.15(c) , the Company or its Subsidiaries has paid all material expenses that are due and owing relating to the ownership or operation of the Properties in the Ordinary Course of Business, except such expenses and Taxes as are disputed in good faith by the Company or its Subsidiaries and for which a reserve has been established to the extent required by GAAP.

(d)    Except as set forth on Company Schedule 4.15(d)   and subject to normal wear and tear and to scheduled or necessary repairs in the Ordinary Course of Business, all material Fixtures, Facilities and Equipment are in serviceable condition except where the failure to be in such condition, individually or in the aggregate, would not reasonably be likely to have a Material Adverse Change on the Seller or the Company. 

(e)    Except as set forth on Company Schedule 4.15(e) , to the Knowledge of the Seller Parties and the Company, there are no Wells located on the Leases that: (i) the Company or any of its Subsidiaries is currently obligated by applicable Law or Contract to plug and abandon; or (ii) are subject to exceptions to a requirement to plug and abandon issued by Governmental Authority having jurisdiction over the Properties.

Section 4.16.    Gas Regulatory Matters . Except as set forth on Company Schedule 4.16 , none of Company or any of its Subsidiaries is a gas utility under Section 121.001 and Section 101.003(7) of the Texas Utilities Code.

Section 4.17.    Reserve Reports . Except as set forth on Company Schedule 4.17 , the December 31, 2005 and June 30, 2006 reserve reports (the “ Reserve Reports ”) that have been previously provided to Buyer reflect in all material respects the oil and gas reserves of the Company and its Subsidiaries, as applicable, at the dates indicated therein and are in accordance, in all material respects, with SEC guidelines applied on a consistent basis throughout the periods involved; provided , however , that no representation or warranty is being made pursuant to this Section 4.17 regarding matters relating to acreage on Longfellow Ranch for which Riata is the operator of which matters Riata had Knowledge as of September 7, 2006.

Section 4.18.    Environmental Matters

(a)     For purposes of determining liability hereunder, whether as a result of an indemnity, certificate or otherwise, the representations and warranties set forth in this Section 4.18 are being made solely to the Knowledge of the Seller Parties and the Company. In addition, no representation or warranty is being made pursuant to this Section 4.18 regarding matters relating to acreage on Longfellow Ranch for which Riata is the operator of which matters Riata had Knowledge as of the Closing Date.

(a)    Each of the Company and its Subsidiaries has conducted its business and has operated its assets, and is conducting its business and operating its assets, in compliance with all applicable Environmental Laws. Without limitation to the foregoing, each of the Company and its Subsidiaries has obtained and holds all Permits required under applicable Environmental Laws and reasonably necessary for the lawful conduct of their business and the lawful ownership, lease, use and operation of the Properties, and each of the Company and its Subsidiaries is in compliance with all such Permits.

(b)    Neither the Company nor any of its Subsidiaries has received written notice from any Governmental Entity or any other Person, and to the Knowledge of the Seller Parties and the Company, oral notice from any Governmental Entity, that any of the operations or assets of the Company or any of its Subsidiaries are the subject of any investigation or inquiry by any Governmental Entity or other Person, in each case evaluating whether any material remedial action or investigation is needed to respond to a release or threatened release of any Hazardous Material or to the improper handling, transportation, storage or disposal (including storage or disposal at offsite locations) of any Hazardous Material that violates Environmental Law or would reasonably be likely to result in liability to the Company or any of its Subsidiaries.

(c)    Neither the Company nor any of its Subsidiaries is responsible for the improper release into the environment, or the improper storage or disposal, of any Hazardous Material that violates Environmental Law or would reasonably be likely to result in liability to the Company or any of its Subsidiaries. No Hazardous Material is improperly stored or disposed of upon any property of the Company or any of its Subsidiaries or any property formerly owned, leased or operated by the Company or any of its Subsidiaries during the period of time the Company or any of its Subsidiaries owned, leased or operated it which violates Environmental Law or would reasonably be likely to result in liability to the Company or any of its Subsidiaries. No Hazardous Material has been otherwise used or managed by the Company or any of its Subsidiaries in such a way as to pose a substantial endangerment to public health or welfare or the environment. Neither the Company nor any of its Subsidiaries has received written notice from any Governmental Entity or any other Person or oral notice from any Governmental Entity under any federal, state or local law indicating the existence of any of the foregoing described in this Section 4.18(c) .

(d)    Neither the Company nor any of its Subsidiaries has received any (i) written claim, complaint, notice, inquiry or request for information from any Governmental Entity or any other Person, or (ii) to the Knowledge of the Seller Parties and the Company, oral claim, complaint, notice, inquiry or request for information from any Governmental Entity, regarding any Proceeding or any other matter which remains unresolved as of the date hereof with respect to any alleged violation of any Environmental Law or regarding potential liability under any Environmental Law relating to or in connection with the Company or any of its Subsidiaries or operations or conditions of any facilities or property (including off-site storage or disposal of any Hazardous Material from such facilities or property) currently or formerly owned, leased or operated by the Company or any of its Subsidiaries nor are there any facts or circumstances existing which could reasonably give rise to any such claims, complaints, notices, inquiries or requests.

(e)    No property now or previously owned, leased or operated by the Company or any of its Subsidiaries is listed on the National Priorities List pursuant to CERCLA or on the CERCLIS or on any other federal or state list as sites requiring investigation or cleanup.

(f)    Except for ministerial notification and administrative filings relating to certain Permits, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not affect the validity or require the transfer of any permits, licenses or approvals held by the Company or any of its Subsidiaries under any Environmental Law, and will not require any notification, disclosure, registration, reporting, filing, investigation or remediation under any Environmental Law.

(g)    The Company has made available to Buyer copies of all material environmental reports, audits, studies and assessments within its custody or control.

Section 4.19.    Intellectual Property . Except as set forth on Company Schedule 4.19 or as would not, individually or in the aggregate, reasonably be likely to have a Material Adverse Change on the Seller or the Company: (i) the Company and its Subsidiaries either own or have valid licenses or other rights to use all patents, copyrights, service marks, brand names, computer programs, trademarks, trade names, domain names, software, databases, geological data, geophysical data, engineering data, maps, interpretations, other technical information or data, tools, methods, processes, devices, prototypes, schematics, trade secrets or other intangible property used in their businesses as presently conducted, or that are necessary for the operation of the business of the Company or any of its Subsidiaries, or for the ownership and operation of any assets of the Company or any of its Subsidiaries (collectively, the “ Company Intellectual Property ”), free and clear of any Liens except those express limitations contained in the agreements governing the use of the same; (ii) to the Company’s Knowledge, the use of the Company Intellectual Property by the Company and its Subsidiaries does not conflict with, infringe upon, violate or interfere with or constitute an appropriation of any right, title, interest or goodwill, including any intellectual property right, trademark, trade name, patent, service mark, brand mark, brand name, computer program, database, domain name, copyright or any pending application therefore, of any other Person; and (iii) neither the Company nor any of its Subsidiaries has received any written notice of any claim that the Company Intellectual Property is invalid or conflicts with the asserted rights of any other Person.

Section 4.20.    Insurance .    Set forth on Company Schedule 4.20(i) is a list of all policies of insurance owned or held by the Company or any of its Subsidiaries. Such policies are in full force and effect.  Company Schedule 4.20(ii) lists all surety bonds, performance bonds, parental guarantees or letters of credit posted with Governmental Entities or any other Person to secure the Company’s and its Subsidiaries’ performance obligations under applicable Laws.   Except as set forth on Company Schedule 4.20(iii) , there are no outstanding claims under any such policies and no written notice of cancellation or non-renewal of any such policies has been received. Except as set forth on Company Schedule 4.20(iv) , there are no policies of insurance owned or held by NEGI or any Seller Party for the benefit of the Company and/or any of its Subsidiaries and there are no policies of insurance owned or held by the Company or any of its Subsidiaries for the benefit of NEGI or any Seller Party.

Section 4.21.    Employee Related Matters . Except as set forth on Company Schedule 4.21 :

(a)    Neither the Company nor any of its Subsidiaries has any Persons with the right or legal status of an employee (whether as an employee or an independent contractor) or any obligations or liabilities to or based upon the service of any Person who currently or formerly had the legal status of an employee of the Company, its Subsidiaries, NEGI or any Seller Party.

(b)    Neither the Company nor any of its Subsidiaries has any obligations or liabilities (secondary, contingent or otherwise) under   ERISA, the Code or any other applicable Laws   with respect to, or based upon, any “employee benefit plan”, as defined in Section 3(3) of ERISA, or any other compensation or benefit plan, contract, program, policy, agreement or arrangement (including, without limitation, those maintained by NEGI or by any Seller Party).

Section 4.22.    Brokers No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company or any Seller Party. 

Section 4.23.    Affiliate Transactions .   Except as set forth on Company Schedule 4.23(i) , neither the Company nor any of its Subsidiaries has purchased, acquired, used or leased any property or services from, or sold, transferred or leased any property or services to, or loaned or advanced money to, or borrowed any money from or entered into or been subject to any management, consulting or similar agreement with, or entered into any other transaction or arrangement with, any officer, director, shareholder or Affiliate of the Company or any of its Subsidiaries. Except as set forth on Company Schedule 4.23(ii) , (A) no Affiliate of the Company is indebted to the Company or any of its Subsidiaries for money borrowed or other loans or advances, and neither the Company nor any of its Subsidiaries is indebted to any such Affiliate, (B) no such Affiliate’s liabilities or obligations has been guaranteed by the Company or any of its Subsidiaries, and none of the Company’s nor any of its Subsidiaries’ obligations or liabilities has been guaranteed by any such Affiliate, and (C) if any indebtedness for money borrowed or other loans or advances referred to in clause (A) or guaranteed liabilities or obligations referred to in clause (B) exists, the Seller Parties and the Company will eliminate, terminate or settle all such arrangements prior to or contemporaneously with, but not after, the Closing, without any liability of any kind, including tax liabilities, to the Company or any of its Subsidiaries following the Closing. For purposes of this Section 4.23 , the term “Affiliate” shall be deemed to include NEGI, but shall not include the Company or any of its Subsidiaries.

Section 4.24.    NEGI Restructuring . The Restructuring shall be completed prior to or contemporaneously with, but not after, the Closing in accordance with Section 7.11 and shall not result in any liabilities or obligations to the Company and its Subsidiaries that continue after the Closing. NEGI’s assets, other than its membership interest in NEG Holding, consist solely of: (i) cash and cash equivalents; (ii) accounts receivable from the Company and its Subsidiaries under operating and management contracts (all of which will be terminated as of the Closing); (iii) a deferred tax asset; and (iv) other assets unrelated to oil and gas operations (including, furniture, computers, leases for office space and office equipment and similar items, but do not include any information technology, software and data relevant to the oil and gas operations of the Company or its Subsidiaries, including NEG Holding, whether or not on such computers, which will be transferred to Buyer).

Section 4.25.    No Additional Representations . EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN ARTICLE IV OF THIS AGREEMENT, THE SELLER PARTIES EXPRESSLY DISCLAIM ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, INCLUDING AS TO THE CONDITION, VALUE OR QUALITY OF THE BUSINESS OR THE ASSETS OF THE BUSINESS, AND THE SELLER PARTIES SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE ASSETS OF THE BUSINESS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT.

Section 5.1.    Organization .   Each of Riata and Buyer is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation. Each of Riata and Buyer has the requisite power and authority to own, lease and operate its properties and to conduct its business as it is now being conducted. Each of Riata and Buyer is duly qualified or licensed to do business and in good standing in each jurisdiction in which such qualification is necessary under applicable Law as a result of the conduct of its business or the ownership or lease of its properties, except where the failure to be so qualified, licensed or in good standing would not prevent or materially delay the consummation of the transactions contemplated by this Agreement.

Section 5.2.    Authority

(a)    Each of Riata and Buyer has all requisite corporate power and authority to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby. The execution and delivery by each of Riata and Buyer of this Agreement and the consummation by them of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of each of Riata and Buyer and no other proceedings on the part of Riata or Buyer are necessary to authorize the execution or delivery of this Agreement or to consummate the transactions contemplated hereby. 

(b)    This Agreement has been duly executed and delivered by each of Riata and Buyer and constitutes a valid and legally binding obligation of each of Riata and Buyer, enforceable against each of Riata and Buyer in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar Laws affecting or relating to the enforcement of creditors’ rights generally and the application of general principles of equity (regardless of whether that enforceability is considered in a proceeding at Law or in equity).

Section 5.3.    Non-Contravention

(a)    Neither the execution, delivery and performance by each of Riata and Buyer of this Agreement, nor the consummation by them of the transactions contemplated hereby will (with or without the giving of notice or the passage of time or both):

(1)    conflict with or result in a violation of any provision of the Governing Documents of Riata or Buyer or any of their respective Subsidiaries;

(2)    result in the creation or imposition of any Lien on any of the properties or other assets of Riata or Buyer or any of their respective Subsidiaries;

(3)    (with or without the giving of notice or the passage of time or both) conflict with or result in a violation of any provision of, or constitute a breach of or default under, or give rise to a right to impose any fine or penalty, any right of termination, cancellation, amendment, modification, payment or acceleration, the loss of a material benefit, under any provision of any bond, debenture, note, mortgage, lease, license, franchise, indenture, or any other contract or other instrument or obligation to which Riata or Buyer or any of their respective Subsidiaries is a party or by which it or any of their respective properties may be bound or subject; or

(4)    violate in any material respect any applicable Law binding upon Riata or Buyer or any of their respective Subsidiaries;

(b)    Except for any filings required under   the 1934 Act or as set forth on Buyer Schedule 5.3(b) , no consent, approval, order, or authorization of, or declaration, filing, or registration with, any Governmental Entity or of any third party is required to be obtained or made by Riata or Buyer in connection with the execution, delivery, or performance by Riata or Buyer of this Agreement or the consummation by Riata or Buyer of the transactions contemplated hereby.

Section 5.4.    Capital Structure

(a)    Riata has an authorized capitalization as set forth in the Private Placement Memorandum, and all of the issued and outstanding shares of Riata common stock are fully paid and non-assessable and have been duly and validly authorized and issued, in compliance with all applicable state, federal and foreign securities laws and not in violation of or subject to any preemptive or similar right that entitles any person to acquire from Riata any Riata common stock or other Equity Interest of Riata or any security convertible into, or exercisable or exchangeable for, Riata common stock or any other such Equity Interest, except for such rights as may have been fully satisfied or waived prior to the effectiveness of this Agreement.

(b)    No Equity Interests of Riata are subject to, nor have any been issued in violation of, preemptive rights, preferential rights of subscription or purchase or similar rights.

(c)    Except for 73,559,664 outstanding shares of Riata common stock (including restricted stock) and the rights created by this Agreement and except for the Equity Interests of Riata contemplated to be issued by Riata pursuant to the financing of the transactions contemplated hereby as described in the Private Placement Memorandum (with any changes thereto pursuant to such financing which are made after the date hereof), there are outstanding or in existence:

(1)    no other Equity Interests of Riata; and

(2)    no Equity Interest Equivalents of Riata.

(d)    Except for 5,429,739 Equity Interests and Equity Interest Equivalents reserved for issuance pursuant to Riata’s 2005 stock plan and except for the Equity Interests of Riata contemplated to be issued by Riata pursuant to the financing of the transactions contemplated hereby as described in the Private Placement Memorandum (with any changes thereto pursuant to such financing which are made after the date hereof), no Equity Interests or Equity Interest Equivalents of Riata are reserved for issuance or for any other purpose, and there are no agreements or arrangements providing for the issuance of Equity Interests or Equity Interest Equivalents of Riata.

(e)    There are no issued or outstanding bonds, debentures, notes or other indebtedness having the right to vote on any matters pertaining to Riata.

(f)    Except for the Equity Interests contemplated to be issued pursuant to the financing of the transactions contemplated hereby as described in the Private Placement Memorandum (with any changes thereto pursuant to such financing which are made after the date hereof), there are no outstanding obligations of Riata to repurchase, redeem, or otherwise acquire any Equity Interests of Riata.

(g)    The Consideration Shares to be delivered on the Closing Date, (i) have been duly and validly authorized and, when issued and delivered in accordance with this Agreement, will be duly and validly issued, fully paid and non-assessable, (ii) assuming the accuracy of the Seller Parties’ representations and warranties in Article III , will have been issued in compliance with all applicable state, federal and foreign securities laws, and (iii) will not have been issued in violation of or subject to any preemptive or similar right that entitles any person to acquire any Riata common stock or other Equity Interest from Riata. The Consideration Shares conform to the description of the Riata common stock contained in the Private Placement Memorandum.

(h)    The name of Riata is currently contemplated to be changed to SandRidge Energy, Inc. Riata is the entity referred to as the issuer in the Private Placement Memorandum. Riata will be the issuer of the common stock to be delivered to Seller hereunder, is the issuer of the common stock referred to on Schedule A to the Shareholders Agreement, and will be the issuer of the securities to be issued pursuant to the Private Placement Memorandum.

Section 5.5.    Private Placement Memorandum; Financial Statements .  

(a)    Riata’s private placement memorandum for the equity financing of the transactions contemplated hereby (a true, correct and final version of which has been delivered to Seller), excluding the financial statements contained therein (which are addressed in Section 5.5(b) below) and excluding any information relating to the Company or any of its Subsidiaries (the “ Private Placement Memorandum ”) (excluding the effect of any general disclaimers, risk factors or forward-looking statements, but after taking into account any disclosure in such provisions that are matters of fact), are not materially untrue or incomplete and do not include a materially untrue statement of material fact nor omit to state a material fact required to be stated therein or necessary in order to make the statements therein not materially misleading, in each case as of the date hereof (provided that the failure to update financial and accounting information since June 30, 2006 shall not in and of itself be conclusive of the Private Placement Memorandum being materially untrue or incomplete or be deemed to be a material omission).

(b)    The financial statements of Riata contained in the Private Placement Memorandum (excluding any pro forma information) (the “ Riata Financial Statements ”) (provided that the failure to update financial and accounting information since June 30, 2006 shall not in and of itself be conclusive of such financial statements being materially untrue or incomplete or be deemed to be a material omission) are not materially untrue or incomplete and do not include a materially untrue statement of material fact nor omit to state a material fact required to be stated therein or necessary in order to make the statements therein not materially misleading (and have been prepared in all material respects in compliance with GAAP applied on a consistent basis and present fairly in all material respects the consolidated financial position and the consolidated results of operations and cash flows for Riata and its Subsidiaries), in each case as of the date of such financial statements; other than liabilities adequately reflected or reserved against in the Riata Financial Statements and liabilities incurred in the Ordinary Course of Business since June 30, 2006, there are no liabilities or obligations of any kind, whether accrued, absolute, secured, unsecured, fixed, contingent, or otherwise, of Riata or any of its Subsidiaries which, individually or in aggregate have had, and are reasonably likely to have, a Material Adverse Change on Riata.

Section 5.6.    Absence of Certain Changes or Events . Since June 30, 2006, there has not been a Material Adverse Change with respect to Riata.

Section 5.7.    Proceedings .   There are no Proceedings pending or, to Riata’s or Buyer’s Knowledge, threatened, in which Riata or Buyer is a party affecting the execution and delivery of this Agreement by Riata or Buyer or the consummation of the transactions contemplated hereby by Riata or Buyer.

Section 5.8.    Investment Experience .   Buyer acknowledges that it can bear the economic risk of its investment in the Interests, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Interest.

Section 5.9.    Restricted Securities .   Buyer understands that the Interests will not have been registered pursuant to the Securities Act or any applicable state securities Laws, that the Interests will be characterized as “restricted securities” under federal securities laws, and that under such Laws and applicable regulations the Interests cannot be sold or otherwise disposed of without registration under the Securities Act or an exemption therefrom.

Section 5.10.    Accredited Investor; Investment Intent .   Buyer is an accredited investor as defined in Regulation D under the Securities Act. Buyer is acquiring the Interests for its own account for investment and not with a view to, or for sale or other disposition in connection with, any distribution of all or any part thereof within the meaning of the Securities Act, except in compliance with applicable federal and state securities Laws.

Section 5.11.    Brokers .   No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Riata or Buyer which the Seller Parties may be obligated to pay.

Section 5.12.    Investment Company Act . Neither Riata nor Buyer is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder.

Section 5.13.    No Additional Representations . EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN ARTICLE V OF THIS AGREEMENT, EACH OF RIATA AND BUYER EXPRESSLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESS OR IMPLIED, INCLUDING AS TO THE CONDITION, VALUE OR QUALITY OF THEIR RESPECTIVE BUSINESSES OR ASSETS, AND EACH OF RIATA AND BUYER SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, USAGE, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THEIR RESPECTIVE ASSETS, OR ANY PART THEREOF, OR AS TO THE WORKMANSHIP THEREOF, OR THE ABSENCE OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT.

Section 5.14.    Acknowledgement by Buyer . Each of Riata and Buyer acknowledges and agrees that: (a) it has conducted its own independent review and analysis of the business, assets, condition, operations and prospects of the Company and its Subsidiaries; and (b) it is not relying on any statement or representation made by or on behalf of the Seller Parties except as set forth in this Agreement.

Section 6.1.    Conduct and Preservation of Business

(a)    Except as expressly provided in this Agreement or except as contemplated by and in furtherance of the Restructuring as described in Section 7.11 or to the extent that Buyer shall otherwise consent in writing, during the period from the date hereof to the Closing, the Company shall, the Seller Parties shall cause the Company to, and the Seller Parties and the Company shall cause each Subsidiary of the Company to:

(1)    (a) conduct its operations in the Ordinary Course of Business and (b) take (or refrain to take) actions affecting Cash and/or Net Working Capital in each case in the Ordinary Course of Business, including, without limitation, collecting accounts receivable and paying accounts payable and satisfying other liabilities and obligations in each case in the Ordinary Course of Business;

(2)    use commercially reasonable efforts consistent with past practice to maintain and to keep their properties and assets in good repair and condition, ordinary wear and tear excepted, in the Ordinary Course of Business; if there is any casualty loss or damage to any properties or assets of the Company or any Subsidiary in excess of $100,000 prior to Closing, to consult with Buyer regarding the replacement or repair of such property or asset;

(3)    use commercially reasonable efforts to keep in full force and effect insurance applicable to it comparable in amount and scope of coverage to that currently maintained;

(4)    use commercially reasonable efforts to (a) keep and maintain accurate books, records and accounts; (b) pay or accrue Taxes, assessments and other governmental charges imposed upon any of its franchises, businesses, income or assets in the Ordinary Course of Business; (c) pay Indebtedness, payables, rentals, royalties, expenses and other liabilities in the Ordinary Course of Business; and

(5)    use commercially reasonable effort to preserve and keep in full force and effect their corporate or other legal existence and rights and franchises.

(b)    Without limiting the generality of the foregoing, except as contemplated by and in furtherance of the Restructuring as described in Section 7.11 , and except as otherwise expressly provided in this Agreement, during the period from the date hereof to the Closing, the Company shall not (and the Seller Parties shall cause the Company not to, and the Seller Parties and the Company shall cause each Subsidiary of the Company, not to) take, consent to or allow any of the following actions without the prior written consent of Buyer:

(1)    (i) acquire (by merger, consolidation, acquisition of stock or assets or otherwise) or organize, any corporation, limited liability company, partnership, joint venture, trust or other entity or person or any business organization or division thereof or (ii) acquire any rights, assets or properties other than in the Ordinary Course of Business;

(2)    amend or otherwise change the Governance Documents or alter through merger, liquidation, reorganization, restructuring or in any other fashion the corporate structure or ownership of the Company or its Subsidiaries;

(3)    sell, divest, transfer or otherwise dispose of any assets, except regular sales of oil and gas sold from out of the ground or storage tanks or other inventories and supplies in the Ordinary Course of Business; provided , that the Company may (but shall not be required to) also sell, divest, transfer or otherwise dispose of other assets in the Ordinary Course of Business not in excess in the aggregate of $100,000, or such other assets in the Ordinary Course of Business with the consent of Buyer not to be unreasonably withheld; provided , further , that the proceeds to be received from any such sale, divesture, transfer or disposition referred to in the immediately preceding proviso, shall be retained for the benefit of Buyer at Closing and shall not be counted towards the calculation of Net Working Capital or the Cash Amount);

(4)    lease, license, sublicense, mortgage, pledge, encumber or create, incur, assume or cause to be subjected to any Lien (other than Liens securing the Credit Facility and Permitted Encumbrances) on, any of the assets of the Company or its Subsidiaries, except in the Ordinary Course of Business;

(5)    other than to borrow against its existing credit lines for ordinary course working capital purposes (i) incur or modify any Indebtedness or issue any debt securities or any warrants or rights to acquire any debt security, (ii) assume, guarantee or endorse or otherwise become responsible for, the obligations of any Person, (iii) enter into any off-balance sheet financing arrangement or any accounts receivable or payable financing arrangement, or (iv) make any loans, advances or enter into any other financing commitments, including, without limitation, any financing commitments or obligations to Seller or any of its Affiliates (including NEGI) (other than the Company or its Subsidiaries);

(6)    pay, make or declare any dividends or distributions (other than cash tax distributions   and cash distributions pursuant to the Operating Agreement of NEG Holding dated May 1, 2001) in respect of any of its Equity Interests;

(7)    issue, grant, sell, transfer, deliver, pledge, promise, dispose of or encumber, or authorize the issuance, grant, sale, transfer, deliverance, pledge, promise, disposition or encumbrance of, or alter or modify the terms of rights or obligations under, any Equity Interests, or any options, warrants, convertible or exchangeable securities or other rights of any kind to acquire any Equity Interest or any other ownership interest of the Company or any of its Subsidiaries;

(8)    (A) repurchase, redeem, or otherwise acquire any of its Equity Interests or any Equity Interests of any Subsidiary; (B) effect any reorganization or recapitalization; (C) split, combine or reclassify any Equity Interests of the Company or any of its Subsidiaries; or (D) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing a liquidation, dissolution, merger, consolidation, conversion, restructuring, recapitalization, or other reorganization of the Company or any of its Subsidiaries;

(9)    (A) take any action with respect to the grant of or increase in any severance or termination pay to any current or former director, executive officer or employee of the Company or any of its Subsidiaries, (B) execute any employment, deferred compensation or other similar agreement (or any amendment to any such existing agreement) with any such director, executive officer or employee of the Company or any of its Subsidiaries, (C) adopt or establish any new employee benefit plan or amend in any material respect any existing employee benefit plan, (D) provide any material benefit to a current or former director, executive officer or employee of the Company or any of its Subsidiaries not required by any existing agreement or employee benefit plan, or (E) take any action that would result in any plan, program or agreement violating Section 409A of the Code or provide any employee entitlement to a tax gross−up or similar payment for any excise tax that may be due under Section 409A of the Code;

(10)    amend, modify, or change in any material respect any Company Contract or Oil and Gas Contract, other than in the Ordinary Course of Business;

(11)    change any of the accounting principles or practices used by it, except for any change required by reason of a concurrent change in GAAP and notice of which is given in writing by the Company to Buyer;

(12)    except as required by Law, make or change any Tax election, change an annual accounting period, adopt or change any accounting method with respect to Taxes, file any amended Tax Return, enter into any closing agreement, settle or compromise any proceeding with respect to any Tax claim or assessment relating to the Company or any of its Subsidiaries, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to the Company or any of its Subsidiaries, or take any other similar action relating to the filing of any Tax Return or the payment of any Tax without the consent of Buyer, which consent shall not be unreasonably withheld or delayed; or

(13)    agree in writing or otherwise to take any of the actions described in this Section 6.1(b) .

Section 7.1.    Access.  

(a)    In order for Buyer and Seller to conduct their respective business, accounting and legal due diligence review of each other (the “ Due Diligence ”), Seller and Buyer agree to provide each other with reasonable cooperation and access, for a period from the date hereof until the termination of this Agreement, to all of their and their Subsidiaries’ respective, and in the case of Seller, to the Company’s and the Company’s Subsidiaries’ respective, properties, offices, books and records (including bankruptcy records), abstracts of title, title opinions, title files, ownership maps, lease files, assignments, division orders, production, drilling and imbalance reports, operating records and agreements, well files, financial and accounting records (including SEC correspondence), geological, geophysical and engineering records, contracts, commitments and such financial information (including work papers), operating data, and all other information concerning their businesses, properties, personnel, representatives, landlords/sublandlords, tenants, licensees and franchisees as Buyer or Seller, as the case may be, may request. Buyer and Seller and their respective Subsidiaries will (and Seller will cause the Company and its Subsidiaries to) provide each other with reasonable access and cooperation as necessary to facilitate their respective ongoing Due Diligence, including access to, among other persons, management, Representatives and customers; provided , however , that only management of Buyer or Seller (or the Company and its Subsidiaries) may be contacted and any contact of such other persons will be coordinated through a