PURCHASE AND SALE AGREEMENT

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SCHEDULES:

This Purchase and Sale Agreement (this " Agreement "), is dated as of June 10, 2008, by and between O'Brien Resources, LLC, a Texas limited liability company, O'BENCO II, LP, a Delaware limited partnership, Liberty Energy, LLC, a Massachusetts limited liability company, Crow Horizons Company, a Louisiana general partnership, and Sepco II, LLC a Louisiana limited liability company (collectively, the " Seller, " and each a " Seller Party "), and Berry Petroleum Company, a Delaware corporation (" Purchaser ").  Seller and Purchaser are sometimes referred to herein collectively as the " Parties " and individually as a " Party ."

Seller desires to sell and Purchaser desires to purchase those certain interests in oil and gas properties, rights and related assets that are defined and described as "Assets" herein; and

It is the intent of the Seller to transfer, and the intent of Purchaser to acquire, subject to the Excluded Assets and the further terms and conditions of this Agreement, all other leases, lands, surface interests, and other assets owned by Seller and located, as of the Effective Date or as of the Closing Date, on the lands highlighted in yellow on the plat attached hereto as Exhibit A-5 , whether or not such leases, lands, surface interests, or other assets are described on Exhibits A-1 through A-4 hereto.

NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations, warranties, covenants, conditions, and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:

Section 1.1             Purchase and Sale .  On the terms and conditions contained in this Agreement, Seller agrees to sell to Purchaser and Purchaser agrees to purchase, accept, and pay for the Assets.

Section 1.2              Certain Definitions .  As used herein:

(a)           " Assets " means all of Seller's right, title, and interest in and to the following:

(i)           The oil and gas leases, oil, gas, and mineral leases and subleases described on Exhibit A-1 (the " Leases ") together with the lands covered thereby (the " Lands "), and all rights to production after the Effective Date relating to the Leases and the Lands, including, without limitation, all royalties, overriding royalties, net profits interests, mineral fee interests, carried interests, and, without limiting the foregoing, other rights (of whatever character, whether legal or equitable, and whether vested or contingent) in and to the oil, gas, and other minerals in, on, under, and that may be produced from, the Leases and the Lands;

(ii)           Any and all oil, gas, water, CO ₂ ,   or injection wells thereon or on pooled, communitized, or unitized acreage that includes all or any part of the Leases, including, without limiting the foregoing, the interests in the wells shown on Exhibit A-2 attached hereto, whether producing, non-producing, permanently or temporarily plugged and abandoned, and whether or not fully described (the " Wells ");

(iii)           All pooled, communitized, or unitized acreage which includes all or part of any Leases (the " Units "), and all tenements, hereditaments, and appurtenances belonging thereto;

(iv)           The gas processing plants, gas gathering systems, pipelines, drip stations, and other mid-stream equipment described on Exhibit A-3 (the " Midstream Assets " and, together with the Leases, Wells, and Units, the " Properties ");

(v)           All currently existing contracts, agreements, and instruments with respect to the Properties, to the extent applicable to the Properties, including, without limitation, operating agreements, unitization, pooling, and communitization agreements, declarations and orders, area of mutual interest agreements, joint venture agreements, farmin and farmout agreements, exchange agreements, transportation agreements, agreements for the sale and purchase of Hydrocarbons, and processing agreements; provided, however , that the term "Contracts" shall not include (A) any contracts, agreements, and instruments included within the definition of "Excluded Assets," and (B) the Leases and other instruments constituting Seller's chain of title to the Leases (subject to such exclusion and proviso, the " Contracts ");

(vi)           All surface fee interests, easements, permits, licenses, servitudes, rights-of-way, surface leases, and other rights to use the surface appurtenant to, and used or held for use primarily in connection with, the Properties, but excluding any permits and other appurtenances included within the definition of "Excluded Assets" (subject to such exclusions, and including without limitation those rights-of-way and other surface rights listed on Exhibit A-3 , the " Surface Rights ");

(vii)          All equipment, machinery, fixtures, and other tangible personal property and improvements located on the Properties or used or held for use primarily in connection with the operation of the Properties or the production of Hydrocarbons from the Properties, the material items of which are described on Exhibit A-4 ,   including, without limitation, the tubular inventory located on the Oakes Field yard in Limestone County, Texas and in the Blocker Field location in Harrison County, Texas and specifically described on Exhibit A-4 , but excluding items included within the definition of "Excluded Assets" (subject to such exclusions, the " Equipment ");

(viii)         All Hydrocarbons produced from, or directly attributable to, the Leases, Units, or Wells after the Effective Date; all Hydrocarbon inventories from the Properties in storage as of the end of the Effective Date; and, to the extent related to the Properties, all production, plant, and transportation imbalances as of the Effective Date (provided, however, that Purchaser's rights to the Assets described in this subsection ‎(viii) shall be satisfied solely pursuant to ‎Section 2.3); and

(ix)           The data and records of Seller, to the extent directly relating to the Properties, excluding, however:

(A)           all corporate, financial, Tax, and legal data and records of Seller that relate to Seller's business generally (whether or not relating to the Assets) or to Seller's business and operations not otherwise expressly included in this Agreement;

(B)           any data, software, and records (including, without limitation, the licenses or other agreements granting the right to use the same) to the extent disclosure or transfer is prohibited or subjected to payment of a fee or other consideration by any license agreement or other agreement with a Person other than Affiliates of Seller, or by applicable Law, and for which no consent to transfer has been received or for which Purchaser has not agreed in writing to pay the fee or other consideration, as applicable;

(C)           all legal records and legal files of Seller including all work product of and attorney-client communications with Seller's legal counsel (other than Leases, title opinions, and Contracts);

(D)           data and records relating to the sale of the Assets, including, without limitation, communications with the advisors or representatives of any Seller Party or communications and arrangements among the Seller Parties and bids received from, and records of negotiations with, third Persons;

(E)           any data and records relating to the other Excluded Assets; and

(F)           original data and records retained by Seller pursuant to ‎Section 13.6.

(Clauses (A) through (F) shall hereinafter be referred to as the " Excluded Records " and subject to such exclusions, the data, software and records described in this ‎Section 1.2(a)(ix) shall hereinafter be referred to as the " Records .").

(b)           " Affiliate " means, with respect to any Person, a Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, with control in such context meaning the ability to direct the management or policies of a Person through ownership of voting shares or other securities, pursuant to a written agreement, or otherwise.

(c)           " Agreed Rate " means the lesser of (i) the one month London Inter-Bank Offered Rate, as published on Page BBAM of the Bloomberg Financial Markets Information Service on the last Business Day prior to the Effective Date plus three percentage points (LIBOR +3%) and (ii) the maximum rate allowed by applicable Laws.

(d)           " Business Day " means any day other than a Saturday, a Sunday, or a day on which banks are closed for business in New York, New York or Shreveport, Louisiana, United States of America.

(e)           " Code " means the United States Internal Revenue Code of 1986, as amended.

(f)           " Cut-Off Date " means five o'clock local time at the location of the Properties on a date that is the later to occur of (i) One-Hundred Eighty (180) days after the Closing Date and (ii) December 31, 2008.

(g)           " Effective Date " means 12:00 a.m. Central Time on February 1, 2008.

(h)           " Governmental Authority " means any national government and/or government of any political subdivision, and departments, courts, commissions, boards, bureaus, ministries, agencies, or other instrumentalities of any of them.

(i)            " Hart-Scott-Rodino Act " means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

(j)            " Hydrocarbons " means crude oil, gas, casinghead gas, condensate, natural gas liquids, and other gaseous or liquid hydrocarbons (including, without limitation, ethane, propane, iso-butane, nor-butane, gasoline, and scrubber liquids) of any type and chemical composition.

(k)           " Laws " means all laws, statutes, rules, regulations, ordinances, orders, decrees, requirements, judgments, and codes of Governmental Authorities.

(l)            " Lowest Cost Response " means, with respect to any Environmental Defect, the response required or allowed under Environmental Laws that addresses such Environmental Defect to the extent required by applicable Environmental Laws at the lowest cost (considered as a whole taking into consideration any material negative impact such response may have on the operations of the relevant Assets and any potential material additional costs or liabilities that may likely arise as a result of such response) as compared to any other response that is required or allowed under Environmental Laws.

(m)           " Material Adverse Effect " means a material adverse effect (i) on the ownership or operation of the Assets, taken as a whole, or (ii) on the ability of Seller to perform its obligations under this Agreement to the extent such obligations are to be performed prior to Closing or to consummate the transactions contemplated hereby; provided, however , that Material Adverse Effect shall not include material adverse effects resulting from general changes in oil and gas prices; general changes in industry, economic or political conditions, or markets; changes in condition or developments generally applicable to the oil and gas industry in any area or areas where the Assets are located; acts of God, including hurricanes and storms; acts or failures to act of Governmental Authorities (where not caused by the willful or negligent acts of Seller); civil unrest or similar disorder; terrorist acts; changes in Laws; effects or changes that are cured or that no longer exist by the earlier of the Closing and the termination of this Agreement pursuant to Article 11; and changes resulting from the announcement of the transactions

contemplated hereby or the performance of the covenants set forth in Article 7 or ‎Section 9.4(e) hereof.

(n)           " Material Contract " means, to the extent binding on the Properties after Closing:

(i)            any farm-out agreements, participation, exploration, or other similar upstream agreements, joint operating agreements, unit agreements, AMI agreements, communitization agreements, pooling agreements, processing agreements, transportation agreements, and water disposal agreements;

(ii)            any Contract for the sale of Hydrocarbons produced or to be produced from the Properties that is not terminable by Seller or its successors without penalty on no more than ninety (90) days notice;

(iii)           any Contract that can reasonably be expected to result in aggregate payments by any Seller Party or Purchaser of more than Two-Hundred Thousand dollars ($200,000) during the current or any subsequent fiscal year;

(iv)           any Contract that can reasonably be expected to result in revenues to any Seller Party or Purchaser of more than Two-Hundred Thousand dollars ($200,000) during the current or any subsequent fiscal year;

(v)            any Contract that constitutes a lease under which Seller is the lessor or lessee of real or personal property which lease (A) cannot be terminated by Seller without penalty upon sixty (60) days or less notice and (B) pursuant to which Seller pays or receives an annual base rental of more than One-Hundred Thousand dollars ($100,000);

(vi)           any Contract with any Affiliate of any Seller Party, except to the extent that the obligations of Seller in and to the same will be merged or otherwise cease to exist at Closing;

(vii)          any Contract pending for the acquisition or disposition, directly or indirectly (by merger or otherwise), of Assets with a value in excess of Two-Hundred Thousand dollars ($200,000)   (other than sales of Hydrocarbons in the ordinary course of business);

(viii)         Any Contract for the purchase of tubular or similar goods; and

(ix)           any Contract pending for the acquisition or disposition (by merger or otherwise) of all or any part of the Properties, including, without limitation, farm-out agreements, participation, exploration, or other similar agreements, and area of mutual interest agreements, but excluding rights of reassignment upon intent to abandon a Property.

(o)           " Person " means any individual, corporation, partnership, limited liability company, trust, estate, Governmental Authority, or any other entity.

(p)           " Property Costs " means all operating expenses (including without limitation costs of insurance, rentals, shut-in payments, title examination and curative actions, production and similar Taxes measured by units of production, and severance Taxes, attributable to production of Hydrocarbons from the Assets, but excluding Seller's other Taxes) and capital expenditures (including without limitation bonuses, broker fees, and other Lease acquisition costs, costs of drilling and completing wells, and costs of acquiring equipment) incurred in the ownership and operation of the Assets in the ordinary course of business, general and administrative costs with respect to the Assets, and overhead costs charged to the Assets under the applicable operating agreement or, if none, charged to the Assets on the same basis as charged on the date of this Agreement (provided that, where Seller or its Affiliates operate a Well and there is no applicable operating agreement, such overhead costs shall be Nine-Thousand dollars ($9,000) per Well per month in the event that a Well is being drilled, reworked, sidetracked, plugged and abandoned (whether permanently or temporarily), or otherwise actively modified (provided that such operations are in the ordinary course of business), or Nine-Hundred dollars ($900) per Well per month for all other Wells, in either case, proportionately reduced to Seller's working interest in any such Well), but excluding without limitation liabilities, losses, costs, and expenses attributable to:

(i)             claims, investigations, administrative proceedings, arbitration, or litigation directly or indirectly arising out, of or resulting from, actual or claimed personal injury, illness, or death; property damage; environmental damage or contamination; other torts; private rights of action given under any Law; or violation of any Law;

(ii)            obligations to plug wells, dismantle facilities, close pits and clear the site and/or restore the surface or seabed around such wells, facilities, and pits;

(iii)           obligations to remediate actual or claimed contamination of groundwater, surface water, soil, or Equipment;

(iv)           title and environmental claims (including claims that Leases have terminated);

(v)            claims of improper calculation or payment of royalties (including overriding royalties and other burdens on production) related to deduction of post-production costs or use of posted or index prices or prices paid by Affiliates;

(vi)           gas balancing and other production balancing obligations;

(vii)          casualty and condemnation; and

(viii)         any claims for indemnification, contribution, or reimbursement from any third Person with respect to liabilities, losses, costs, and expenses of the type described in preceding clauses (i) through (vii), whether such claims are made pursuant to contract or otherwise.

(q)           " Reserve Report " means that certain report dated February 1, 2008 from Ryder Scott & Company entitled "Estimated Future Reserves and Income Attributable to Certain Working Interests of the Consolidated Selling Interests Including Liberty Energy, LLC."

(r)           " Tax " means all taxes, including any foreign, federal, state, or local income tax, surtax, remittance tax, presumptive tax, net worth tax, special contribution, production tax, pipeline transportation tax, freehold mineral tax, value added tax, withholding tax, gross receipts tax, windfall profits tax, profits tax, severance tax, personal property tax, real property tax, sales tax, goods and services tax, service tax, transfer tax, use tax, excise tax, premium tax, stamp tax, motor vehicle tax, entertainment tax, insurance tax, capital stock tax, franchise tax, occupation tax, payroll tax, employment tax, unemployment tax, disability tax, alternative or add-on minimum tax, and estimated tax, imposed by a Governmental Authority together with any interest, fine, or penalty thereon.

Section 1.3              Excluded Assets .  Notwithstanding anything to the contrary in ‎Section 1.2 or elsewhere in this Agreement, the "Assets" shall not include any rights with respect to the Excluded Assets.  " Excluded Assets " shall mean the following:

(a)           the Excluded Records;

(b)           copies of other Records retained by Seller pursuant to ‎Section 13.6;

(c)           Assets excluded from this Agreement pursuant to ‎Section 3.6;

(d)           all claims against insurers and other third Persons pending on or prior to the Effective Date;

(e)           all trademarks, trade names, and other intellectual property;

(f)           all futures, options, swaps, and other derivatives, and all software used for trading, hedging, and credit analysis;

(g)           all of Seller's interests in office leases, buildings and other real property unless expressly identified in ‎Section 1.2(a)(i), ‎Section 1.2(a)(iii), ‎Section 1.2(a)(vi), or on Exhibit A-3 ;

(h)            any leased equipment and other leased personal property to the extent the lease is not transferable without payment of a fee or other consideration, subject, however, to ‎Section 3.6;

(i)           all office equipment, computers, software, cell phones, pagers, and other hardware, personal property, and equipment, and contracts related thereto that:  (A) do not relate solely and exclusively to the Properties or relate to Seller's business generally or to other businesses or assets of Seller and its Affiliates, except to the extent the same are expressly identified on Exhibit A-3 or (B) are set forth on Schedule 1.3 (even if relating solely and exclusively to the Assets);

(j)           any Tax refund (whether by payment, credit, offset, or otherwise, and together with any interest thereon) in respect of any Taxes for which Seller is liable for payment or required to indemnify Purchaser under ‎Section 10.1;

(k)            refunds relating to severance Tax abatements (whether by payment, credit, offset, or otherwise, and together with any interest thereon) with respect to all taxable periods or portions thereof ending on or prior to the Effective Date, whether received before, on, or after the Effective Date (including, without limitation, refunds relating to the designation by the Railroad Commission of Texas of any Well or Unit as "High Cost" pursuant to the terms of 16 Tex. Admin. Code Sec.3.101);

(l)             all indemnities and other claims against Persons (even if between the Seller Parties or their respective Affiliates) for Taxes for which Seller or its Affiliates is liable for payment or required to indemnify Purchaser under ‎Section 10.1;

(m)           claims against insurers under policies held by Seller or its Affiliates;

(n)           costs and revenues associated with all joint interest audits and other audits of Property Costs covering periods for which Seller is in whole or in part responsible for the Assets;

(o)            any royalty, overriding royalty, net profits interest, volumetric production payment, or other such interest reserved by, or conveyed to, any Seller Party prior to the Closing Date, including, without limitation, (i) the interests set forth on Schedule 1.3 , and (ii) any overriding royalty interest reserved by, or conveyed to, O'Brien Resources, LLC prior to the Closing Date; and

(p)            any other assets, contracts, equipment, accounts, or other rights or properties described on Schedule 1.3 .

Section 2.1             Purchase Price .  The purchase price for the Assets (the " Purchase Price ") shall be Five -Hundred Ninety Million dollars ($590,000,000) (the " Unadjusted Purchase Price "), adjusted as provided in ‎ Section 2.3.  Contemporaneously with the execution and delivery of this Agreement, Purchaser has delivered or caused to be delivered to the Shreveport branch of Capital One, N.A. (the " Escrow Agent "), a wire transfer in the amount equal to ten percent (10%) of the Unadjusted Purchase Price in same-day funds (the " Deposit ") to be held, invested, and disbursed in accordance with the terms of an escrow agreement of even date herewith among Seller, Purchaser, and Escrow Agent (the " Escrow Agreement ").  The Deposit and all income earned thereon shall be distributed in accordance with the terms of this Agreement and the Escrow Agreement.

Section 2.2              Allocation of Purchase Price .

(a)           At least ten (10) Business Days prior to the Target Closing Date, Seller shall prepare and deliver to Purchaser, using and based upon the best information available to Seller, a schedule (the " Seller's Proposed Allocation Schedule ") setting forth the following items:

(i)             the Unadjusted Purchase Pri ce as set forth in ‎Section 2.1;

(ii)            the liabilities associated with the Assets as of the Closing that are taken into account for purposes of Section 1060 of the Code with respect to the cost basis of the Assets as of Closing; and

(iii)           an allocation of the sum of (A) the Unadjusted Purchase Price under clause (i) and (B) the aggregate amount of liabilities under clause (ii) that are includable in the Purchaser's tax basis in the Assets among the classes of the Assets (but not the specific Assets) as of the Closing, which allocations shall be made in accordance with Section 1060 of the Code and the Treasury Regulations promulgated thereunder, but which need not be consistent with the Allocated Values established pursuant to ‎Section 3.4.

Seller shall, at Purchaser's request, make reasonable documentation available to support the proposed allocations provided in Seller's Proposed Allocation Schedule.  As soon as reasonably practicable, but not later than five (5) Business Days following receipt of Seller's Proposed Allocation Schedule, Purchaser shall deliver to Seller a written report setting forth any changes that Purchaser proposes to be made to Seller's Proposed Allocation Schedule (which report shall specify the reasons for any such changes in reasonable detail and shall include true and complete copies of any supporting documentation pursuant to which such changes are proposed).  The Parties shall undertake to agree on a final schedule no later than two (2) Business Days prior to the Closing Date.  In the event the Parties cannot reach agreement by that date, the allocations set forth in Seller's Proposed Allocation Schedule shall be used pending adjustment under the following paragraph.  Notwithstanding anything to the contrary contained in this Agreement, the allocations of value to Assets other than the Leases, Wells, and Units (including, without limitation the Midstream Assets), if any, shall not exceed twenty-five million dollars ($25,000,000), whether by the initial allocation of value, any adjustments thereto, or otherwise; provided, however , that to the extent that any adjustment to the Unadjusted Purchase Price would cause the Allocated Value of such other Assets to exceed twenty-five million dollars ($25,000,000), the amount of such excess shall be allocated to the Wells and Units.

(b)           Within thirty (30) days after the determination of the Purchase Price under ‎Section 9.4(b), Seller's Proposed Allocation Schedule shall be amended by Seller and delive red to Purchaser to reflect the Purchase Price following final adjustments.  Purchaser shall cooperate with Seller in the preparation of such amended schedule.  If the Seller's amendments to Seller's Proposed Allocation Schedule are not objected to by Purchaser (by written notice to Seller specifying the reasons therefor in reasonable detail) within thirty (30) days after delivery of Seller's adjustments to such schedule, it shall be deemed agreed upon by the Parties.  In the event that the Parties cannot reach an agreement within twenty (20) days after Seller receives notice of any objection by Purchaser, then (i) Purchaser shall be entitled to report its allocation of the Purchase Price for Tax purposes, (ii) each Seller Party shall be entitled to report its respective allocation of the Purchase Price for Tax purposes, and (iii) as between Purchaser and the Seller Parties collectively, such separate reports as filed and reported for Tax purposes need not be consistent.

Section 2.3              Adjustments to Purchase Price .  The Unadjusted Purchase Price shall be adjusted as follows:

(a)           Increased or decreased, as appropriate, in accordance with ‎Section 3.5 and ‎Section 4.4 (whether before or after the Closing);

(b)           Decrease d as a consequence of Assets excluded from this transaction as a consequence of the exercise of preferential rights to purchase or the existence of a Casualty Loss, as described in ‎Section 3.6 or ‎Section 12.4, respectively;

(c)           Except with respect to amounts relating to item 1 on Schedule 5.2, decreased by the amount of royalty, overriding royalty, and other burdens payable out of production of Hydrocarbons from the Leases and Units or the proceeds thereof to third Persons but held in suspense by Seller at the Closing, and any interest accrued in escrow accounts for such suspended funds, to the extent such funds are not transferred to Purchaser's control at the Closing;

(d)           Increased or decreased, as applicable, for the value of net underproduction or net overproduction, if any, of gas from Seller's interest in the Properties as a result of pipeline or other imbalances as of the Effective Date, based upon the amount of the net imbalance in MMBtu multiplied by Inside FERC's Gas Market Report Index price for East Texas, Houston Ship Channel   as in effect on the first day of the month of the Target Closing Date; provided, however that:

(i)           Notwithstanding anything to the contrary contained in this Agreement, there shall be no adjustment to the Purchase Price for imbalances between the Seller Parties to the extent that any claim with respect to any such imbalance is assigned to Purchaser; and

(ii)           Except with respect to breaches of the representation set forth in ‎Section 5.7 , the adjustment to the Purchase Price set forth in this ‎Section 2.3(d) shall be in full settlement of all imbalances of any type, and, at Closing, Purchaser shall assume Seller's proportionate share of any imbalance with respect to the Proper ties, including, without limitation, the responsibility for the payment of royalties with respect to such imbalance and any obligation to balance, whether in cash or in kind.

(e)           Increased by the aggregate amount of Hydrocarbon inventories from the Properties in storage on the Effective Date and produced for the account of Seller with respect to the Properties on or prior to the Effective Date, multiplied by the Contract price therefor, or, if there is no applicable Contract, ninety dollars ($90.00) per barrel;

(f)           Except to the extent that such prepaid Taxes are included within the definition of the "Excluded Assets," increased by the net amount of all prepaid expenses (including prepaid Taxes, bonuses, rentals, cash calls to third Person operators, and scheduled payments) less all third Person cash call payments received by Seller as operator to the extent applying to the operation of the Assets after the Effective Date; and

(g)           Adjusted for proceeds and other income attributable to the Assets, Property Costs, and certain other costs attributable to the Assets as follows:

(i)            Decreased by an amount equal to the aggregate amount of the following proceeds received by Seller or any of its Affiliates:

(A)           amounts earned from the sale, during the period from and including the Effective Date through but excluding the Closing Date (such period being referred to as the " Adjustment Period "), of oil, gas, and other Hydrocarbons produced from or attributable to the Properties (net of any (x) royalties, overriding royalties, and other burdens payable out of production of oil, gas, or other Hydrocarbons or the proceeds thereof that are not included in Property Costs; (y) gathering, processing, and trans portation costs paid in connection with sales of oil, gas, or other Hydrocarbons that are not included as Property Costs under ‎Section 2.3(g)(ii); and (z) production Taxes, other Taxes measured by units of production, severance Taxes and any other Propert y Costs, that in any such case are deducted by the purchaser of production, and excluding the effects of any futures, options, swaps, or other derivatives), and

(B)           other income earned with respect to the Assets during the Adjustment Period (pr ovided that for purposes of this ‎Section 2.3(g), no adjustment shall be made for funds received by Seller for the account of third Persons, and excluding any income earned from futures, options, swaps, or other derivatives); and

(ii)           Increased by an amount equal to the amount of all Property Costs, and other amounts (including those Taxes and other amounts expressly excluded from the definition of Property Costs) which are incurred in the ownership and operation of the Assets during the Adjustm ent Period but paid by or on behalf of Seller or any of its Affiliates, except in each case (A) any costs already deducted in the determination of proceeds in ‎Section 2.3(g)(i), (B) Taxes (other than production Taxes and other Taxes measured by units of production and severance Taxes), which are addressed in ‎Section 10.1, and (C) costs attributable to futures, options, swaps or other derivatives, or the elimination of the same pursuant to ‎Section 7.9.

The amount of each adjustment to the Unadjusted Pur chase Price described in ‎Section 2.3(f) and ‎Section 2.3(g) shall be determined in accordance with the United States generally accepted accounting principles (the " Accounting Principles ").

Section 2.4             Ordinary Course Pre-Effective Date Costs Paid and Revenues Received Post-Closing .

(a)           With respect to any revenues earned or Property Costs incurred with respect to the Assets on or prior to the Effective Date but received or paid after the Closing Date:

(i)            Seller shall be entitled to all amounts earned from the sale, during the period up to but excluding the Effective Date, of oil, gas, and other Hydrocarbons produced from or attributable to the Properties, which amounts are received after Closing (net of any (A) royalties, overriding royalties, and other burdens payable out of production of oil, gas, or other Hydrocarbons or the proceeds thereof that are not included in Property Costs; (B) gathering, processing, and transportation costs paid in connection with sales of oi l, gas, and other Hydrocarbons that are not included as Property Costs under ‎Section 2.4(a)(ii); and (C) production Taxes, other Taxes measured by units of production, severance Taxes, and other Property Costs, that in any such case are deducted by the pu rchaser of production), and to all other income earned with respect to the Assets up to but excluding the Effective Date and received after Closing; and

(ii)           Seller shall be responsible for (and entitled to any refunds and indemnities with respect to) all Property Costs incurred up to but excluding the Effective Date that are paid after the Closing.

(b)           Without duplication of any adjustments made pursuant to ‎Section 2.3(g), should any Party or its Affiliates receive after Closing any proceeds or other income to which the other Party is entitled under ‎Section 2.4(a), such Party shall fully disclose, account for, and promptly remit the same to such other Pa rty.

(c)           Without duplication of any adjustments made pursuant to ‎Section 2.3(g), should any Party pay after Closing any Property Costs for which the other Party is responsible under ‎Section 2.4(a), such Party shall reimburse the other Party p romptly after receipt of such other Party's invoice, accompanied by copies of the relevant vendor or other invoice and proof of payment.

(d)           Without limiting the foregoing, Purchaser shall fully disclose, account for, and promptly remit to Seller any amounts relating to item 1 on Schedule 5.2 until such time as, in the opinion of Seller (in the exercise of its sole discretion), it is no longer necessary to hold such amounts in suspense.

"Earned" and "incurred," as used in this Section and ‎Sec tion 2.3, shall be interpreted in accordance with accounting recognition guidance under the Accounting Principles.

Section 2.5              Procedures .

(a)           For purposes of allocating production (and accounts receivable with respect thereto), un der ‎Section 2.3 and ‎Section 2.4, (i) liquid Hydrocarbons shall be deemed to be "from or attributable to" the Properties when they pass through the pipeline connecting into the storage facilities into which they are run or, if there are no such storage fa cilities, when they pass through the LACT units or similar meters at the point of entry into the pipelines through which they are transported from the applicable Lease or Unit, and (ii) gaseous Hydrocarbons shall be deemed to be "from or attributable to" the Properties when they pass through the delivery point sales meters or similar meters at the point of entry into the pipelines through which they are transported.  Seller shall utilize reasonable interpolative procedures to arrive at an allocation of production when exact meter readings are not available.

Surface use fees, insurance premiums, and other Property Costs that are paid periodically shall be prorated based on the number of days in the applicable period falling on or before, or after, the Effective Date.  Production Taxes and similar Taxes measured by units of production, and severance Taxes, shall be prorated based on the amount of Hydrocarbons actually produced, purchased or sold, as applicable, on or before, and after, the Effective Date.

(b)           After Closing, Purchaser shall handle all joint interest audits and other audits of Property Costs covering periods for which Seller is in whole or in part responsible under ‎Section 2.4.  Purchaser shall not agree to any adjustments to previously assessed costs for which Seller is liable, or any compromise of any audit claims to which Seller would be entitled, without the prior written consent of Seller, which consent shall not be unreasonably withheld.  Purchaser shall provide Seller with a copy of all applicable audit reports and written audit agreements received by Purchaser and relating to periods for which Seller is responsible.

Section 3.1             Seller's Title .

(a)           Subject to ‎ Section 13.18, Seller represents and warrants to Purchaser that Seller's title to the Units and Wells shown on Exhibit A-2 and the proved non-producing, undeveloped, probable, and possible locations shown on Exhibit A-2 and depicted on Exhibit A-5 (the " Undeveloped Locations ") is (and as of the Closing Date shall be) Defensible Title as defined in ‎Section 3.2.  This representation and warranty provides Purchaser's exclusive remedy with respect to any Title Defects.

(b)           The Assignment and Bill of Sale to be delivered by Seller to Purchaser at Closing (the " Assignment and Bill of Sale ") shall be in form identical to the assignment attached hereto as Exhibit B and shall contain a special warranty of title to the Leases shown on Exhibit A-1 by, through, and under each Seller Party severally and not jointly, but not otherwise, subject to the Permitted Encumbrances.  Purchaser shall not be entitled to protection under Seller's special warranty of title in the Assignment and Bill of Sale against any Tit le Defect reported by Purchaser to Seller pursuant to this Article 3 or to the extent the same has been cured or removed pursuant to ‎Section 3.5(b).

(c)           With respect to each Undeveloped Location, Purchaser shall not be entitled to protection u nder Seller's representation in ‎Section 3.1(a) against any Title Defect to the extent based upon, or arising out of, (i) Purchaser's change in the surface or bottom hole location of such Undeveloped Location (or the path of the borehole thereof) (A) to or across a location wholly or partially outside of the applicable Unit (or, with respect to Undeveloped Locations located within the Alton Sims lease, the applicable Lease), (B) to or across a location which is not in all respects in compliance with any applicable Laws (including, without limitation, density and spacing rules of the Texas Railroad Commission), or (C) to or across all or any portion of the "Exclusion Acreage" described on Schedule 3.1 ; or (ii) the completion of any Undeveloped Location at depths deeper than the depth limitations applicable to such Undeveloped Location, if any, described on Exhibit A-1 (collectively, the " Undeveloped Assumption Data ").

Section 3.2             Definition of Defensible Title.

(a)           As used in this Agreement, the term " Defensible Title " means that title of the Seller Parties which, subject to the Permitted Encumbrances:

(i)            Entitles all of the Seller Parties, collectively, to receive (after satisfaction of all royalties, overriding royalties, nonparticipating royalties, net profits interests, or other similar burdens on or measured by production of oil and gas), not less than the "net revenue interest" share shown in Exhibit A-2 of all oil, gas, and other minerals produced, saved, and marketed from such Unit, Well, or Undeveloped Location, except decreases in connection with those operations in which any Seller Party may be a nonconsenting co-owner (provided that, in the event of a decrease due to an actual election of non-consent by a Seller Party in which a third Person is entitled to all or a portion of such Seller Party's interests, such decrease is reflected on Exhibit A-2 ) decreases resulting from reversion of interest to co-owners with respect to operations in which such co-owners elected not to consent (to the extent reflected in Exhibit A-2 ), decreases resulting from the establishment or amendment of pools or units, decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past under deliveries, and except as otherwise stated in Exhibit A-2 ;

(ii)            Obligates all of the Seller Parties, collectively, to bear a percentage of the costs and expenses for the maintenance and development of, and operations relating to, any Unit, Well, or Undeveloped Location not greater than the "working interest" shown in Exhibit A-2 , except as stated in Exhibit A-2 and except increases resulting from contribution requirements with respect to defaulting or non-consenting co-owners under applicable operating agreements or applicable Law and increases that are accompanied by at least a proportionate increase in Seller's net revenue interest; and

(iii)           Is free and clear of liens, encumbrances, obligations, or defects, other than Permitted Encumbrances.

(b)           As used in this Agreement, the term " Title Defect " means any lien, charge, encumbrance, obligation, or defect, including, without limitation, a discrepancy in net revenue interest or working interest that causes a b reach of Seller's representation and warranty in ‎Section 3.1.

Section 3.3              Definition of Permitted Encumbrances .  As used herein, the term " Permitted Encumbrances " means any or all of the following:

(a)           Lessors' royalties and any overriding royalties, reversionary interests, back-in interests, and other burdens to the extent that they do not, individually or in the aggregate, reduce Seller's net revenue interest below that shown in Exhibit A-2 or increase Seller's working interest above that shown in Exhibit A-2 without a corresponding increase in the net revenue interest;

(b)           All leases, unit agreements, pooling agreements, operating agreements, production sales contracts, division orders, farmouts, exploration agreements, carried interests, sales agreements, royalty or overriding royalty agreements, and other contracts, agreements, and instruments applicable to the Assets, including provisions for penalties, suspensions, or forfeitures contained therein, to the extent that they do not, individually or in the aggregate, reduce Seller's net revenue interest below that shown in Exhibit A-2 or increase Seller's working interest above that shown in Exhibit A-2 without a corresponding increase in the net revenue interest;

 (c)           Subject to ‎Section 3.6, rights of first refusal, preferential rights to purchase, and similar rights with respect to the Assets;

(d)           Third-party consent requirements and similar restrictions (i) which are not applicable to the sale of the Assets contemplated by this Agreement, (ii) with respect to which waivers or consents are obtained from the appropriate Persons prior to the Closing Date, (iii) with respect to which the appropriate time period for asserting the right has expired, (iv) which need not be satisfied prior to a transfer, (v) which are not Material Consents, or (vi) which relate to Excluded Records;

(e)           Liens for Taxes or assessments not yet delinquent or, if delinquent, being contested in good faith by appropriate actions;

(f)           Materialman's, mechanic's, repairman's, employee's, contractor's, operator's, and other similar liens or charges arising in the ordinary course of business for amounts not yet delinquent (including any amounts being withheld as provided by Law), or if delinquent, being contested in good faith by appropriate actions;

(g)           All rights to consent, by required notices to, filings with, or other actions by Governmental Authorities in connection with the sale or conveyance of oil and gas leases or rights or interests therein if they are customarily obtained subsequent to the sale or conveyance;

(h)           Rights of reassignment arising upon final intention to abandon or release the Assets, or any of them;

(i)            Easements, rights-of-way, covenants, servitudes, permits, surface leases, and other rights in respect of surface operations to the extent that they do not reduce Seller's net revenue interest below that shown on Exhibit A-2 or increase Seller's working interest beyond that shown on Exhibit A-2 without a corresponding increase in net revenue interest;

(j)            Any actual or asserted termination of Seller's title to any Lease held by production as a consequence of the failure to conduct operations, cessation of production, or insufficient production over any period prior to the Closing Date unless the lessor thereunder has asserted that such Lease has terminated, whether by direct communication, refusal to accept payment of royalty, shut-in royalty, or other amounts calculable as a share of production from such Lease, or otherwise;

(k)           All rights reserved to or vested in any Governmental Authorities to control or regulate any of the Assets in any manner or to assess Tax with respect to the Assets, the ownership, use or operation thereof, or revenue, income, or capital gains with respect thereto, and all obligations and duties under all applicable Laws of any such Governmental Authority or under any franchise, grant, license, or permit issued by any Governmental Authority;

(l)            The liens and encumbrances set forth on Schedule 3.3 , and any other lien, charge, or other encumbrance on or affecting the Assets which is expressly waived, assumed, bonded, or paid by Purchaser at or prior to Closing or which is discharged by Seller at or prior to Closing;

(m)           Any lien or trust arising in connection with workers' compensation, unemployment insurance, pension, or employment laws or regulations;

(n)           Assertions that Seller's files lack information (including, without limitation, title opinions);

(o)           Failure to recite marital status in a document or omissions of successors or heirship or estate proceedings, unless Purchaser provides affirmative evidence that such failure or omission has resulted in another Person's actual and superior claim of title to the relevant Property and either (i) such other Person has asserted an actual and superior claim of title to the relevant Property or (ii) less than two (2) years have elapsed since the date of such document;

(p)           Lack of a survey, unless a survey is required by applicable Law;

(q)           Lack of corporate or other entity authorization absent reasonable evidence of an actual claim of superior title from a third Person attributable to such alleged lack of authorization;

(r)            Failure to record assignments of any Property between any Seller Parties in the county in which such Property is located;

(s)           Matters for which the applicable statue of limitations for assertion thereof has expired (including, without limitation, title by limitations or adverse possession);

(t)            Matters cured by the acquisition by Purchaser of all right, title, and interest of all Seller Parties in and to the Assets (including requirements for stipulations between the Seller Parties or their respective predecessors in interest) to the extent that the same do not, individually or in the aggregate, reduce Seller's collective net revenue interest below that shown in Exhibit A-2 or increase Seller's collective working interest above that shown in Exhibit A-2 without a corresponding increase in the net revenue interest;

(u)           Unreleased instruments (including leases covering oil, gas, and other minerals), absent specific evidence that such instruments continue in force and effect and constitute a superior claim of title with respect to the Wells, Units, or Undeveloped Locations shown on Exhibit A-2 ;

(v)           Leases or other instruments entitling a third Person to the rights to coal, lignite, sulphur, uranium, or any other mineral, and operations (including, without limitation, reclamation operations) conducted by third Persons pursuant thereto absent specific evidence that existence thereof, and operations currently being conducted pursuant thereto, materially interfere with operations (i) currently being conducted by Seller or (ii) for which Seller has specific plans existing as of the date hereof with respect to the Wells and Units shown on Exhibit A-2 ;

(w)           Depth severances or any other change in the working interest or net revenue interest of Seller with depth to the extent that they do not reduce Seller's net revenue interest below that shown on Exhibit A-2 or increase Seller's working interest beyond that shown on Exhibit A-2 without a corresponding increase in net revenue interest;

(x)           Any matters reflected on Exhibit A-2 or Schedule 3.3 ; and

(y)           Any other liens, charges, encumbrances, defects, or irregularities which do not, individually or in the aggregate, materially detract from the value of or materially interfere with the use or ownership of the Assets subject thereto or affected thereby (as currently used or owned) and which would be accepted by a reasonably prudent purchaser engaged in the business of owning and operating oil and gas properties, including, without limitation, the absence of any lease amendment or consent by any royalty interest or mineral interest holder authorizing the pooling of any leasehold interest, royalty interest, or mineral interest, matters for which Seller owns a protection or top lease or other instrument, and the failure of Exhibits A-1 and A-2 to reflect any lease or any unleased mineral interest where the owner thereof was treated as a non-participating co-tenant during the drilling of any well.

Section 3.4            Allocated Values .   Schedule 3.4 sets forth the agreed allocation of the Unadjusted Purchase Price among the Properties for purposes of Seller's title representation in this Article 3.  The " Allocated Value " for any Well, Unit, or Undeveloped Location equals the portion of the Unadjusted Purchase Price that is allocated to such Well, Unit, or Undeveloped Location on Schedule 3.4 , increased or decreased by a share of each adjustment to the Unadjusted Purchase Price under ‎Section 2.3(c), ‎(d), ‎(e), ‎(f), and ‎(g).  The share of each adjustment allocated to a particular Well, Unit, or Undeveloped Location shall be obtained by allocating that adjustment among the various Assets on a pro-rata basis in proportion to the Unadjusted Purchase Price allocated to each such Asset on Schedule 3.4 .  Seller has accepted such Allocated Values for purposes of this Article 3, but otherwise makes no representation or warranty as to the accuracy of such values.  Notwithstanding anything to the contrary contained in this Agreement, the Allocated Value of the Assets other than the Leases, Wells, and Units (including, without limitation the Midstream Assets) if any, shall not exceed twenty-five million dollars ($25,000,000), whether by the initial allocation of value made pursuant to this ‎Section 3.4, any adjustments thereto, or otherwise; provided, however , that to the extent that any adjustment to the Unadjusted Purchase Price would cause the Allocated Value of such other Assets to exceed twenty-five million dollars ($25,000,000), the amount of such excess shall be allocated to each of the other Wells, Units, and Undeveloped Locations to which a portion of the Unadjusted Purchase Price was allocated in proportion to the relationship that the Allocated Value for such Well, Unit, or Undeveloped Location bears to the aggregate Allocated Values of such Wells, Units, and Undeveloped Locations.

Section 3.5              Notice of Title Defects; Defect Adjustments .

(a)           To assert a claim arising out of a breach of ‎Section 3.1, Purchaser must deliver a defect claim notice or notices to Seller on or before the Cut-Off Date; provided, however , that Purchaser shall use its commercially reasonable efforts to deliver a defect claim notice with respect to a specific alleged Title Defect on or before five (5) Business Days after Purchaser obtains knowledge of the existence of such Title Defect, even if the date of delivery of such defect claim notice is prior to the Cut-Off Date.  Each such notice shall be in writing and shall include:

(i)           a description of the alleged Title Defect(s);

(ii)           the Units, Wells, or Undeveloped Locations affected;

(iii)           the Allocated Values of the Units, Wells, or Undeveloped Locations subject to the alleged Title Defect(s);

(iv)           true and complete copies of any documentation supporting the existence, nature, and basis of the alleged Title Defect(s); and

(v)           the amount by which Purchaser reasonably believes the Allocated Values of those Units, Wells, or Undeveloped Locations are reduced by the alleged Title Defect(s) and the computations and information upon which Purchaser's belief is based.

PURCHASER SHALL BE DEEMED TO HAVE WAIVED ALL BREACHES OF ‎ SECTION 3.1 OF WHICH SELLER HAS NOT BEEN GIVEN NOTICE ON OR BEFORE THE CUT-OFF DATE.

(b)           Seller shall have the right, but not the obligation, to attempt, at Seller's sole cost, to cure or remove on or before sixty (60) days after the Cut-Off Date any Title Defects of which Seller has been advised by Purchaser.  No reduction shall be made in the Unadjusted Purchase Price with respect to a Title Defect if Seller has provided notice at least five (5) Business Days after the Cut-Off Date of Seller's intent to attempt to cure the Title Defect.  If the Title Defect is not cured at the end of the sixty (60) day period, the adjustment required under this Article 3 shall be made pursuant to ‎Section 2.3(a).  Seller's election to attempt to cure a Title Defect shall not constitute a waiver of any rights of Seller under this Article 3, including, without limitation, Seller's right to dispute the existence, nature or value of, or cost to cure, the Title Defect.

(c)           With respect to each Unit, Well, or Undeveloped Location affected by Title Defects reported under ‎Section 3.5(a), the Unit, Well, or Undeveloped Location shall be assigned at Closing, subject to all uncured Title Defects, and, subject to Seller's election under ‎Section 3.5(b), the Unadjusted Purchase Price shall be reduced by an amount (the " Title Defect Amount ") e qual to the reduction in the Allocated Value for such Unit, Well, or Undeveloped Location caused by such Title Defects, as determined pursuant to ‎Section 3.5(e).  Notwithstanding the foregoing provisions of this ‎Section 3.5(c), no reduction shall be made in the Unadjusted Purchase Price with respect to any Title Defect for which Seller at its election executes and delivers to Purchaser a written indemnity agreement, in form and substance reasonably satisfactory to Purchaser, under which Seller agrees to f ully, unconditionally, and irrevocably indemnify and hold harmless Purchaser and its successors and assigns from any and all Damages (irrespective of any limitation on amount contained in ‎Section 12.2(d)(iii)) arising out of or resulting from such Title D efect.

(d) ‎           SECTION 3.5(C) SHALL, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BE THE EXCLUSIVE RIGHT AND REMEDY OF PURCHASER WITH RESPECT TO SELLER'S BREACH OF ITS WARRANTY AND REPRESENTATION IN ‎SECTION 3.1.  EXCEPT AS SPECIFICALLY PROVIDED IN ‎SECTION 3.5(C) AND THE ASSIGNMENT AND BILL OF SALE, PURCHASER RELEASES, REMISES, AND FOREVER DISCHARGES EACH SELLER PARTY AND ITS RESPECTIVE AFFILIATES AND ALL SUCH PARTIES' MEMBERS, PARTNERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENT S, ADVISORS, AND REPRESENTATIVES FROM ANY AND ALL SUITS, LEGAL OR ADMINISTRATIVE PROCEEDINGS, CLAIMS, DEMANDS, DAMAGES, LOSSES, COSTS, LIABILITIES, INTEREST, OR CAUSES OF ACTION WHATSOEVER, IN LAW OR IN EQUITY, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT NOW OR SUBSEQUENTLY MAY HAVE, BASED ON, RELATING TO OR ARISING OUT OF, ANY TITLE DEFECT.

 (e)           The Title Defect Amount resulting from a Title Defect shall be determined as follows:

(i)             if Purchaser and Seller agree on the Title Defect Amount, that amount shall be the Title Defect Amount;

(ii)            if the Title Defect is a lien, encumbrance, or other charge which is undisputed and liquidated in amount, then the Title Defect Amount shall be the amount necessary to be paid to remove the Title Defect from Seller's interest in the affected Unit, Well, or Undeveloped Location;

(iii)           if the Title Defect represents a discrepancy between (A) the net revenue interest for any Unit, Well, or Undeveloped Location and (B) the net revenue interest or percentage stated on Exhibit A-2 , then the Title Defect Amount shall be the product of the Allocated Value of such Unit, Well, or undeveloped location multiplied by a fraction, the numerator of which is the net revenue interest or percentage ownership decrease and the denominator of which is the net revenue interest or percentage ownership stated on Exhibit A-2 , provided that if the Title Defect does not affect the Unit, Well, or Undeveloped Location throughout its entire product ive life, or, with respect to a Undeveloped Location, if the Hydrocarbons (if any) attributable to such Undeveloped Location would not be produced until a future date, the Title Defect Amount determined under this ‎Section 3.5(e)(iii) shall be reduced to t ake into account the applicable time period only;

(iv)           if the Title Defect represents an obligation, encumbrance, burden, or charge upon or other defect in title to the affected Unit, Well, or Undeveloped Location of a type not described in sub sections ‎(i), ‎(ii), or ‎(iii) above, the Title Defect Amount shall be determined by taking into account the Allocated Value of the Unit, Well, or Undeveloped Location so affected, the portion of Seller's interest in the Unit, Well, or Undeveloped Locatio n affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the affected Unit, Well, or Undeveloped Location, the values placed upon the Title Defect by Purchaser and Seller, and such other factors as are necessary to make a proper evaluation;

(v)           notwithstanding anything to the contrary in this Article 3, (A) an individual claim for a Title Defect for which a claim notice is given prior to the Cut-Off Date shall only generate an adjustment to the Unadjusted Purchase Price under this Article 3 if the Title Defect Amount with respect thereto exceeds Two-Hundred Thousand dollars ($200,000), (B) the aggregate Title Defect Amounts attributable to the effects of all Title Defects upon any given Unit, Well, or Undeveloped Location shall not exceed the Allocated Value of such Unit, Well, or Undeveloped Location and (C) there shall be no adjustment to the Unadjusted Purchase Price for Title Defects unless and until the aggregate Title Defect Amounts that are entitled to an adjustment under ‎Section 3.5(e)(v)(A) and for which claim notices were timely delivered in accordance with the requirements of this Article 3 exceed Two Million dollars ($2,000,000), after which the Unadjusted Purchase Price may be adjusted for all Title Defect Amounts that are entitled to an adjustment under ‎Section 3.5(e)(v)(A);

(vi)           if a Title Defect is reasonably susceptible of being cured, the Title Defect Amount determined under subs ections ‎(iii) or ‎(iv) above shall not be greater than the reasonable cost and expense of curing such Title Defect; and

(vii)           the Title Defect Amount with respect to a Title Defect shall be determined without duplication of any costs or losses (A) included in another Title Defect Amount hereunder or (B) for which Purchaser otherwise receives credit in the calculation of the Purchase Price.

(f)            If Seller and Purchaser are unable to agree upon a Title Defect Amount (or the adjustment to the Unadjusted Purchase Price to be made pursuant thereto) on or before the Cut-Off Date, then, subject to ‎Section 3.5(b), Seller's good faith estimate shall be used to determine the Title Defect Amount pending resolution of the dispute pursuant to this ‎Section 3.5(f), and the Title Defect Amounts in dispute shall be exclusively and finally resolved by arbitration pursuant to this ‎Section 3.5(f) (subject to ‎Section 3.5(b)).  During the 10-day period following the Cut-Off Date, Title Defect Amounts i n dispute shall be submitted to a title attorney with at least 10 years' experience in oil and gas titles in Texas as selected by mutual agreement of Purchaser and Seller, or, absent such agreement during the 10-day period, by the Houston office of the American Arbitration Association (the " Title Arbitrator ").  Likewise, if by the end of the sixty (60) day cure period under ‎Section 3.5(b), Seller has failed to cure any Title Defects which it provided notice that it would attempt to cure, and Seller and Pur chaser have been unable to agree on the Title Defect Amounts for such Title Defects (or their existence), the Title Defect Amounts in dispute shall be submitted to the Title Arbitrator.  The Title Arbitrator shall not have worked as an employee or outside counsel for any Party or its Affiliates during the five (5) year period preceding the arbitration or have any financial interest in the dispute.  The arbitration proceeding shall be held in Houston, Texas and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, to the extent such rules do not conflict with the terms of this Section.  The Title Arbitrator's determination shall be made within forty-five (45) days after submission of the matters in dis pute and shall be final and binding upon the Parties, without right of appeal.  In making his determination, the Title Arbitrator shall be bound by the rules set forth in ‎Section 3.5(e) and may consider such other matters as in the opinion of the Title Ar bitrator are necessary or helpful to make a proper determination.  Additionally, the Title Arbitrator may consult with and engage disinterested third Persons to advise the arbitrator, including title attorneys from other states and petroleum engineers.  The Title Arbitrator shall act as an expert for the limited purpose of determining the specific disputed Title Defect Amounts submitted by any Party and may not award damages, interest, or penalties to any Party with respect to any matter.  Seller and Purchaser shall each bear its own legal fees and other costs of presenting its case.  Purchaser shall bear one-half of the costs and expenses of the Title Arbitrator and Seller shall be responsible for the remaining one-half of the costs and expenses.

Section 3.6              Consents to Assignment and Preferential Rights to Purchase .

(a)           Promptly after the date hereof, Seller shall prepare and send (i) notices to the holders of any required consents to assignment that are set forth on Schedule 5.8 requesting consents to the transactions contemplated by this Agreement and (ii) notices to the holders of any applicable preferential rights to purchase or similar rights that are set forth on Schedule 5.8 in compliance with the terms of such rights and requesting waivers of such rights.  Any preferential purchase right must be exercised subject to all terms and conditions set forth in this Agreement, including the successful Closing of this Agreement pursuant to Article 9.  The consideration payable under this Agreement for any particular Asset for purposes of preferential purchase right notices shall be the Allocated Value for such Asset.  Seller shall use commercially reasonable efforts to cause such consents to assignment and waivers of preferential rights to purchase or similar rights (or the exercise thereof) to be obtained and delivered prior to Closing, provided that Seller shall not be required to make payments or undertake obligations to or for the benefit of the holders of such rights in order to obtain the required consents and waivers.  Purchaser shall cooperate with Seller in seeking to obtain such consents to assignment and waivers of preferential rights.

(b)           In no event shall there be transferred at Closing any Asset (i) for which a consent requirement providing that transfer of the Asset without the consent will result in a termination or other material impairment of any rights in relation to the Asset pursuant to the express terms of the instrument containing such restriction without the consent, or (ii) that is a Lease if a consent to assign requirement contained in such Lease has not been satisfied (in the case of either (i) or (ii), above, a " Material Consent "); provided, however , that restrictions upon the pledge, mortgage, or other granting of a lien or security interest on an Asset shall not be considered to be a Material Consent.  In cases in which the Asset subject to such a Material Consent is a Contract and Purchaser is assigned the Lease(s) or other Asset(s) to which the Contract relates, but the Contract is not transferred to Purchaser due to the unwaived Material Consent requirement, Purchaser shall continue after Closing to use commercially reasonable efforts to obtain the consent so that such Contract can be transferred to Purchaser upon receipt of the consent, the Contract shall be held by Seller for the benefit of Purchaser, Purchaser shall pay all amounts due thereunder, and Purchaser shall be responsible for the performance of any obligations under such Contract to the extent that Purchaser has been transferred the Assets necessary to perform under such Contract until such consent is obtained.  In cases in which the Asset subject to such a Material Consent is a Lease and the third Person consent to the transfer of the Lease is not obtained by Closing, Purchaser may elect to treat the unsatisfied Material Consent requirements as a Title Defect (without regard to the limitations set forth in ‎Section 3.5(e)(v) and receive the appropriate adjustment to the Unadjusted Purchase Price under ‎Section 2.3 by giving Seller written notice thereof in accordance with ‎Section 3.5(a), except that such notice may be given on or before six (6) days prior to the Target Closing Date.  If an unsatisfied Material Consent requirement with respect to which an adjustment to the Unadjusted Purchase Price is made under ‎Section 3.5 is subsequently satisfied prior to the date of the final adjustment to the Unadjusted Purchase Price under ‎Section 9.4(b), Seller shall be reimbursed in that final adjustment for the amount of any previous deduction from the Unadjusted Purchase Price, the Lease, if not previously transferred to Purchaser, shall be transferred, and the provisions of this ‎Section 3.6 shal l no longer apply to such Material Consent requirement.

 (c)           If any preferential right to purchase any Assets is exercised prior to Closing, the Purchase Price shall be decreased by the Allocated Value for such Assets, the affected Assets shall not be transferred at Closing, and the affected Assets shall be deemed to be deleted from Exhibits A-1 through A-4 to this Agreement, as applicable, for all purposes.

(d)           Should a third Person fail to exercise or waive its preferenti al right to purchase as to any portion of the Assets prior to Closing and the time for exercise or waiver has not yet expired, then subject to the remaining provisions of this ‎Section 3.6, such Assets shall be included in the transaction at Closing, there shall be no adjustment to the Purchase Price at Closing with respect to such preferential right to purchase, and Seller shall, at its sole expense, continue to use commercially reasonable efforts to obtain the waiver of the preferential purchase rights and shall continue to be responsible for the compliance therewith.

(e)           Should the holder of the preferential purchase right validly exercise same (whether before or after Closing), then:

(i)            Seller shall convey the affected Assets to the holder on the terms and provisions set out in the applicable preferential right provision.  If the affected Assets were previously transferred to Purchaser at Closing, Purchaser agrees to transfer the affected Assets back to Seller on the terms and provisions set out herein to permit Seller to comply with this obligation (or, if Seller so requests, shall transfer the affected Assets directly to the holder on the terms and provisions set out in the applicable preferential purchase right provision);

(i i)           Pursuant to ‎Section 2.3(b), Seller shall credit Purchaser with the Allocated Value of any Asset transferred pursuant to ‎Section 3.6(e)(i);

(iii)           Seller shall be entitled to the consideration paid by such holder;

(iv)           If the affected Assets were previously transferred to Purchaser at Closing, Purchase Price adjustments calculated in the same manner as the adjustments in Section 2.3(g) shall be calculated for the period from the Closing Date to the date of the reconveyance and the net amount of such adjustment, if positive, shall be paid by Purchaser to Seller and, if negative, by Seller to Purchaser; and

(v)           If the affected Assets were previously transferred to Purchaser at Closing, Seller shall assume all ob ligations assumed by Purchaser with respect to such Assets under ‎Section 12.1, and shall indemnify, defend, and hold harmless Purchaser from all Damages incurred by Purchaser caused by or arising out of or resulting from the ownership, use, or operation of such Asset from the Closing Date to the date of the reconveyance, excluding, however, any such Damages (irrespective of any limitation on amount contained in ‎Section 12.2(d)(iii)) resulting from any violation of any Law caused by the actions of, or impl ementation of policies or procedures of, Purchaser, breach of any contract by Purchaser after Closing, or gross negligence or willful misconduct of Purchaser after Closing.

 (f)           If any Material Consent requirement that is unsatisfied as of the Closing Date is not subsequently satisfied prior to the date of the final adjustment to the Unadjusted Purchase Price under ‎Section 9.4(b) and has not otherwise been transferred to Purchaser, Purchaser may, by giving Seller written notice thereof on or before five (5) Business Days prior to the date of the final adjustment to the Unadjusted Purchaser Price under ‎Section 9.4(b), elect (i) to treat the Asset subject to such unsatisfied Material Consent requirement as an Excluded Asset (whereupon such Asset shall be deemed to have been included in the definition of the term "Excluded Asset," and the terms and provisions of this ‎Section 3.6 shall no longer apply to such Asset), or (ii) to cause Se ller to assign the Asset subject to such unsatisfied Material Consent requirement to Purchaser notwithstanding the unsatisfied Material Consent requirement, subject, however, to the agreement of Purchaser to save, indemnify, and hold harmless Seller Group under ‎Section 12.2(a) from and against any Damages (excluding, however, the application of ‎Section 12.2(d)(ii) and ‎Section 12.2(d)(iii)) incurred or suffered by Seller Group caused by, arising out of, or resulting from, the transfer of such Asset without consent, in which case the amount of any downward adjustment to the Unadjusted Purchase Price made pursuant to ‎Section 3.6(b) shall be credited to Seller pursuant to ‎Section 9.4(b).

Section 3.7              Limitations on Applicability .  The representa tion and warranty in ‎Section 3.1 shall terminate as of the Cut-Off Date and shall have no further force and effect thereafter, provided there shall be no termination of Purchaser's or Seller's rights under ‎Section 3.5 with respect to any bona fide Title Defect claim properly reported on or before the Cut-Off Date.

Section 4.1              Environmental Laws .  

(a)           Subject to ‎Section 13.18, each Seller Party severally represents and warrants that (i) the Prop erties and Surface Rights, and each Seller Party's ownership and operation of the Properties and Surface Rights is, since the Effective Date has been, and as of the Closing Date shall be, in compliance with all applicable Environmental Laws except such failures to comply as would not, individually or in the aggregate, have a Material Adverse Effect; (ii) no written notice from any Person has been delivered to any Seller Party which asserts the existence of an Environmental Defect on or before the Effective Date and relating to the Lands or any other Property or Surface Right that constitutes a violation of Environmental Laws or gives rise to or results in any common law or other liability of Seller to any Person; and (iii) with regard to the Properties and Surface Rights, Seller has not entered into, or is subject to, any agreements, consents, orders, decrees, judgments, or other directives of any Governmental Authority based on any Environmental Laws that require any change in the conditions of any of the Properties or Surface Rights on or before the Effective Date.  As used in this Agreement, the term " Environmental Laws " means, as the same have been amended to the date hereof, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sec. 9601 et seq .; the Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901 et seq .; the Federal Water Pollution Control Act, 33 U.S.C. Sec. 1251 et seq .; the Clean Air Act, 42 U.S.C. Sec. 7401 et seq .; the Hazardous Materials Transportation Act, 49 U.S.C. Sec. 5101 et seq .; the Toxic Substances Control Act, 15 U.S.C. Sec.Sec. 2601 through 2629; the Oil Pollution Act, 33 U.S.C. Sec. 2701 et seq .; the Emergency Planning and Community Right to Know Act, 42 U.S.C. Sec. 11001 et seq .; and the Safe Drinking Water Act, 42 U.S.C. Sec.Sec. 300f through 300j, in each case as amended to the date hereof, and all similar Laws as of the date hereof of any Governmental Authority having jurisdiction over the property in question, together with common law claims or theories of liability in negligence, trespass, nuisance, strict liability or any other common law theory, in each case addressing or relating to pollution or protection of the environment, or public or employee health, safety, or welfare, and all regulations, orders, decrees, or judgments implementing the foregoing.

(b)           Purchaser acknowledges that the Assets have been used for the exploration, development, and production of Hydrocarbons and that there may be petroleum, produced water, wastes, or other substances or materials located in, on, or under the Properties or associated with the Assets.  Equipment and sites included in the Assets may contain hazardous materials, including naturally occurring radioactive material (" NORM ").  NORM may affix or attach itself to the inside of wells, materials, and equipment as scale, or in other forms.  The wells, materials, and equipment located on the Properties or included in the Assets may contain hazardous materials, including NORM.  Hazardous materials, including NORM, may have come into contact with various environmental media, including water, soils, or sediment.  Notwithstanding anything to the contrary in this Section or elsewhere in this Agreement, Seller makes no, and hereby disclaims any, representation or warranty, express or implied, with respect to the presence or absence of NORM, asbestos, mercury, drilling fluids and chemicals, and produced waters and Hydrocarbons in or on the Properties or Equipment in quantities typical for oilfiel d operations in the areas in which the Properties and Equipment are located, except to the extent the presence of the same causes a breach of Seller's representation in ‎Section 4.1.

Section 4.2              Environmental Defects .  As used in this Agreement, the term " Environmental Defect " means any matter that causes a breach of Seller's representation in ‎Section 4.1.

Section 4.3              Environmental Review .

(a)           From and after the date of this Agreement, and prior to the Cut-Off Date, Purchaser shall have the right to conduct, or cause a reputable environmental consulting or engineering firm approved in advance in writing by Seller, such approval not to be unreasonably withheld (the " Environmental Consultant "), to conduct an environmental review of the Properties (the " Environmental Review ").

(b)           With respect to an Environmental Review conducted prior to Closing, prior to commencing its Environmental Review, Purchaser shall furnish to Seller for Seller's review a written plan setting forth the proposed time, scope, and approximate location of the activities to be conducted pursuant to the Environmental Review, which plan shall include a description of the activities to be conducted, a description of the approximate locations of such activities, and the name of the Environmental Consultant, and a list of any sampling, boring, drilling, or other invasive activity to be conducted (the " Environmental Review Plan ").  Purchaser shall not begin its Environmental Review until Seller has approved the Environmental Review Plan, which approval shall not be unreasonably withheld or delayed; provided, however , that Seller may withhold its consent to any sampling, boring, drilling, operation of machinery, or other invasive activity proposed to be conducted in the Environmental Review Plan if Seller reasonably believes that such activities would substantially interfere with Seller's ownership or operation of the Assets or violate any Law.  For any Property not operated by Seller, Seller shall, upon written notice from Purchaser, use commercially reasonable efforts to obtain permission from the operator of such Property for Purchaser to conduct its Environmental Review, but, provided that Seller has exercised such commercially reasonable efforts, Seller shall have no liability to Purchaser for failure to obtain such operator's permission.  Purchaser shall not contact any such operator without the written consent of Seller, which consent shall not be unreasonably withheld or delayed.  Seller shall have the right to have one or more representatives accompany Purchaser and the Environmental Consultant at all times during the Environmental Review (whether or not such Environmental Review is conducted before, on, or after Closing).

(c)            In performing its Environmental Review, Purchaser shall (and shall cause the Environmental Consultant to): (i) perform all work in a safe and workmanlike manner; (ii) perform all work in such a way as to not unnecessarily and unreasonably interfere with Seller's operations; (iii) comply with all applicable Laws; (iv) comply in all respects with the Environmental Review Plan (except as may be agreed to in a writing executed by the Parties); (v) at its sole cost, risk, and expense, restore the Properties to their condition prior to the commencement of the Environmental Review, and, unless Seller requests otherwise, promptly dispose of all drill cuttings, corings, or other wastes generated in the course of the Environmental review; and (vi) with respect to any samples taken, take split samples and provide one of such samples, properly labeled and identified, to Seller free of charge.

(d)           Purchaser and its Affiliates shall maintain, and shall cause their respective officers, directors, employees, contractors, consultants (including the Environmental Consultant), and other advisors to maintain, all information, reports (whether interim, draft, final, or otherwise), data, work product, and other matters (including the fact of the existence of the Environmental Review) obtained or generated from or attributable to the Environmental Review (the " Environmental Information ") strictly confidential pursuant to the terms of the Confidentiality Agreement (as such term is defined in ‎Section 7.1).  Unless oth erwise required by Law, Purchaser may not use the Environmental Information except in connection with the transaction contemplated by this Agreement.  If this Agreement is terminated prior to the Closing, Purchaser shall deliver the Environmental Information to Seller, which Environmental Information shall become the sole property of Seller.  Without limiting any of the foregoing, the Environmental Information shall be subject to the Confidentiality Agreement.

Section 4.4              Notice of Environmental Defects; Defect Adjustments .

(a)           To assert a claim arising out of a breach of ‎Section 4.1, Purchaser must deliver a claim notice or notices to Seller on or before the Cut-Off Date; provided, however , that Purchaser shall use commercially reasonable efforts to deliver a defect claim notice with respect to a specific alleged Environmental Defect on or before five (5) Business Days after Purchaser obtains knowledge of the existence of such alleged Environmental Defect, even if the date of delivery of such defect claim notice is prior to the Cut-Off Date.  Each such notice shall be in writing and shall include:

(i)            a description of the alleged Environmental Defect(s), including the specific citation of the provisions of the Environmental Laws alleged to be violated and the facts that substantiate such violation;

(ii)           the Properties affected, including, if available, a site plan showing the location of all sampling events, boring logs, and other field notes describing the sampling methods utilized and field conditions observed, and the chain of custody documents and laboratory reports for any samples taken;

(iii)           Purchaser's estimate of the Environmental Defect Amount as calculated pursuant to ‎Section 4.4(e); and

(iv)           true and complete copies of any documents and other Environmental Information supporting the existence of the alleged Environmental Defects and the computations and information upon which Purchaser's estimate of the Environmental Defect Amount is based.

PURCHASER SHALL BE DEEMED TO HAVE WAIVED ALL BREACHES OF ‎SECTION 4.1 OF WHICH SELLER HAS NOT BEEN GIVEN NOTICE PURSUANT TO THIS ‎SECTION 4.4 ON OR BEFORE THE CUT-OFF DATE .   SELLER'S REPRESENTAT ION IN ‎SECTION 4.1 SHALL NOT SURVIVE THE CUT-OFF DATE.

(b)           Seller shall have the right, but not the obligation, to attempt, at Seller's sole cost, to cure or remove, on or before sixty (60) days (or such other period of time as the Parties may agree to in writing) after the Cut-Off Date, any Environmental Defect of which Seller has been advised by Purchaser pursuant to ‎Section 4.4(a).  No reduction in the Unadjusted Purchase Price shall be made with respect to a notice of Environmental Defects if Seller has provided notice at least five (5) Business Days after the Cut-Off Date of Seller's intent to attempt to cure the Environmental Defect.  If the Environmental Defect is not cured at the end of such period of time, the adjustment required under this Article 4 shall be made pursuant to ‎Section 2.3(a).  Seller's election to attempt to cure an alleged Environmental Defect shall not constitute a waiver of Seller's right to dispute the existence, nature, or value of, or cost to cure, the alleged Env ironmental Defect.

(c)           With respect to each Property affected by an Environmental Defect reported in accordance with ‎Section 4.4(a), the Property shall be assigned at Closing, subject to all uncured Environmental Defects, and, subject to ‎Sect ion 4.4(b), the Unadjusted Purchase Price shall be reduced by an amount (the " Environmental Defect Amount ") determined pursuant to ‎Section 4.4(e).  Notwithstanding the foregoing provisions of this ‎Section 4.4(c), no reduction shall be made in the Unadjus ted Purchase Price with respect to any Environmental Defect for which Seller, at its election, executes and delivers to Purchaser a written indemnity agreement, in form and substance reasonably satisfactory to Purchaser, pursuant to which Seller agrees to fully, unconditionally, and irrevocably indemnify, defend, and hold harmless Purchaser and its successors and assigns from any and all Damages (irrespective of any limitation on amount contained in ‎Section 12.2(d)(iii)) arising out of, or resulting from, such Environmental Defect.

(d) ‎          SECTION 4.4(C) AND ‎SECTION 12.2(B) (WITH RESPECT TO THE RETAINED SELLER OBLIGATIONS) SHALL, TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, BE THE EXCLUSIVE RIGHT AND REMEDY OF PURCHASER WITH RESPECT TO SELLER'S BREACH OF ITS WARRANTY AND REPRESENTATION IN ‎SECTION 4.1 AND, THE RELEASE OF MATERIALS INTO THE ENVIRONMENT, THE PROTECTION OF THE ENVIRONMENT OR HEALTH OR ANY OTHER MATTERS THAT PURCHASER COULD HAVE INCLUDED IN A NOTICE DELIVERED PURSUANT TO ‎SECTION 4.4(A).  PURCHASER ACKNOWLEDGES THAT, EXCEPT TO THE EXTENT SET FORTH IN ‎SECTION 4.1(A) SELLER HAS NOT MADE, AND WILL NOT MAKE, ANY REPRESENTATION OR WARRANTY REGARDING THE SAME.  EXCEPT AS SPECIFICALLY PROVIDED IN ‎SECTION 4.4(C) AND ‎SECTION 12.2(B) (WITH RESPECT TO THE RETAINED SELLER OBLIGATIONS), PURCHASER RELEASES, REMISES, AND FOREVER DISCHARGES SELLER GROUP FROM ANY AND ALL SUITS, LEGAL OR ADMINISTRATIVE PROCEEDINGS , CLAIMS, DEMANDS, DAMAGES, LOSSES, COSTS, LIABILITIES, INTEREST OR CAUSES OF ACTION WHATSOEVER, IN LAW OR IN EQUITY, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT NOW OR SUBSEQUENTLY HAVE, BASED ON, RELATING TO, OR ARISING OUT OF ANY ENVIRONMENTAL DEFECT OR DEFICIENCY, EVEN IF SUCH SUITS, LEGAL OR ADMINISTRATIVE PROCEEDINGS, CLAIMS, DEMANDS, DAMAGES, LOSSES, COSTS, LIABILITIES, OR CAUSES OF ACTION ARE CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT, OR CONCURRENT) OF SELLER OR THE STRICT LIABILITY OF SELLER GROUP.

(e)           The Environmental Defect Amount resulting from an Environmental Defect shall be determined as follows:

(i)             if Purchaser and Seller agree on the Environmental Defect Amount, that amount shall be the Environmental Defect Amount;

(ii)            the Environmental Defect Amount shall not be greater than the Lowest Cost Response;

(iii)           the Environmental Defect Amount with respect to an Environmental Defect shall be determined without duplication of any costs or losses (A) included in another Environmental Defect Amount or Casualty Loss hereunder; (B) for which Purchaser otherwise receives credit in the calculation of the Purchaser Price; or (C) which has been taken into account in the formulation of the Unadjusted Purchase Price; and

(iv)           notwithstanding anything to the contrary in this Agreement, (A) an individual claim for an Environmental Defect for which a claim notice is given in accordance with the requirements of this Article 4 shall only generate an adjustment to the Unadjusted Purchase Price under this Article 4 if the Environmental Defect Amount with respect thereto exceeds Two-Hundred Thousand dollars ($200,000); (B) the aggregate Environmental Defect Amounts attributable to the effects of all Environmental Defects upon any given Property shall not exceed the Allocated Value of such Property; and (C) there shall be no adjustment to the Unadjusted Purchase Price for Environmental Defects unless and until the aggregate of all Environmental Defect Amounts for Environmental Defects which are entitled to an adjustment under ‎Section 4.4(e)(iv)(A) and for which claim notices were timely delivered in accordance with the requirements of this Article 4 exceed Two Million dollars ($2,000,000), after  which the Unadjusted Purchase Price may be adjusted for all Environmental Defect Amounts that are entitled to an adjustment under ‎Section 4.4(e)(iv)(A).

Section 4.5              Environmental Arbitration .  If Seller and Purchaser are unable t