S-4

As filed with the Securities and Exchange Commission on April 27, 2011

Registration No. 333-      

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

ALTA MESA HOLDINGS, LP*

ALTA MESA FINANCE SERVICES CORP.

SEE TABLE OF ADDITIONAL REGISTRANTS ON FOLLOWING PAGE

(Exact name of registrant as specified in its charter)

Texas	1311	20-3565150
Delaware	1311	27-3555673
(State or other jurisdiction of incorporation or organization)	(Primary standard industrial classification code number)	(I.R.S. Employer Identification No.)

15415 Katy Freeway, Suite 800
Houston, Texas 77094
(281) 530-0991
(Address, including zip code, and telephone number, including area code, of registrants’ principal executive offices)

Harlan H. Chappelle
President and Chief Executive Officer
15415 Katy Freeway, Suite 800
Houston, Texas 77094
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

William B. Nelson
Haynes and Boone, LLP
1221 McKinney Street, Suite 2100
Houston, Texas 77010
Telephone: (713) 547-2084
Telecopy: (713) 236-5557

Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable after the Registration Statement becomes effective.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o

(Do not check if a smaller reporting company)

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issue Tender Offer) o

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender o

CALCULATION OF REGISTRATION FEE

			Proposed Maximum			Proposed Maximum			Amount of
Title of Each Class of	Amount to be		Offering			Aggregate			Registration
Securities to be Registered	Registered		Price per Unit			Offering Price			Fee
95/8% Senior Notes due 2018	$	300,000,000		100	%	$	300,000,000		$	34,830	(1)
Guarantees of 95/8% Senior Notes due 2018	$	300,000,000		(2	)		(2	)		(2	)

(1)	Calculated in accordance with Rule 457(f)(2) under the Securities Act of 1933.
(2)	No separate fee is payable pursuant to Rule 457(n) under the Securities Act of 1933.

* Includes certain registrant guarantors identified on the following pages.

The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

TABLE OF ADDITIONAL REGISTRANT GUARANTORS

	State or Other	Primary Standard
	Jurisdiction of	Industrial		I.R.S. Employer
	Incorporation or	Classification Code		Identification
Name	Organization	Number		Number
Alta Mesa Acquisition Sub, LLC	Texas		1311		27-1628512
Alta Mesa Drilling, LLC	Texas		1311		74-3236219
Alta Mesa Energy LLC	Texas		1311		45-1674374
Alta Mesa GP, LLC	Texas		1311		Disregarded
Alta Mesa Services, LP	Texas		1311		37-1517295
Aransas Resources, L.P.	Texas		1311		76-0524808
ARI Development, LLC	Delaware		1311		52-2135980
Buckeye Production Company, LP	Texas		1311		76-0524810
Brayton Management GP, LLC	Texas		1311		Disregarded
Brayton Management GP II, LLC	Texas		1311		Disregarded
Cairn Energy USA, LLC	Delaware		1311		23-2169839
FBB Anadarko, LLC	Delaware		1311		73-1119231
Galveston Bay Resources, LP	Texas		1311		76-0299036
Louisiana Exploration & Acquisition Partnership, LLC	Delaware		1311		Disregarded
Louisiana Exploration & Acquisitions, LP	Texas		1311		76-0524809
Louisiana Onshore Properties LLC	Delaware		1311		76-0548803
Navasota Resources, Ltd., LLP	Texas		1311		76-0524813
New Exploration Technologies Company, L.L.C.	Texas		1311		76-0488152
Nueces Resources, LP	Texas		1311		76-0524807
Oklahoma Energy Acquisitions, LP	Texas		1311		20-3583762
Petro Acquisitions, LP	Texas		1311		20-3565453
Petro Operating Company, LP	Texas		1311		20-3565354
Sundance Acquisition, LLC	Texas		1311		76-0338589
TE TMR, LLC	Texas		1311		76-0513342
Texas Energy Acquisitions, LP	Texas		1311		76-0524811
The Meridian Production, LLC	Texas		1311		76-0395200
The Meridian Resource & Exploration LLC	Delaware		1311		76-0348919
The Meridian Resource, LLC	Delaware		1311		76-0424671
TMR Drilling, LLC	Texas		1311		20-8676327
TMR Equipment, LLC	Texas		1311		20-8676198
Virginia Oil and Gas, LLC	Delaware		1311		26-3508385

The address of the principal executive offices of all of the registrant guarantors is 15415 Katy Freeway, Suite 800, Houston, Texas 77094 and the telephone number is (281) 530-0991.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offering is not permitted.

SUBJECT TO COMPLETION, APRIL 27, 2011

ALTA MESA HOLDINGS, LP

ALTA MESA FINANCE SERVICES CORP.

Offer to Exchange
Up To $300,000,000 of
95/8% Senior Notes due 2018
That Have Not Been Registered Under
The Securities Act of 1933
For
Up To $300,000,000 of
95/8% Senior Notes due 2018
That Have Been Registered Under
The Securities Act of 1933

Terms of the New 95/8% Senior Notes due 2018 Offered in the Exchange Offer:

•  The terms of the new notes are identical to the terms of the old notes that were issued on October 13, 2010, except that the new notes will be registered under the Securities Act of 1933 and will not contain restrictions on transfer, registration rights or provisions for additional interest.

Terms of the Exchange Offer:

•  We are offering to exchange up to $300,000,000 of our old notes for new notes with materially identical terms that have been registered under the Securities Act of 1933 and are freely tradable.

•  We will exchange all old notes that you validly tender and do not validly withdraw before the exchange offer expires for an equal principal amount of new notes.

•  The exchange offer expires at 5:00 p.m., New York City time, on          , 2011, unless extended.

•  Tenders of old notes may be withdrawn at any time prior to the expiration of the exchange offer.

•  The exchange of new notes for old notes will not be a taxable event for U.S. federal income tax purposes.

•  Broker-dealers who receive new notes pursuant to the exchange offer acknowledge that they will deliver a prospectus in connection with any resale of such new notes.

•  Broker-dealers who acquired the old notes as a result of market-making or other trading activities may use the prospectus for the exchange offer, as supplemented or amended, in connection with resales of the new notes.

•  There is no established trading market for the new notes or the old notes.

•  We do not intend to apply for listing of the new notes on any national securities exchange or for quotation through any quotation system.

See “Risk Factors” beginning on page 11 for a discussion of certain risks that you should consider before participating in the exchange offer.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is          , 2011

This prospectus is part of a registration statement we filed with the Securities and Exchange Commission. In making your investment decision, you should rely only on the information contained in this prospectus and in the accompanying letter of transmittal. We have not authorized anyone to provide you with any other information. We are not making an offer to sell these securities or soliciting an offer to buy these securities in any jurisdiction where an offer or solicitation is not authorized or in which the person making that offer or solicitation is not qualified to do so or to anyone whom it is unlawful to make an offer or solicitation. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

TABLE OF CONTENTS

	Page
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	ii
PROSPECTUS SUMMARY	1
RISK FACTORS	11
EXCHANGE OFFER	31
USE OF PROCEEDS	37
SELECTED HISTORICAL FINANCIAL AND OTHER DATA	38
RATIOS OF EARNINGS TO FIXED CHARGES	39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	40
BUSINESS	55
MANAGEMENT	76
THE PARTNERSHIP AGREEMENT	85
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	91
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	92
DESCRIPTION OF CERTAIN INDEBTEDNESS	93
DESCRIPTION OF NEW NOTES	95
PLAN OF DISTRIBUTION	147
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS	148
LEGAL MATTERS	148
EXPERTS	148
GLOSSARY OF OIL AND NATURAL GAS TERMS	149
INDEX TO FINANCIAL STATEMENTS	F-1
EX-3.1
EX-3.2
EX-3.3
EX-3.4
EX-3.5
EX-3.6
EX-3.7
EX-3.8
EX-4.1
EX-4.2
EX-5.1
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-10.8
EX-10.9
EX-10.10
EX-10.11
EX-10.12
EX-10.13
EX-10.14
EX-10.15
EX-10.16
EX-10.17
EX-10.18
EX-10.19
EX-12.1
EX-21.1
EX-23.2
EX-23.3
EX-23.4
EX-23.5
EX-23.6
EX-25.1
EX-99.1
EX-99.2
EX-99.3
EX-99.4

In this prospectus we refer to the notes to be issued in the exchange offer as the “new notes,” “new Notes,” or “Exchange Notes,” and we refer to the $300 million principal amount of our 95/8% senior notes due 2018 issued on October 13, 2010 as the “old notes” or “old Notes.” We refer to the new notes and the old notes collectively as the “notes.”

This prospectus incorporates important business and financial information about us that is not included or delivered with this prospectus. Such information is available without charge to holders of old notes upon written or oral request made to Alta Mesa Holdings, LP, 15415 Katy Freeway, Suite 800, Houston, Texas, 77094, Attention: Chief Financial Officer (Telephone (281) 530-0991). To obtain timely delivery of any requested information, holders of old notes must make any request no later than five business days prior to the expiration of the exchange offer.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The information in this prospectus includes “forward-looking statements.” All statements, other than statements of historical fact included in this prospectus, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this prospectus, the words “could”, “should”, “will”, “play”, “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Risk Factors” included in this prospectus. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

Forward-looking statements may include statements about our:

•  business strategy;

•  reserves;

•  financial strategy, liquidity and capital required for our development program;

•  realized oil and natural gas prices;

•  timing and amount of future production of oil and natural gas;

•  hedging strategy and results;

•  future drilling plans;

•  competition and government regulations;

•  marketing of oil and natural gas;

•  leasehold or business acquisitions;

•  costs of developing our properties;

•  general economic conditions;

•  credit markets;

•  liquidity and access to capital;

•  uncertainty regarding our future operating results; and

•  plans, objectives, expectations and intentions contained in this prospectus that are not historical.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the exploration for and development and production of oil and natural gas. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating oil and natural gas reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, and the other risks described under “Risk Factors” in this prospectus.

Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reservoir engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.

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Should one or more of the risks or uncertainties described in this prospectus occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this prospectus are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this prospectus.

iii

PROSPECTUS SUMMARY

This summary highlights certain information concerning our business and this prospectus. Because this is a summary, it may not contain all of the information that may be important to you and to your investment decision. The following summary is qualified in its entirety by the more detailed information and financial statements and notes thereto included elsewhere in this prospectus. You should read this prospectus carefully and should consider, among other things, the matters set forth in “Risk Factors” and the other cautionary statements described in this prospectus.

In this prospectus, unless indicated otherwise, references to “Alta Mesa” refer to Alta Mesa Holdings, LP. References to the “Company”, “our company”, “we”, “our” and “us” refer to Alta Mesa and its subsidiaries and include the acquisition of Meridian, which occurred on May 13, 2010. References to “Meridian” are references to The Meridian Resource Corporation and its subsidiaries prior to the acquisition. References to “Alta Mesa GP” are references to Alta Mesa Holdings GP, LLC, our general partner.

The estimates of our actual and pro forma proved reserves as of December 31, 2010 included in this prospectus are based on reserve reports prepared for us by T.J. Smith & Company, Inc., independent petroleum engineers (“T.J. Smith”), and W.D. Von Gonten & Co., independent petroleum engineers (“Von Gonten”), and audited by Netherland, Sewell & Associates, Inc., independent petroleum engineers (“Netherland Sewell”). A copy of the summary reports of T.J. Smith and Von Gonten and the audit report of Netherland Sewell are filed as Exhibits 99.2, 99.3 and 99.4 to the registration statement, of which this prospectus forms a part.

For the definitions of certain terms and abbreviations used in the oil and natural gas industry, see “Glossary of Oil and Natural Gas Terms”. Pro forma information contained herein gives effect to the Meridian acquisition as if it had occurred on January 1, 2010.

Our Company

We are a privately held company primarily engaged in onshore oil and natural gas acquisition, exploitation, exploration and production whose focus is to maximize the profitability of our assets in a safe and environmentally sound manner. We seek to maintain a portfolio of lower risk properties in plays where we identify a large inventory of drilling, development, and enhanced recovery and exploitation opportunities in known resources. We believe our balanced portfolio of assets — principally historically prolific fields in South Louisiana, conventional liquids-rich gas and oil fields of East Texas, shallow long-lived oil fields in Oklahoma, and resource plays in the Deep Bossier of East Texas and Eagle Ford Shale in South Texas— has decades of future development potential. We maximize the profitability of our assets by focusing on advanced engineering analytics, enhanced geological techniques including 3-D seismic analysis, and proven drilling, stimulation, completion, and production methods.

From December 2008 through December 2010, we increased production at an annualized compounded rate of approximately 80% through a focused program of drilling and field re-development and strategic acquisitions. As of December 31, 2010, our estimated total proved oil and natural gas reserves were approximately 325 Bcfe, of which 66% were classified as proved developed. Our proved reserve mix is approximately 74% natural gas, 23% oil and 3% natural gas liquids with a pro forma reserve life index of 9.4 years for the year ended December 31, 2010. Excluding the Deep Bossier resource play, which includes approximately 16% of the PV-10 value of our proved reserves and where EnCana Oil & Gas (USA), Inc. (“EnCana”) is the principal operator, we maintain operational control of approximately 83% of the PV-10 value of our proved reserves. Of this, we operate 68% directly and the remainder is structured under operating arrangements with minority interest holders where we contribute significantly to the development of the assets through use of our internal engineering and geologist staffs and we have the ability to control the drilling schedule and remove the operator.

Our areas of focus are typically characterized by multiple hydrocarbon pay zones, and because we are re-developing fields and areas left behind by major oil and natural gas companies and other previous operators, our assets are typically served by existing infrastructure. As a result, our approach lowers geological, mechanical, and market-related risks. We focus on properties within our core operating areas that we believe

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have significant development and exploration opportunities and where we can apply our technical experience and economies of scale to increase production and proved reserves while lowering lease operating and capital costs. Additionally, we have consistently created value through workovers and re-completions of existing wells, infill drilling, operations improvements, secondary recovery and 3-D seismic-driven drilling. We expect to continue production growth in our core areas by exploiting known resources with continued well workovers, development drilling and enhanced recovery programs, and disciplined exploration.

Recent Developments

On April 21, 2011, we completed the purchase of certain oil and natural gas assets primarily located in Texas and South Louisiana from Sydson Energy and certain of its related parties. Total net proved reserves acquired are estimated to be 800,000 BOE (5 Bcfe), 45% of which is oil. By virtue of this acquisition, we increased our after payout net revenue interest in the Eagle Ford Shale by over 50%. Funding for the acquisition was provided through our credit facility. In addition, litigation associated with a portion of the assets purchased was resolved as a result of the transaction.

Meridian Acquisition

On May 13, 2010, we acquired The Meridian Resource Corporation, a public exploration and production company with properties in or proximate to our own areas of operation and proved reserves of 75 Bcfe as of December 31, 2009, for $158 million. The acquisition was funded with borrowings under our senior secured revolving credit facility as well as a $50 million equity contribution from AMIH. See “— Corporate Partner and Structure” and “Business — Meridian Acquisition.”

Deep Bossier Acquisition

On July 23, 2009, Navasota Resources Ltd., LLP, a wholly owned subsidiary of ours, made a payment of $25.5 million and took assignment of substantially all working interests that had been held by Chesapeake Energy Corporation (“Chesapeake”) in an approximate 50,000 acre area of Leon and Robertson Counties, Texas in the Deep Bossier play. See “Business — Deep Bossier Acquisition.”

Corporate Partner and Structure

We began operations in 1987, and have funded development and operating activities primarily through cash from operations, capital raised from equity contributed by our founder, capital contributed by a private equity partner, borrowings under our bank credit facilities, and proceeds from the issuance in October 2010 of $300 million principal amount of our senior secured notes due October 15, 2018. Our capital partner, Alta Mesa Investment Holdings Inc. (“AMIH”), is an affiliate of Denham Commodity Partners Fund IV LP (“DCPF IV”). DCPF IV is advised by Denham Capital Management LP, a private equity firm focused on energy and commodities. Since investing in us as a limited partner in 2006, AMIH has contributed $150 million in equity, which includes a $50 million contribution as part of the Meridian acquisition. In October 2010, AMIH received a $50 million distribution from the proceeds of the offer and sale of the old notes.

As a limited partnership, our operations and activities are managed by the board of directors of our general partner, Alta Mesa Holdings GP, LLC (“Alta Mesa GP”), and the officers of Alta Mesa Services, LP (“Alta Mesa Services”), an entity wholly owned by us. The sole member of Alta Mesa GP is Alta Mesa Resources, LP, an entity owned by Michael E. Ellis, the founder of our company, Chief Operating Officer, and Chairman of the Board of Directors of Alta Mesa GP, and his spouse, Mickey Ellis.

General Corporate Information

Alta Mesa Holdings, LP is a Texas limited partnership founded in 1987 with principal offices at 15415 Katy Freeway, Suite 800, Houston, Texas 77094. We can be reached at (281) 530-0991 and our website address is www.altamesa.net. Information on the website is not part of this prospectus. Alta Mesa Finance Services Corp. is a Delaware corporation and a wholly owned subsidiary of Alta Mesa that has no material assets and was formed for the purpose of co-issuing the notes.

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EXCHANGE OFFER

On October 13, 2010, we completed a private offering of $300 million principal amount of the old notes. We entered into a registration rights agreement with the initial purchasers in connection with the offering in which we agreed to deliver to you this prospectus and to use commercially reasonable efforts to complete an exchange offer of the old notes for new notes with identical terms, except that the new notes will be registered under the Securities Act of 1933 (the “Securities Act”) and will not have restrictions on transfer, registration rights or provisions for additional interest, within 360 days after the date of the issuance of the old notes.

Exchange Offer	We are offering to exchange new notes for old notes.
Expiration Date	The exchange offer will expire at 5:00 p.m., New York City time, on          , 2011, unless we decide to extend it.
Condition to the Exchange Offer	The registration rights agreement does not require us to accept old notes for exchange if the exchange offer, or the making of any exchange by a holder of the old notes, would violate any applicable law or interpretation of the staff of the Securities and Exchange Commission. The exchange offer is not conditioned on a minimum aggregate principal amount of old notes being tendered.
Procedures for Tendering Old Notes	To participate in the exchange offer, you must follow the procedures established by The Depository Trust Company, which we call “DTC,” for tendering notes held in book-entry form. These procedures, which we call “ATOP,” require that (i) the exchange agent receive, prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer, a computer generated message known as an “agent’s message” that is transmitted through DTC’s automated tender offer program, and (ii) DTC confirms that:
	• DTC has received your instructions to exchange your notes, and
	• you agree to be bound by the terms of the letter of transmittal.
	For more information on tendering your old notes, please refer to the section in this prospectus entitled “Exchange Offer — Terms of the Exchange Offer,” “— Procedures for Tendering,” and “Description of New Notes — Book-Entry; Delivery and Form.”
Guaranteed Delivery Procedures	None.
Withdrawal of Tenders	You may withdraw your tender of old notes at any time prior to the expiration date. To withdraw, you must submit a notice of withdrawal to the exchange agent using ATOP procedures before 5:00 p.m., New York City time, on the expiration date of the exchange offer. Please refer to the section in this prospectus entitled “Exchange Offer — Withdrawal of Tenders.”
Acceptance of Old Notes and Delivery of New Notes	If you fulfill all conditions required for proper acceptance of old notes, we will accept any and all old notes that you properly tender in the exchange offer before 5:00 p.m., New York City time on the expiration date. We will return any old notes that are late or not properly tendered, and therefore, that we do not accept for exchange to you without expense promptly after the expiration date and acceptance of the old notes for exchange. Please refer to the section in this prospectus entitled “Exchange Offer — Terms of the Exchange Offer.”
Fees and Expenses	We will bear expenses related to the exchange offer. Please refer to the section in this prospectus entitled “Exchange Offer — Fees and Expenses.”

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Use of Proceeds	The issuance of the new notes will not provide us with any new proceeds. We are making this exchange offer solely to satisfy our obligations under the registration rights agreement.
Consequences of Failure to Exchange Old Notes	If you do not exchange your old notes in this exchange offer, you will no longer be able to require us to register the old notes under the Securities Act except in limited circumstances provided under the registration rights agreement. In addition, you will not be able to resell, offer to resell or otherwise transfer the old notes unless we have registered the old notes under the Securities Act, or unless you resell, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act.
U.S. Federal Income Tax Consequences	The exchange of new notes for old notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes. Please read “Certain United States Federal Income Tax Consequences.”
Exchange Agent	We have appointed Wells Fargo Bank, N.A. as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus or the letter of transmittal to the exchange agent as follows:
	By registered & certified mail:
	Wells Fargo Bank, N.A. Corporate Trust Operations MAC N9303-121 PO Box 1517 Minneapolis, Minnesota 55480
	By regular mail or overnight courier:
	Wells Fargo Bank, N.A. Corporate Trust Operations MAC N9303-121 Sixth & Marquette Avenue Minneapolis, Minnesota 55479
	In person by hand only:
	Wells Fargo Bank, N.A. 12th Floor — Northstar East Building Corporate Trust Operations 608 Second Avenue South Minneapolis, Minnesota 55480
	Eligible institutions may make requests by facsimile at (612) 667-6282 and may confirm facsimile delivery by calling (800) 344-5128

See “Exchange Offer” for more detailed information concerning the terms of the exchange offer.

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TERMS OF THE NEW NOTES

The new notes will be identical to the old notes except that the new notes will be registered under the Securities Act and will not have restrictions on transfer or provisions for additional interest. The new notes will evidence the same debt as the old notes, and the same indenture will govern the new notes and the old notes.

The following summary contains basic information about the new notes and is not intended to be complete. For a more complete understanding of the new notes, please refer to the section entitled “Description of New Notes” in this prospectus.

Issuers	Alta Mesa Holdings, LP and Alta Mesa Finance Services Corp. Alta Mesa Finance Services Corp. is our wholly owned direct subsidiary incorporated in Delaware for the purpose of serving as a co-issuer of the notes. Alta Mesa Finance Services Corp. has no material assets and does not conduct any operations.
Securities Offered	$300,000,000 aggregate principal amount of 95/8% senior notes due 2018.
Maturity Date	October 15, 2018.
Interest	Interest on the notes will accrue at the rate of 95/8% per annum.
Interest Payment Dates	April 15 and October 15 of each year, beginning October 15, 2011. Interest on each new note will accrue from the last interest payment date on which interest was paid on the old note tendered in exchange thereof, or, if no interest has been paid on the old note, from the date of the original issue of the old note.
Guarantees	The notes will be guaranteed initially by all of our subsidiaries, other than certain immaterial subsidiaries, and will be guaranteed by our future domestic restricted subsidiaries, other than certain immaterial subsidiaries. Our current subsidiaries that will not guarantee the notes represented in the aggregate less than 1% of each of our consolidated total assets and consolidated pro forma revenues as of and for the year ended December 31, 2010.
Ranking	The new notes and the related guarantees will be the unsecured senior obligations of us, Alta Mesa Finance Services Corp. and the guarantors. Accordingly, they will rank:
	• equal in right of payment with our existing and future senior indebtedness, including our senior secured revolving credit facility;
	• senior in right of payment to all of our existing and future indebtedness that is expressly subordinated to the notes or the respective guarantees, including certain notes payable to our founder, Michael E. Ellis;
	• effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness, including amounts outstanding under our senior secured revolving credit facility; and
	• structurally subordinated to all existing and future indebtedness and obligations of any of our subsidiaries that do not guarantee the notes.
	As of December 31, 2010, we had $393.0 million of debt outstanding, $73.3 million of which was secured indebtedness and our non-guarantor subsidiaries had no indebtedness outstanding except that

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	certain non-guarantor subsidiaries have guaranteed obligations under our senior secured revolving credit facility.
Optional Redemption	Beginning on October 15, 2014, we may redeem some or all of the new notes at the redemption prices listed under “Description of New Notes — Optional Redemption” plus accrued and unpaid interest on the new notes to the date of redemption.
	At any time prior to October 15, 2013 we may redeem up to 35% of the aggregate principal amount of the new notes from the proceeds of certain sales of our equity securities at 109.625% of the principal amount, plus accrued and unpaid interest, if any, to the date of redemption. We may make that redemption only if, after the redemption, at least 65% of the aggregate principal amount of the new notes remains outstanding and the redemption occurs within 120 days of the closing of the equity offering.
	Before October 15, 2014, we may redeem some or all of the new notes at the “make-whole” redemption price set forth under “Description of New Notes — Optional Redemption” plus accrued and unpaid interest on the new notes to the date of redemption.
Change of Control	Upon the occurrence of a change of control (as described under “Description of New Notes — Change of Control”), we must offer to repurchase the new notes at 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase.
Covenants	The indenture governing the new notes contains certain covenants limiting our ability and the ability of our restricted subsidiaries to, under certain circumstances:
	• prepay subordinated indebtedness, pay distributions, redeem stock or make certain restricted investments;
	• incur indebtedness;
	• create liens on our assets to secure debt;
	• restrict dividends, distributions or other payments from subsidiaries to us;
	• enter into transactions with affiliates;
	• designate subsidiaries as unrestricted subsidiaries;
	• sell or otherwise transfer or dispose of assets, including equity interests of restricted subsidiaries;
	• effect a consolidation or merger; and
	• change our line of business.
	These covenants are subject to important exceptions and qualifications as described in this prospectus under the caption “Description of New Notes — Certain Covenants”.
Transfer Restrictions; Absence of a Public Market for the New Notes	The new notes generally will be freely transferable, but will also be new securities for which there will not initially be a market. There can be no assurance as to the development or liquidity of any market for the new notes. We do not intend to apply for a listing of the new notes on any securities exchange or any automated dealer quotation system.
Risk Factors	Investing in the new notes involves risks. See “Risk Factors” beginning on page 11 for a discussion of certain factors you should consider in evaluating whether or not to tender your old notes.

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Summary Historical and Pro Forma Financial Data

The following table presents our summary consolidated historical financial data giving effect to the Meridian acquisition from the acquisition date of May 13, 2010, and summary pro forma financial information for the Meridian acquisition for the year ended December 31, 2010. The summary historical financial data as of December 31, 2010, 2009 and 2008 and for the years ended December 31, 2010, 2009 and 2008 are derived from our historical consolidated financial statements and are included elsewhere in this prospectus. The summary pro forma financial data for the year ended December 31, 2010 has been derived from the unaudited pro forma condensed consolidated financial statements included elsewhere in this prospectus and gives effect to the Meridian acquisition as if it had occurred on January 1, 2010. The unaudited pro forma financial information, while helpful in illustrating the financial characteristics of the consolidated company under one set of assumptions, does not reflect the impact of possible revenue enhancements, expense efficiencies and asset dispositions, among other factors, that may result as a consequence of the merger and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the consolidated company would have been had the companies been consolidated during these periods.

For further information that will help you better understand the summary financial data, you should read this financial data in conjunction with the “Selected Historical Financial and Other Data”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections included elsewhere in this prospectus and the financial statements and related notes and other financial information included elsewhere in this prospectus. Our historical results of operations are not necessarily indicative of results to be expected for any future periods.

	Pro Forma
	Year Ended
	December 31,			Year Ended December 31,
	2010			2010			2009			2008
	(Unaudited)			(Dollars in thousands)
Statement of Operations Data:
Revenues
Natural gas, oil and natural gas liquids	$	238,357		$	208,537		$	102,263		$	98,983
Other revenue		1,544			1,475			1,558			3,629
		239,901			210,012			103,821			102,612
Unrealized gain (loss) — oil and natural gas derivative contracts		10,088			10,088			(26,258	)		60,612
Total revenues		249,989			220,100			77,563			163,224
Costs and expenses:
Lease and plant operating expense		46,547			41,905			23,871			20,658
Production and ad valorem taxes		13,661			11,141			4,755			6,954
Workover expense		7,561			7,409			8,988			8,113
Exploration expense		32,878			31,037			12,839			11,675
Depreciation, depletion, and amortization		67,590			59,090			48,659			49,219
Impairment expense		8,399			8,399			6,165			11,487
Accretion expense		2,168			1,370			492			729
Rig operations		2,088			—			—			—
General and administrative expense		26,431			20,135			8,738			6,401
Gain on sale of assets		(1,766	)		(1,766	)		(738	)		—
Total operating expenses		205,557			178,720			113,769			115,236

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	Pro Forma
	Year Ended
	December 31,			Year Ended December 31,
	2010			2010			2009			2008
	(Unaudited)			(Dollars in thousands)
Income (loss) from operations		44,432			41,380			(36,206	)		47,988
Other income (expense):
Interest expense, net		(28,628	)		(27,149	)		(13,831	)		(14,457	)
Gain on extinguishment of debt		—			—			—			3,349
Other income (expense)		(28,628	)		(27,149	)		(13,831	)		(11,108	)
Benefit from (provision for) state income taxes		(2	)		(2	)		750			(250	)
Net (loss) income	$	15,802		$	14,229		$	(49,287	)	$	36,630
Other Supplementary Data:
Adjusted EBITDAX(1)	$	145,379		$	131,211		$	58,211		$	63,875
Ratio of senior debt to Adjusted EBITDAX(1)(2)		2.55			2.83			3.46			2.68

(1)	Adjusted EBITDAX is a non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measure” below.
(2)	Senior debt includes all of our debt other than the founder notes. The founder notes are fully subordinated to the notes and our senior secured revolving credit facility. See “Description of Certain Indebtedness”.

	Year Ended December 31,
	2010			2009			2008
	(Dollars in thousands)
Statement of Cash Flow Data:
Capital expenditures	$	110,083		$	100,261		$	111,096
Net cash flow provided by operating activities		61,120			34,343			20,300
Net cash used in investing activities(1)		(208,412	)		(86,573	)		(111,096	)
Net cash provided by financing activities		147,854			51,823			78,771
Balance Sheet Data (at period end):
Cash and cash equivalent	$	4,836		$	4,274		$	4,681
Property and equipment, net		456,264			236,196			201,327
Total assets		558,239			290,606			277,111
Senior debt(2)		371,276			201,500			171,089
Total debt		390,985			219,830			188,228
Total partners’ equity (deficit)		24,658			10,664			37,751

(1)	Net cash used in investing activities includes $101.4 million for the acquisition of Meridian in the year ended December 31, 2010.
(2)	Senior debt includes all of our debt other than the founder notes. The founder notes are fully subordinated to the notes and our senior secured revolving credit facility. See “Description of Certain Indebtedness”. The old notes are carried on our balance sheet net of a discount of $2.0 million at December 31, 2010.

Reconciliation of Non-GAAP Financial Measure

Adjusted EBITDAX is non-GAAP financial measure and as used herein represents net income before interest expense, exploration expense, depletion, depreciation and amortization, impairment of oil and natural gas properties, accretion of asset retirement obligations, deferred tax expense, and unrealized gain/loss on oil and natural gas derivative contracts. We present Adjusted EBITDAX because we believe it is an important supplemental measure of our performance that is frequently used by others in evaluating companies in our

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industry. Adjusted EBITDAX is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measure derived in accordance with GAAP or as an alternative to net cash provided by operating activities as a measure of our profitability or liquidity. Adjusted EBITDAX has significant limitations, including that it does not reflect our cash requirements for capital expenditures, contractual commitments, working capital or debt service. In addition, other companies may calculate Adjusted EBITDAX differently than we do, limiting their usefulness as comparative measures.

The following table sets forth a reconciliation of net income (loss) as determined in accordance with GAAP to Adjusted EBITDAX for the periods indicated:

	Pro Forma
	Year Ended
	December 31,			Year Ended December 31,
	2010			2010			2009			2008
	(Unaudited)			(Dollars in thousands)
Net income (loss)	$	15,802		$	14,229		$	(49,287	)	$	36,630
Interest expense		28,628			27,172			13,835			14,497
Exploration expense		32,878			31,037			12,839			11,675
Depreciation, depletion and amortization		67,590			59,090			48,659			49,219
Impairment of oil and natural gas properties		8,399			8,399			6,165			11,487
Accretion of asset retirement obligations		2,168			1,370			492			729
Deferred tax (benefit) expense		2			2			(750	)		250
Unrealized (gain) loss on oil and natural gas derivative contracts		(10,088	)		(10,088	)		26,258			(60,612	)
Adjusted EBITDAX	$	145,379		$	131,211		$	58,211		$	63,875

Proved Reserves and Operating Data

Proved Reserves

The table below summarizes our estimated proved reserves as of December 31, 2010.

Estimated Proved Reserves(1):
Natural gas (Bcf)	241.4
Oil (MMBbl)(2)	13.9
Total proved (Bcfe)	325.0
Proved developed producing (Bcfe)	119.7
Proved developed non-producing (Bcfe)	94.6
Proved undeveloped (Bcfe)	110.8
Percent natural gas	74.3	%
Percent proved developed	65.9	%
PV-10 (dollars in millions)(3)	705.2

(1)

Our proved reserves as of December 31, 2010 were calculated using oil and natural gas price parameters established by current Securities and Exchange Commission (“SEC”) guidelines and accounting rules based on average prices as of the first day of each of the 12 months ended on such date. These average prices were $79.43 per Bbl for oil and $4.38 per MMBtu for natural gas. Pricing was adjusted for basis differentials by field based on our historical realized prices.

(2)

Oil reserves include natural gas liquids.

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(3) PV-10 was calculated using oil and natural gas price parameters established by current SEC guidelines and accounting rules based on average oil and natural gas prices as of the first day of each of the 12 months ended December 31, 2010. Because we are a partnership and, as such, are not subject to income taxes, our PV-10 is the same as our standardized measure of future net cash flows, the most comparable measure under generally accepted accounting principles, which is reduced for the discounted value of estimated future income taxes. Calculation of PV-10 does not give effect to derivatives transactions.

Operating Data

The following table sets forth certain information regarding production volumes, average prices and average production costs associated with our sale of oil and natural gas for the periods indicated.

	Pro Forma
	Year Ended December 31,		Year Ended December 31,
	2010		2010		2009		2008
	(Unaudited)
Net production:
Natural gas (MMcf)		26,290		24,026		10,610		6,637
Oil (MBbls)		1,180		964		505		445
Natural gas liquids (MBbls)		186		147		47		47
Total (MMcfe)		34,486		30,694		13,919		9,593
Average sales price per unit before hedging effects:
Natural gas (per Mcf)	$	4.33	$	4.27	$	3.72	$	9.33
Oil (per Bbl)		78.88		78.86		59.23		99.17
Natural gas liquids (per Bbl)		46.16		46.58		36.05		52.24
Combined (per Mcfe)		6.25		6.05		5.10		11.31
Average sales price per unit after hedging effects:
Natural gas (per Mcf)	$	5.21	$	5.24	$	6.25	$	8.81
Oil (per Bbl)		78.69		78.63		67.94		85.45
Natural gas liquids (per Bbl)		46.16		46.58		36.05		52.24
Combined (per Mcfe)		6.91		6.79		7.35		10.32
Average costs per Mcfe:
Lease and plant operating expense	$	1.35	$	1.37	$	1.71	$	2.15
Production and ad-valorem taxes		0.40		0.36		0.34		0.72
Workover expense		0.22		0.24		0.65		0.85
Depreciation, depletion and amortization		1.96		1.93		3.50		5.13
General and administrative expense		0.77		0.66		0.63		0.67

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RISK FACTORS

An investment in the notes involves a significant degree of risk. You should carefully consider each of the risks described below, together with all of the other information contained in this prospectus, before deciding to invest in the new notes and participate in the exchange offer. If any of the following risks develop into actual events, our business, financial condition or results of operations could be materially adversely affected, which in turn could adversely affect our ability to satisfy our obligations under the notes and the guarantees of the notes. Consequently, you may lose all or part of your investment.

Risks Related to the Exchange Offer and New Notes

If you do not properly tender your old notes, you will continue to hold unregistered old notes and your ability to transfer old notes will remain restricted and may be adversely affected.

The co-issuers will only issue new notes in exchange for old notes that you timely and properly tender. Therefore, you should allow sufficient time to ensure timely delivery of the old notes and you should carefully follow the instructions on how to tender your old notes. Neither we nor the exchange agent is required to tell you of any defects or irregularities with respect to your tender of old notes.

If you do not exchange your old notes for new notes pursuant to the exchange offer, the old notes you hold will continue to be subject to the existing transfer restrictions. In general, you may not offer or sell the old notes except under an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not plan to register old notes under the Securities Act unless our registration rights agreement with the initial purchasers of the old notes require us to do so. Further, if you continue to hold any old notes after the exchange offer is consummated, you may have trouble selling them because there will be fewer of the old notes outstanding.

The notes and the guarantees are unsecured and effectively subordinated to the rights of our secured indebtedness.

The notes and the guarantees are general unsecured senior obligations ranking effectively junior to all of our, the co-issuer’s and the guarantors’ existing and future secured indebtedness, including obligations under our senior secured revolving credit facility, to the extent of the value of the collateral securing the indebtedness. The notes and the guarantees are also effectively subordinated to any indebtedness of any non-guarantor subsidiaries.

If we were unable to repay such indebtedness under our senior secured revolving credit facility, the lenders under this facility could foreclose on the pledged assets to the exclusion of holders of the notes, even if an event of default exists under the indenture governing the notes at such time. Furthermore, if the lenders foreclose and sell the pledged equity interests in any guarantor in a transaction permitted under the terms of the indenture governing the notes, then such guarantor will be released from its guarantee of the notes automatically and immediately upon such sale. In any such event, because the notes are not secured by any of such assets or by the equity interests in any such guarantor, it is possible that there would be no assets from which your claims could be satisfied or, if any assets existed, they might be insufficient to satisfy your claims in full.

If the co-issuers or any guarantor are declared bankrupt, become insolvent or are liquidated or reorganized, any secured indebtedness will be entitled to be paid in full from its assets or the assets of any guarantor securing that indebtedness before any payment may be made with respect to the notes or the affected guarantees. Holders of the notes will participate ratably in our remaining assets with all holders of any unsecured indebtedness that does not rank junior to the notes, based upon the respective amounts owed to each holder or creditor. In any of the foregoing events, there may not be sufficient assets to pay amounts due on the notes or the guarantees. As a result, holders of the notes would likely receive less, ratably, than holders of secured indebtedness.

As of December 31, 2010, we had total secured indebtedness of approximately $73.3 million outstanding, and $146.7 million of additional borrowing capacity under our senior secured revolving credit facility.

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We have a substantial amount of indebtedness, which may adversely affect our cash flows and ability to operate our business, remain in compliance and repay our debt including the notes.

As of December 31, 2010, we and the guarantors had approximately $393 million of total debt outstanding. In addition, the indenture for the notes permits us to incur significant additional debt, some of which may be secured. Our high level of indebtedness could have important consequences to note holders, including the following:

•  it may make it difficult for us to satisfy our obligations under the notes and our other indebtedness and contractual and commercial commitments;

•  it may increase our vulnerability to adverse economic and industry conditions;

•  it may require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

•  it may limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

•  it may restrict us from making strategic acquisitions or exploiting business opportunities;

•  it may place us at a competitive disadvantage compared to our competitors that have less debt;

•  it may limit our ability to borrow additional funds;

•  it may prevent us from raising the funds necessary to repurchase notes tendered to us if there is a change of control, which would constitute a default under the indenture governing the notes and under our senior secured revolving credit facility; and

•  it may decrease our ability to compete effectively or operate successfully under adverse economic and industry conditions.

We may not be able to generate sufficient cash flows to meet our debt obligations.

We expect our earnings and cash flows to vary significantly from year to year due to the cyclical nature of the oil and natural gas industry. As a result, the amount of debt that we can manage in some periods may not be appropriate for us in other periods. In addition, our future cash flows may be insufficient to meet our debt obligations and commitments, including the notes. Any insufficiency could negatively impact our business. A range of economic, competitive, business and industry factors will affect our future financial performance, and, as a result, our ability to generate cash flows from operations and to pay our debt, including the notes. Many of these factors, such as oil and natural gas prices, regulatory factors, economic and financial conditions in our industry and the global economy or competitive initiatives of our competitors, are beyond our control. If we do not generate sufficient cash flows from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:

•  refinancing or restructuring our debt;

•  selling assets;

•  reducing or delaying capital investments; or

•  seeking to raise additional capital.

However, any alternative financing plans that we undertake, if necessary, may not allow us to meet our debt obligations. Our inability to generate sufficient cash flows to satisfy our debt obligations, including our obligations under the notes, or to obtain alternative financing, could materially and adversely affect our business, financial condition, results of operations and prospects.

Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our indebtedness could be at higher

12

interest rates and could require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments, including the indenture governing the notes, may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest or principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of sufficient cash flows and capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to refinance our indebtedness, sell assets or issue equity, or borrow more funds on terms acceptable to us, if at all.

Our debt could have important consequences to you. For example, it could:

•  increase our vulnerability to general adverse economic and industry conditions;

•  limit our ability to fund future working capital and capital expenditures, to engage in future acquisitions or development activities, or to otherwise realize the value of our assets and opportunities fully because of the need to dedicate a substantial portion of our cash flows from operations to payments of interest and principal on our debt or to comply with any restrictive terms of our debt;

•  limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

•  impair our ability to obtain additional financing in the future; and

•  place us at a competitive disadvantage compared to our competitors that have less debt.

In addition, if we fail to comply with the covenants or other terms of any agreements governing our debt, our lenders will have the right to accelerate the maturity of that debt and foreclose upon the collateral, if any, securing that debt. Realization of any of these factors could adversely affect our financial condition.

We may be able to incur substantially more indebtedness, including indebtedness ranking equal to the notes and the guarantees. This could increase the risks associated with the notes.

Subject to the restrictions in the indenture governing the notes and in other instruments governing our other outstanding indebtedness (including our senior secured revolving credit facility), we may incur substantial additional indebtedness (including secured indebtedness) in the future. Although the indenture governing the notes and the instruments governing our senior secured revolving credit facility contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to waiver and a number of significant qualifications and exceptions, and indebtedness incurred in compliance with these restrictions could be substantial.

If the co-issuers or any guarantor incurs any additional indebtedness that ranks equally with the notes (or with the guarantee thereof), including trade payables, the holders of that indebtedness will be entitled to share ratably with noteholders in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of the co-issuers or such guarantor. This may have the effect of reducing the amount of proceeds paid to noteholders in connection with such a distribution.

The notes are structurally subordinated in right of payment to the indebtedness of those of any of our current and future subsidiaries that do not guarantee the notes.

The notes will not be guaranteed by certain of our subsidiaries. In addition, in the future, we may form unrestricted subsidiaries that will not be subject to any of the covenants of the indenture and will not guarantee the notes. In the case of any subsidiaries that are not guarantors, the notes would be effectively subordinated to all indebtedness and other liabilities of such subsidiaries.

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We may not be able to fulfill our repurchase obligations with respect to the notes upon a change of control.

If we experience certain specific change of control events, we will be required to offer to repurchase all of our outstanding notes at 101% of the principal amount of such notes plus accrued and unpaid interest to the date of repurchase. We cannot assure you that we will have available funds sufficient to pay the change of control purchase price for any or all of the notes that might be tendered in the change of control offer. The definition of change of control in the indenture governing the notes includes a phrase relating to the direct or indirect sale, transfer, conveyance or other disposition of “all or substantially all” of our and our restricted subsidiaries’ assets, taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all”, there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of notes to require us to repurchase such notes as a result of a sale, transfer, conveyance or other disposition of “less than all of our and our restricted subsidiaries” assets taken as a whole to another person or group may be uncertain. Our limited partnership agreement permits AMIH to cause our general partner to initiate a sale of our company to a third-party after January 1, 2012, which sale may be deemed to be a change of control. AMIH may exercise this right at a time that we do not have sufficient capital or are otherwise prohibited from repurchasing the notes. In addition, our senior secured revolving credit facility contains, and any future credit agreement likely will contain, restrictions or prohibitions on our ability to repurchase the notes under certain circumstances. If these change of control events occur at a time when we are prohibited from repurchasing the notes, we may seek the consent of our lenders to purchase the notes or could attempt to refinance the borrowings that contain these prohibitions or restrictions. If we do not obtain our lenders’ consent or refinance these borrowings, we will not be able to repurchase the notes. Accordingly, the holders of the notes may not receive the change of control purchase price for their notes in the event of a sale or other change of control, which will give the trustee and the holders of the notes the right to declare an event of default and accelerate the repayment of the notes. See “Description of New Notes — Change of Control”.

Your ability to transfer the notes may be limited by the absence of an active trading market, and there is no assurance that any active trading market will develop for the notes.

The old notes have not been registered under the Securities Act, and may not be resold by holders thereof unless the old notes are subsequently registered or an exemption from the registration requirements of the Securities Act is available. However, we cannot assure you that, even following registration or exchange of the old notes for new notes, an active trading market for the old notes or the new notes will exist, and we will have no obligation to create such a market. At the time of the private placements of the old notes, each book running manager advised us that they intended to make a market in the old notes and, if issued, the new notes. The book running managers are not obligated, however, to make a market in the old notes or the new notes and any market making may be discontinued at any time at their sole discretion. No assurance can be given as to the liquidity of or trading market for the old notes or the new notes.

The liquidity of any trading market for the notes and the market prices quoted for the notes depend upon the number of holders of the notes, the overall market for high yield securities, our financial performance or prospects or the prospects for companies in our industry generally, the interest of securities dealers in making a market in the notes and other factors.

An adverse rating of the notes may cause the value of the notes to fall.

If the rating agencies that rate the notes reduce their ratings on the notes in the future or indicate that they have their ratings on the notes under surveillance or review with possible negative implications, the value of the notes could decline. In addition, a ratings downgrade could adversely affect our ability to access capital.

Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the notes. These credit ratings may not reflect the potential impact of risks relating to structure or marketing of the notes. Agency ratings are not a recommendation to purchase, hold or sell the notes and may be revised or

14

withdrawn at any time by the issuing organization. Each agency’s rating should be evaluated independently of any other agency’s rating.

A financial failure by us or our subsidiaries may result in the assets of any or all of those entities becoming subject to the claims of all creditors of those entities.

A financial failure by us or our subsidiaries could affect payment of the notes if a bankruptcy court were to substantively consolidate us and our subsidiaries. If a bankruptcy court substantively consolidated us and our subsidiaries, the assets of each entity would be subject to the claims of creditors of all entities. This would expose you not only to the usual impairments arising from bankruptcy, but also to potential dilution of the amount ultimately recoverable because of the larger creditor base. Furthermore, forced restructuring of the notes could occur through the cram-down provision of the bankruptcy code. Under this provision, the notes could be restructured over your objections as to their general terms, primarily interest rate and maturity.

If the subsidiary guarantees are deemed fraudulent conveyances or preferential transfers, a court may subordinate or void them.

Under various fraudulent conveyance or fraudulent transfer laws, a court could subordinate or void our subsidiary guarantees. Generally, a United States court may void or subordinate a subsidiary guarantee in favor of the subsidiary’s other obligations if it finds that at the time the subsidiary entered into a subsidiary guarantee it:

•  intended to hinder, delay or defraud any present or future creditor or contemplated insolvency with a design to favor one or more creditors to the exclusion of others;

•  did not receive fair consideration or reasonably equivalent value for issuing the subsidiary guarantee;

•  was insolvent or became insolvent as a result of issuing the subsidiary guarantee;

•  was engaged or about to engage in a business or transaction for which the remaining assets of the subsidiary constituted unreasonably small capital; or

•  intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they matured.

The measures of insolvency for purposes of fraudulent transfer laws vary depending upon the governing law. Generally, a guarantor would be considered insolvent if:

•  the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all its assets;

•  the present fair saleable value of its assets is less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

•  it could not pay its debts as they become due.

In addition, a guarantee may be voided based on the level of benefits that the subsidiary guarantor received compared to the amount of the subsidiary guarantee. If a subsidiary guarantee is voided or held unenforceable, you would not have any claim against that subsidiary and would be creditors solely of us and any subsidiary guarantors whose guarantees are not held unenforceable. After providing for all prior claims, there may not be sufficient assets to satisfy claims of holders of notes relating to any voided portions of any of the subsidiary guarantees. In addition, the court might direct you to repay any amounts that you already received from the subsidiary guarantor.

The amount that can be collected under future subsidiary guarantees, if any, will be limited.

Each subsidiary guarantee entered into after the closing date will contain a provision intended to limit such guarantor’s liability to the maximum amount that it could guarantee without causing the incurrence of the

15

obligations under its guarantee to be a fraudulent transfer. This provision may not be effective to protect subsidiary guarantees from being voided under applicable fraudulent transfer laws or may reduce the guarantor’s obligation to an amount that effectively makes the subsidiary guarantee worthless. In a recent Florida bankruptcy case, this kind of provision was found to be ineffective to protect the guarantees.

There is a risk of a preferential transfer if:

•  a subsidiary guarantor declares bankruptcy or its creditors force it to declare bankruptcy within 90 days (or in certain cases, one year) after a payment on the guarantee; or

•  a subsidiary guarantee was made in contemplation of insolvency.

In addition, a court could require holders of notes to return amounts received from the subsidiary guarantor during the 90-day (or, in certain cases, one-year) period.

The trading price of the new notes may be volatile.

There is no established market for the new notes, and we cannot assure you that any active or liquid trading market will develop for these notes. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the new notes. Any such disruptions could adversely affect the prices at which the new notes may be sold. If a market for the notes were to develop, the new notes could trade at prices that may be higher or lower than reflected by their initial offering price, depending on many factors, including, among other things:

•  changes in the overall market for high yield securities;

•  changes in our operating performance and financial condition or prospects;

•  the prospects for companies in our industry generally;

•  the number of holders of the new notes;

•  the market for similar securities;

•  the interest of securities dealers in making a market for the new notes; and

•  prevailing interest rates.

Risks Related to Our Business and the Oil and Natural Gas Industry

Our exploration, exploitation, development and acquisition operations will require substantial capital expenditures. We may be unable to obtain needed capital or financing on satisfactory terms, which could lead to a decline in our production and reserves.

The oil and natural gas industry is capital intensive. We have made and expect to continue to make substantial capital expenditures in our business for the exploration, exploitation, development and acquisition of oil and natural gas reserves. Our capital expenditures for 2010 totaled $146 million. Our budgeted capital expenditures for 2011 are currently expected to be approximately $200 million. We have funded development and operating activities primarily through equity capital raised from a private equity partner, through borrowings under our bank credit facilities and through internal operating cash flows. We intend to finance our future capital expenditures predominantly with cash flows from operations. If necessary, we may also access capital through proceeds from potential asset dispositions, borrowings under our senior secured revolving credit facility and the future issuance of debt and/or equity securities. Our cash flow from operations and access to capital are subject to a number of variables, including:

•  the estimated quantities of our oil and natural gas reserves;

•  the amount of oil and natural gas we produce from existing wells;

•  the prices at which we sell our production;

•  take-away capacity; and

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•  our ability to acquire, locate and produce new reserves.

If our revenues or the borrowing base under our senior secured revolving credit facility decrease as a result of lower commodity prices, operating difficulties, declines in reserves or for any other reason, we may have limited ability to obtain the capital necessary to conduct our operations at expected levels. Our senior secured revolving credit facility may restrict our ability to obtain new debt financing. If additional capital is required, we may not be able to obtain debt and/or equity financing on terms favorable to us, or at all. If cash generated by operations or available under our senior secured revolving credit facility is not sufficient to meet our capital requirements, the failure to obtain additional financing could result in a curtailment of our operations relating to development of our prospects, which in turn could lead to a decline in our reserves and production, and could adversely affect our business, results of operation, financial conditions and ability to make payments on our outstanding indebtedness.

External financing may be required in the future to fund our growth. We may not be able to obtain additional financing, and financing under our senior secured revolving credit facility may not be available in the future. Without additional capital resources, we may be unable to pursue and consummate acquisition opportunities as they become available, and we may be forced to limit or defer our planned oil and natural gas development program, which will adversely affect the recoverability and ultimate value of our oil and natural gas properties, in turn negatively affecting our business, financial condition and results of operations.

Oil and natural gas prices are volatile and a decline in prices can significantly affect our financial condition and results of operations.

Our revenue, profitability and cash flow depend upon the prices for oil and natural gas. The prices we receive for oil and natural gas production are volatile and a decrease in prices can significantly affect our financial results and impede our growth, including our ability to maintain or increase our borrowing capacity, to repay current or future indebtedness and to obtain additional capital on attractive terms. Changes in oil and natural gas prices have a significant impact on the value of our reserves and on our cash flows. Prices for oil and natural gas may fluctuate widely in response to relatively minor changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control, such as:

•  the domestic and foreign supply of and demand for oil and natural gas;

•  the price and quantity of foreign imports of oil and natural gas;

•  the level of consumer product demand;

•  weather conditions;

•  domestic and foreign governmental regulations and taxation;

•  overall domestic and global economic conditions;

•  the value of the dollar relative to the currencies of other countries;

•  overall domestic and global economic conditions;

•  political and economic conditions and events in foreign oil and natural gas producing countries, including embargoes, continued hostilities in the Middle East and other sustained military campaigns, conditions in South America, Central America, China and Russia, and acts of terrorism or sabotage;

•  the ability of members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;

•  the proximity and capacity of natural gas pipelines and other transportation facilities to our production;

•  technological advances affecting energy consumption;

•  the price and availability of alternative fuels; and

•  the impact of energy conservation efforts.

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Low oil or natural gas prices will decrease our revenues, and may also reduce the volumetric amount of oil or natural gas that we can economically produce. This may result in our having to make substantial downward adjustments to our estimated proved reserves. If this occurs, or if our estimates of development costs increase, production data factors change or drilling results deteriorate, accounting rules may require us to write down, as a non-cash charge to earnings, the carrying value of our oil and natural gas properties for impairments. We are required to perform impairment tests on our assets whenever events or changes in circumstances lead to a reduction of the estimated useful life or estimated future cash flows that would indicate that the carrying amount may not be recoverable or whenever management’s plans change with respect to those assets. We may incur impairment charges in the future, which could have a material adverse effect on our results of operations in the period taken and our ability to borrow funds under our senior secured revolving credit facility.

We will depend on successful exploration, exploitation, development and acquisitions to maintain reserves and revenue in the future.

In general, the volume of production from oil and natural gas properties declines as reserves are depleted, with the rate of decline depending on each reservoir’s characteristics. Except to the extent that we conduct successful exploration and development activities or acquire properties containing proved reserves, or both, our proved reserves will decline as reserves are produced. Our future oil and natural gas production is, therefore, highly dependent on our level of success in finding or acquiring additional reserves. Additionally, the business of exploring for, developing, or acquiring reserves is capital intensive. Recovery of our reserves, particularly undeveloped reserves, will require significant additional capital expenditures and successful drilling operations. To the extent cash flow from operations is reduced and external sources of capital become limited or unavailable, our ability to make the necessary capital investment to maintain or expand our asset base of oil and natural gas reserves would be impaired. In addition, we are dependent on finding partners for our exploratory activity. To the extent that others in the industry do not have the financial resources or choose not to participate in our exploration activities, we may be adversely affected.

Our estimated oil and natural gas reserve quantities and future production rates are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or the underlying assumptions will materially affect the quantities and present value of our reserves.

Numerous uncertainties are inherent in estimating quantities of oil and natural gas reserves. Our estimates of our proved reserve quantities are based upon our estimated net proved reserves as of December 31, 2010. The process of estimating oil and natural gas reserves is complex, requiring significant decisions and assumptions in the evaluation of available geological, engineering and economic data for each reservoir, and these reports rely upon various assumptions, including assumptions regarding future oil and natural gas prices, production levels, and operating and development costs. As a result, estimated quantities of proved reserves and projections of future production rates and the timing of development expenditures may prove to be inaccurate. Over time, we may make material changes to reserve estimates taking into account the results of actual drilling and production. Any significant variance in our assumptions and actual results could greatly affect our estimates of reserves, the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, the classifications of reserves based on risk of recovery, and estimates of the future net cash flows. In addition, changes in future production costs assumptions could have a significant effect on our proved reserve quantities.

The present value of future net revenues from our proved reserves or “PV-10”, will not necessarily be the same as the current market value of our estimated oil and natural gas reserves.

You should not assume that the present value of future net revenues from our proved reserves is the current market value of our estimated oil and natural gas reserves. For the years prior to 2009, we based the estimated discounted future net revenues from our proved reserves on prices and costs in effect on the day of the estimate. In accordance with new SEC requirements, we currently base the estimated discounted future net revenues from our proved reserves on the twelve-month unweighted arithmetic average of the first-day-of-the-

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month price for the preceding twelve months. Actual future net revenues from our oil and natural gas properties will be affected by factors such as:

•  actual prices we receive for crude oil and natural gas;

•  actual cost of development and production expenditures;

•  the amount and timing of actual production;

•  transportation and processing; and

•  changes in governmental regulations or taxation.

The timing of both our production and our incurrence of expenses in connection with the development and production of oil and natural gas properties will affect the timing and amount of actual future net revenues from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted future net revenues may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the oil and natural gas industry in general. Actual future prices and costs may differ materially from those used in the present value estimate. If oil and gas prices decline by 10%, then our PV-10 as of December 31, 2010 would decrease approximately $114 million.

Approximately 34% of our total estimated proved reserves at December 31, 2010 were proved undeveloped reserves requiring substantial capital expenditures and may ultimately prove to be less than estimated.

Recovery of proved undeveloped reserves requires significant capital expenditures and successful drilling operations. At December 31, 2010, approximately 111 Bcfe of our total estimated proved reserves were undeveloped. The reserve data included in our reserve reports assumes that substantial capital expenditures will be made to develop non-producing reserves. The calculation of our estimated net proved reserves as of December 31, 2010 assumes that we will spend $156 million to develop our estimated proved undeveloped reserves, including an estimated $87 million in 2011. Although cost and reserve estimates attributable to our natural gas and oil reserves have been prepared in accordance with industry standards, we cannot be sure that the estimated costs are accurate. We may need to raise additional capital in order to develop our estimated proved undeveloped reserves over the next five years and we cannot be certain that additional financing will be available to us on acceptable terms, if at all. Further, our drilling efforts may be delayed or unsuccessful, and actual reserves may prove to be less than current reserve estimates, which could have a material adverse effect on our financial condition, future cash flows and results of operations. For a more detailed discussion of our current liquidity and projected liquidity immediately following this offering, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”.

We may experience difficulty in achieving and managing future growth.

Future growth may place strains on our resources and cause us to rely more on project partners and independent contractors, possibly negatively affecting our financial condition and results of operations. Our ability to grow will depend on a number of factors, including:

•  the results of our drilling program;

•  hydrocarbon prices;

•  our ability to develop existing prospects;

•  our ability to obtain leases or options on properties for which we have 3-D seismic data;

•  our ability to acquire additional 3-D seismic data;

•  our ability to identify and acquire new exploratory prospects;

•  our ability to continue to retain and attract skilled personnel;

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•  our ability to maintain or enter into new relationships with project partners and independent contractors; and

•  our access to capital.

Our use of 2-D and 3-D seismic data is subject to interpretation and may not accurately identify the presence of hydrocarbons, which could adversely affect the results of our drilling operations.

Even when properly used and interpreted, 2-D and 3-D seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable geoscientists to know whether hydrocarbons are, in fact, present in those structures and the amount of hydrocarbons. We are employing 3-D seismic technology with respect to certain of our projects. The use of 2-D and 3-D seismic and other advanced technologies requires greater pre-drilling expenditures than traditional drilling strategies, and we could incur greater drilling and testing expenses as a result of such expenditures, which may result in a reduction in our returns or losses. As a result, our drilling activities may not be successful or economical, and our overall drilling success rate or our drilling success rate for activities in a particular area could decline.

We often gather 2-D and 3-D seismic data over large areas. Our interpretation of seismic data delineates those portions of an area that we believe are desirable for drilling. Therefore, we may choose not to acquire option or lease rights prior to acquiring seismic data, and, in many cases, we may identify hydrocarbon indicators before seeking option or lease rights in the location. If we are not able to lease those locations on acceptable terms, we will have made substantial expenditures to acquire and analyze 2-D and 3-D data without having an opportunity to attempt to benefit from those expenditures.

We will rely on drilling to increase our levels of production. If our drilling is unsuccessful, our financial condition will be adversely affected.

The primary focus of our business strategy is to increase production levels by drilling wells. Although we were successful in drilling in the past, we cannot assure you that we will continue to maintain production levels through drilling. Our drilling involves numerous risks, including the risk that we will not encounter commercially productive oil or natural gas reservoirs. We must incur significant expenditures to drill and complete wells. The costs of drilling and completing wells are often uncertain, and it is possible that we will make substantial expenditures on drilling and not discover reserves in commercially viable quantities.

We may be unable to make attractive acquisitions or successfully integrate acquired businesses, and any inability to do so may disrupt our business and hinder our ability to grow.

In the future we may make acquisitions of businesses that complement or expand our current business. We may not be able to identify attractive acquisition opportunities. Even if we do identify attractive acquisition opportunities, we may not be able to complete the acquisition or do so on commercially acceptable terms. No assurance can be given that we will be able to identify additional suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms or successfully acquire identified targets.

The success of any completed acquisition will depend on our ability to integrate effectively the acquired business into our existing operations. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of our managerial and financial resources. Our failure to achieve consolidation savings, to incorporate the acquired businesses and assets into our existing operations successfully or to minimize any unforeseen operational difficulties could have a material adverse effect on our financial condition and results of operations.

In addition, our partnership agreement, our senior secured revolving credit facility and the indenture governing the notes impose certain limitations on our ability to enter into mergers or combination transactions. Our partnership agreement, our senior secured revolving credit facility and the indenture governing the notes

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also limit our ability to incur certain indebtedness, which could indirectly limit our ability to engage in acquisitions of businesses.

Our business is subject to operational risks that will not be fully insured, which, if they were to occur, could adversely affect our financial condition or results of operations.

Our business activities are subject to operational risks, including:

•  damages to equipment caused by adverse weather conditions, including tornadoes, hurricanes and flooding;

•  facility or equipment malfunctions;

•  pipeline ruptures or spills;

•  surface fluid spills and salt water contamination;

•  fires, blowouts, craterings and explosions; and

•  uncontrollable flows of oil or natural gas or well fluids.

In addition, a portion of our natural gas production is processed to extract natural gas liquids at processing plants that are owned by others. If these plants were to cease operations for any reason, we would need to arrange for alternative transportation and processing facilities. These alternative facilities may not be available, which could cause us to shut in our natural gas production. Further, such alternative facilities could be more expensive than the facilities we currently use.

Any of these events could adversely affect our ability to conduct operations or cause substantial losses, including personal injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution or other environmental contamination, loss of wells, regulatory penalties, suspension of operations, and attorney’s fees and other expenses incurred in the prosecution or defense of litigation.

As is customary in the industry, we maintain insurance against some but not all of these risks. Additionally, we may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the perceived risks presented. Losses could therefore occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. The occurrence of an event that is not fully covered by insurance could have a material adverse impact on our business activities, financial condition and results of operations.

Our hedging activities could result in financial losses or could reduce our net income.

To achieve more predictable cash flows and to reduce our exposure to fluctuations in the prices of oil and natural gas, we have and may continue to enter into hedging arrangements for a significant portion of our oil and natural gas production. As of December 31, 2010, we hedged approximately 70% of our forecasted PDP production through 2014 at average annual prices ranging from $5.75 per MMBtu to $6.94 per MMBtu and $78.62 per Bbl to $85.00 per Bbl. If we experience a sustained material interruption in our production, we might be forced to satisfy all or a portion of our hedging obligations without the benefit of the cash flows from our sale of the underlying physical commodity, resulting in a substantial diminution of our liquidity. Lastly, an attendant risk exists in hedging activities that the counterparty in any derivative transaction cannot or will not perform under the instrument and that we will not realize the benefit of the hedge.

Our ability to use hedging transactions to protect us from future oil and natural gas price declines will be dependent upon oil and natural gas prices at the time we enter into future hedging transactions and our future levels of hedging, and as a result our future net cash flows may be more sensitive to commodity price changes.

Our policy has been to hedge a significant portion of our near-term estimated oil and natural gas production. However, our price hedging strategy and future hedging transactions will be determined at our discretion. We are not under an obligation to hedge a specific portion of our production. The prices at which

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we hedge our production in the future will be dependent upon commodities prices at the time we enter into these transactions, which may be substantially higher or lower than current oil and natural gas prices. Accordingly, our price hedging strategy may not protect us from significant declines in oil and natural gas prices received for our future production. Conversely, our hedging strategy may limit our ability to realize cash flows from commodity price increases. It is also possible that a substantially larger percentage of our future production will not be hedged as compared with the next few years, which would result in our oil and natural gas revenues becoming more sensitive to commodity price changes.

Our hedging transactions expose us to counterparty credit risk.

Our hedging transactions expose us to risk of financial loss if a counterparty fails to perform under a derivative contract. Disruptions in the financial markets could lead to sudden changes in a counterparty’s liquidity, which could impair their ability to perform under the terms of the derivative contract. We are unable to predict sudden changes in a counterparty’s creditworthiness or ability to perform. Even if we do accurately predict sudden changes, our ability to negate the risk may be limited depending upon market conditions.

During periods of falling commodity prices, such as in late 2008, our hedge receivable positions increase, which increases our exposure. If the creditworthiness of our counterparties deteriorates and results in their nonperformance, we could incur a significant loss.

The adoption of derivatives legislation or regulations related to derivative contracts could have an adverse impact on our ability to hedge risks associated with our business.

On July 21, 2010, the President signed into law the Dodd — Frank Wall Street Reform and Consumer Protection Act (the “Act”). Among other things, the Act requires the Commodity Futures Trading Commission and the SEC to enact regulations affecting derivative contracts, including the derivative contracts we use to hedge our exposure to price volatility within 360 days from the date of enactment. We cannot predict the content of these regulations or the effect that these regulations will have on our hedging activities. Of particular concern, the Act does not explicitly exempt end users (such as us) from the requirements to use exchanges, which would require us to post margin in connection with hedging activities. Even if we qualify for an exception, there are other aspects of the Act that may make it more expensive for other parties to offer these hedges to us. The full effects of the Act will not be known until the regulations have been enacted and the market for these hedges has adjusted. It is possible the hedges will become more expensive, uneconomic or unavailable, which could lead to increased costs or commodity price volatility or a combination of both.

Certain U.S. federal income tax preferences currently available with respect to oil and natural gas production may be eliminated as a result of future legislation.

Among the changes contained in President Obama’s Budget Proposal for Fiscal Year 2012 is the elimination of certain key U.S. federal income tax incentives currently available to oil and gas exploration and production. The President’s budget proposes to eliminate certain tax preferences applicable to taxpayers engaged in the exploration or production of natural resources. Specifically, the budget proposes to repeal the deduction for percentage depletion with respect to wells, in which case only cost depletion would be available. It is unclear whether any such changes will be enacted or how soon any such changes could become effective. The passage of any legislation as a result of these proposals or any other similar changes in U.S. federal income tax laws could negatively affect our financial condition and results of operations.

We may be unable to compete effectively with larger companies, which may adversely affect our ability to generate sufficient revenues.

The oil and natural gas industry is intensely competitive, and we compete with other companies that have greater resources than us. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties to consummate transactions in a highly competitive market. Many of our larger competitors not only drill for and produce oil and natural gas, but also engage in refining operations and market petroleum and other products on a regional, national or worldwide

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basis. These companies may be able to pay more for oil and natural gas properties, and evaluate, bid for and purchase a greater number of properties than our financial or human resources permit. In addition, these companies may have a greater ability to continue drilling activities during periods of low oil and natural gas prices, to contract for drilling equipment, to secure trained personnel, and to absorb the burden of present and future federal, state, local and other laws and regulations. The oil and natural gas industry has periodically experienced shortages of drilling rigs, equipment, pipe and personnel, which has delayed development drilling and other exploitation activities and has caused significant price increases. Competition has been strong in hiring experienced personnel, particularly in the engineering and technical, accounting and financial reporting, tax and land departments. In addition, competition is strong for attractive oil and natural gas producing properties, oil and natural gas companies, and undeveloped leases and drilling rights. Our inability to compete effectively with larger companies could have a material adverse impact on our business activities, financial condition and results of operations.

The oil and natural gas industry is characterized by rapid and significant technological advancements and introductions of new products and services using new technologies. As others use or develop new technologies, we may be placed at a competitive disadvantage or competitive pressures may force us to implement those new technologies at substantial costs. In addition, other oil and natural gas companies may have greater financial, technical, and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before we can. We may not be able to respond to these competitive pressures and implement new technologies on a timely basis or at an acceptable cost. If one or more of the technologies we use now or in the future were to become obsolete or if we are unable to use the most advanced commercially available technology, our business, financial condition, and results of operations could be materially adversely affected.

Deficiencies of title to our leased interests could significantly affect our financial condition.

If an examination of the title history of a property reveals that an oil or natural gas lease or other developed rights has been purchased in error from a person who is not the owner of the mineral interest desired, our interest would substantially decline in value. In such cases, the amount paid for such oil or natural gas lease or leases or other developed rights would be lost. It is management’s practice, in acquiring oil and natural gas leases or undivided interests in oil and natural gas leases or other developed rights, not to incur the expense of retaining lawyers to examine the title to the mineral interest to be acquired. Rather, we will rely upon the judgment of oil and natural gas lease brokers or landmen who perform the fieldwork in examining records in the appropriate governmental or county clerk’s office before attempting to acquire a lease or other developed rights in a specific mineral interest.

Prior to drilling an oil or natural gas well, however, it is the normal practice in the oil and natural gas industry for the person or company acting as the operator of the well to obtain a preliminary title review of the spacing unit within which the proposed oil or natural gas well is to be drilled to ensure there are no obvious deficiencies in title to the well. Frequently, as a result of such examinations, certain curative work must be done to correct deficiencies in the marketability of the title, such as obtaining affidavits of heirship or causing an estate to be administered. Such curative work entails expense, and it may happen, from time to time, that the operator may elect to proceed with a well despite defects to the title identified in the preliminary title opinion. Our failure to obtain perfect title to our leaseholds may adversely impact our ability in the future to increase production and reserves.

We are vulnerable to risks associated with operating in the inland waters region of South Louisiana.

Our operations and financial results could be significantly impacted by unique conditions in the inland waters region of South Louisiana because we explore and produce in that area. As a result of this activity, we are vulnerable to the risks associated with operating in the inland waters region of South Louisiana, including those relating to:

•  adverse weather conditions and natural disasters;

•  availability of required performance bonds and insurance;

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•  oil field service costs and availability;

•  compliance with environmental and other laws and regulations;

•  matters arising from the 2010 BP Macondo well oil spill including but not limited to new safety requirements, new regulations, increased costs of services and rig mobilizations, slowed issuance of permits for new wells and additional insurance costs and requirements;

•  remediation and other costs resulting from oil spills or releases of hazardous materials; and

•  failure of equipment or facilities.

Further, production of reserves from reservoirs in the inland waters region of South Louisiana generally decline more rapidly than production of reservoirs from fields in many other producing regions of the world. This results in recovery of a relatively higher percentage of reserves from properties during the initial years of production, and as a result, our reserve replacement needs from new prospects may be greater in the inland waters region of South Louisiana than for our operations elsewhere. Also, our revenues and return on capital will depend significantly on prices prevailing during these relatively short production periods.

Our ability to pursue our business strategies may be adversely affected if we incur costs and liabilities due to a failure to comply with environmental regulations or a release of hazardous substances into the environment.

We may incur significant costs and liabilities as a result of environmental requirements applicable to the operation of our wells, gathering systems and other facilities. These costs and liabilities could arise under a wide range of federal, state and local environmental laws and regulations, including, for example:

•  the Clean Air Act (“CAA”) and comparable state laws and regulations that impose obligations related to air emissions;

•  the Clean Water Act and Oil Pollution Act (“OPA”) and comparable state laws and regulations that impose obligations related to discharges of pollutants into regulated bodies of water;

•  the Resource Conservation and Recovery Act (“RCRA”), and comparable state laws that impose requirements for the handling and disposal of waste from our facilities;

•  the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and comparable state laws that regulate the cleanup of hazardous substances that may have been released at properties currently or previously owned or operated by us or at locations to which we have sent waste for disposal; and

•  the Environmental Protection Agency (“EPA”) community right to know regulations under the Title III of CERCLA and similar state statutes require that we organize and/or disclose information about hazardous materials used or produced in our operations.

Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations. Certain environmental statutes, including RCRA, CERCLA, the federal OPA and analogous state laws and regulations, impose strict joint and several liability for costs required to clean up and restore sites where hazardous substances or other waste products have been disposed of or otherwise released. More stringent laws and regulations, including any related to climate change and greenhouse natural gases, may be adopted in the future. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other waste products into the environment. See “Business — Environmental Matters & Regulation” included elsewhere herein.

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The unavailability or high cost of drilling rigs, equipment, supplies, personnel and oil field services could adversely affect our ability to execute development and exploitation plans on a timely basis and within budget, and consequently could adversely affect our anticipated cash flow.

We utilize third-party services to maximize the efficiency of our operation. The cost of oil field services typically fluctuates based on demand for those services. While we currently have excellent relationships with oil field service companies, there is no assurance that we will be able to contract for such services on a timely basis or that the cost of such services will remain at a satisfactory or affordable level. Shortages or the high cost of drilling rigs, equipment, supplies or personnel could delay or adversely affect our development and exploitation operations, which could have a material adverse effect on our business, financial condition or results of operations.

We are subject to complex federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of conducting our operations.

Our oil and natural gas exploration and production operations are subject to complex and stringent laws and regulations. In order to conduct our operations in compliance with these laws and regulations, we must obtain and maintain numerous permits, approvals and certificates from various federal, state and local governmental authorities. Failure or delay in obtaining regulatory approvals or drilling permits could have a material adverse effect on our ability to develop our properties, and receipt of drilling permits with onerous conditions could increase our compliance costs. In addition, regulations regarding conservation practices and the protection of correlative rights affect our operations by limiting the quantity of oil and natural gas we may produce and sell.

We are subject to federal, state and local laws and regulations as interpreted and enforced by governmental authorities possessing jurisdiction over various aspects of the exploration, production and transportation of oil and natural gas. The possibility exists that new laws, regulations or enforcement policies could be more stringent and significantly increase our compliance costs. If we are not able to recover the resulting costs through insurance or increased revenues, our financial position could be adversely affected.

We have limited control over activities on properties we do not operate, which could reduce our production and revenues.

We maintain operational control of approximately 70% of the PV-10 value of our proved reserves either through operating the properties directly or entering into arrangements with local operators with minority interests in our properties. We have limited control over properties, especially those in Deep Bossier, which we do not operate or do not otherwise control operations. If we do not operate or otherwise control the properties in which we own an interest, we do not have control over normal operating procedures, expenditures or future development of the underlying properties. The failure of an operator of our wells to adequately perform operations or an operator’s breach of the applicable agreements could reduce our production and revenues. The success and timing of our drilling and development activities on properties operated by others, therefore, depends upon a number of factors outside of our control, including the operator’s timing and amount of capital expenditures, expertise and financial resources, inclusion of other participants in drilling wells and use of technology.

AMIH, as our Class B limited partner, has the ability to take actions that conflict with your interests.

AMIH, an affiliate of a private equity fund focused on energy and commodities, is the holder of our Class B limited partner interest. Under our partnership agreement, the Class B limited partner has certain significant rights, including, without limitation:

•  approval of material sales and acquisitions of properties and assets, the incurrence of debt, the appointment of any successor to our Chief Executive Officer and any other senior officers; the entering into of partnerships and joint ventures; our merger or consolidation with any entity; and the issuance of interests, ownership interests, debentures, bonds and other securities of the company;

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•  approval of our annual development plan and budget;

•  the right to require us to implement measures to mitigate our commodity price risks;

•  the right to part of the proceeds of any future debt or equity offering;

•  the right to require the general partner, after January 1, 2012, to make distributions of “net cash from operations” subject to our compliance with the covenants of any senior debt, including the notes, or bank credit facility; “net cash from operations” is defined as the gross cash proceeds from our operations less amounts used to pay or fund our costs, expenses, contract operating costs (including operators’ general and administrative expenses), marketing costs, debt payments, capital expenditures, reserve replacements, tax distributions and agreed reserves (as agreed upon by us and our Class B limited partner);

•  the right to cause our general partner to initiate a sale of us to a third party after January 1, 2012 or upon certain events; and

•  the right to remove the general partner for cause and replace the general partner in the Class B limited partner’s sole discretion.

The interests of the Class B limited partner could conflict with your interests as a holder of the notes. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of the Class B limited partner may conflict with your interests as a holder of the notes. The Class B limited partner also may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you, as holders of the notes. We can provide no assurance that any such conflicts will be resolved in the favor of the interests of the holders of the notes.

Our private equity partner and its affiliates are not limited in their ability to compete with us for acquisition or drilling opportunities. This could cause conflicts of interest and limit our ability to acquire additional assets or businesses.

Our partnership agreement with our private equity partner does not prohibit it or its affiliates from owning assets or engaging in businesses that compete directly or indirectly with us. For instance, our private equity partner and its affiliates may acquire, develop or dispose of additional oil or natural gas properties or other assets in the future, without any obligation to offer us the opportunity to purchase or develop any of those assets. DCPF IV, an affiliate of our private equity partner, is part of a larger family of funds, which has significantly greater resources than we have, which may make it more difficult for us to compete for acquisition candidates if our private equity partner or its affiliates were to compete against us.

We depend on key personnel, the loss of any of whom could materially adversely affect future operations.

Our success will depend to a large extent upon the efforts and abilities of our executive officers and key operations personnel. The loss of the services of one or more of these key employees could have a material adverse effect on us. We do not maintain key-man life insurance with respect to any of our employees. Our business will also be dependent upon our ability to attract and retain qualified personnel. Acquiring and keeping these personnel could prove more difficult or cost substantially more than estimated. This could cause us to incur greater costs, or prevent us from pursuing our development and exploitation strategy as quickly as we would otherwise wish to do.

We may encounter obstacles to marketing our oil and natural gas, which could adversely impact our revenues.

The marketability of our production will depend in part upon the availability and capacity of natural gas gathering systems, pipelines and other transportation facilities owned by third parties. Transportation space on the gathering systems and pipelines we utilize is occasionally limited or unavailable due to repairs or improvements to facilities or due to space being utilized by other companies that have priority transportation

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agreements. Our access to transportation options can also be affected by U.S. federal and state regulation of oil and natural gas production and transportation, general economic conditions and changes in supply and demand. The availability of markets is beyond our control. If market factors dramatically change, the impact on our revenues could be substantial and could adversely affect our ability to produce and market oil and natural gas.

We may experience a temporary decline in revenues and production if we lose one of our significant customers.

Historically, we have been dependent upon a few customers for a significant portion of our revenue. To the extent any significant customer reduces the volume of its oil or natural gas purchases from us, we could experience a temporary interruption in sales of, or a lower price for, our oil and natural gas production and our revenues could decline.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.

Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and operate successfully. We cannot be certain that our efforts to maintain our internal controls will be successful, that we will be able to maintain adequate controls over our financial processes and reporting in the future. Any failure to maintain effective internal controls, or difficulties encountered in implementing or improving our internal controls, could harm our operating results and affect our ability to timely produce financial results.

Climate change legislation or regulations restricting emissions of greenhouse gases (“GHGs”) could result in increased operating costs and reduced demand for the oil and natural gas we produce.

On December 15, 2009, the EPA officially published its findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the earth’s atmosphere and other climatic changes. These findings allow the EPA to adopt and implement regulations that would restrict emissions of GHGs under existing provisions of the federal CAA. Accordingly, the EPA has adopted rules regulating GHG emissions from motor vehicles, thus triggering requirements to permit GHG emissions from stationary sources under the Prevention of Significant Deterioration and Title V permitting programs. EPA has adopted the so-called “Tailoring Rule,” requiring that the largest sources first obtain permit for GHG emissions. In addition, on October 30, 2009, the EPA published a final rule requiring the reporting of GHG emissions from specified large GHG emission sources in the United States beginning in 2011 for emissions occurring in 2010. In November 2010, the EPA expanded its GHG reporting rule to include onshore and offshore oil and natural gas production, processing, transmission, storage and distribution facilities. Reporting of GHG emissions from such facilities is required on an annual basis, with reporting beginning in 2012 for emissions occurring in 2011.

Although both houses of Congress have actively considered legislation to reduce emissions of GHGs, no comprehensive program has been enacted by Congress. Some members of Congress, however, continue to indicate an intention to promote legislation to curb EPA’s authority to regulate GHGs. In the absence of a comprehensive federal program, many states, either individually or through multistate regional initiatives, are considering or have begun implementing legal measures to reduce emissions of GHGs. The adoption and implementation of any regulations imposing reporting obligations on, or limiting emissions of GHGs from, our equipment and operations could require us to incur costs to reduce emissions of GHGs associated with our operations or could adversely affect demand for the oil and natural gas that we produce.

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Significant physical effects of climatic change have the potential to damage our facilities, disrupt our production activities and cause us to incur significant costs in preparing for or responding to those effects.

In an interpretative release on climate change disclosures, the SEC indicates that climate change could have an effect on the severity of weather (including hurricanes and floods), sea levels, the arability of farmland, and water availability and quality. If such effects were to occur, our development and production operations have the potential to be adversely affected. Potential adverse effects could include damages to our facilities from powerful winds or rising waters in low lying areas, disruption of our production activities either because of climate related damages to our facilities in our costs of operation potentially arising from such climatic effects, less efficient or non-routine operating practices necessitated by climate effects or increased costs for insurance coverage in the aftermath of such effects. Significant physical effects of climate change could also have an indirect effect on our financing and operations by disrupting the transportation or process-related services provided by midstream companies, service companies or suppliers with whom we have a business relationship. We may not be able to recover through insurance some or any of the damages, losses or costs that may result from potential physical effects of climate change.

Federal legislation and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

Congress is currently considering the Fracturing Responsibility and Awareness of Chemicals Act (“FRAC Act”) that would amend the Safe Drinking Water Act (“SDWA”) to repeal an exemption from regulation for hydraulic fracturing. If enacted, the FRAC Act would amend the definition of “underground injection” in the SDWA to encompass hydraulic fracturing activities. If enacted, such a provision could require hydraulic fracturing operations to meet permitting and financial assurance requirements, adhere to certain construction specifications, fulfill monitoring, reporting, and recordkeeping obligations, and meet plugging and abandonment requirements. The FRAC Act also proposes to require the reporting and public disclosure of chemicals used in the fracturing process, which could make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, the EPA has commenced a study of the potential adverse effects that hydraulic fracturing may have on water quality and public health, and a committee of the U.S. House of Representatives has commenced its own investigation into hydraulic fracturing practices. Additionally, many states and other local regulatory authorities have enacted or are considering regulations on hydraulic fracturing, including regulations requiring disclosure of fracturing chemicals or restricting hydraulic fracturing in certain circumstances. The adoption of any future federal or state laws or implementing regulations imposing reporting obligations on, or otherwise limiting, the hydraulic fracturing process could make it more difficult to complete oil and natural gas wells and increase our costs of compliance and doing business.

The obligations associated with being an SEC reporting company will require significant resources and management attention, which could have a material adverse effect on our business and operating results.

Following the effectiveness of the registration statement of which this prospectus forms a part, we will become subject to certain of the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, and the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. Under the Exchange Act, we will be required to file annual, quarterly and current reports with respect to our business and financial condition. Under the Sarbanes-Oxley Act, we will be required to, among other things, establish and maintain effective internal controls and procedures for financial reporting. As a result, we may incur significant additional legal, accounting and other expenses that we have not previously incurred. We anticipate that we may need to upgrade our systems, implement additional financial and management controls, reporting systems and procedures, implement an internal audit function, and hire additional accounting and internal audit staff. Furthermore, the need to establish the corporate infrastructure demanded of a reporting company may divert management’s attention from implementing our growth strategy, which could prevent us from improving our business, results of operations and financial condition. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting

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obligations as a stand-alone public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, we cannot predict or estimate the amount of additional costs we may incur in order to comply with these requirements. We anticipate that these costs will materially increase our general and administrative expenses.

Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the annual report that we would expect to file with the SEC for the year ending December 31, 2012. In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify additional deficiencies. We may not be able to remediate any future deficiencies in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business.

Our debt agreements contain restrictive covenants that may limit our ability to respond to changes in market conditions or pursue business opportunities.

Our senior secured revolving credit facility and the indenture for the notes contain restrictive covenants that limit our ability to, among other things:

•  incur or guarantee additional debt;

•  make distributions;

•  repay subordinated debt prior to its maturity;

•  grant additional liens on our assets;

•  enter into transactions with our affiliates;

•  repurchase equity securities;

•  make certain investments or acquisitions of substantially all or a portion of another entity’s business assets; and

•  merge with another entity or dispose of our assets.

In addition, our senior secured revolving credit facility requires us to maintain certain financial ratios and tests. The requirement that we comply with these provisions may materially adversely affect our ability to react to changes in market conditions, take advantage of business opportunities we believe to be desirable, obtain future financing, fund needed capital expenditures or withstand a continuing or future downturn in our business.

If we are unable to comply with the restrictions and covenants in our debt agreements, there could be a default under the terms of such agreements, which could result in an acceleration of repayment.

If we are unable to comply with the restrictions and covenants in our debt agreements, there could be a default under the terms of these agreements. Our ability to comply with these restrictions and covenants, including meeting financial ratios and tests, may be affected by events beyond our control. As a result, we cannot assure that we will be able to comply with these restrictions and covenants or meet such financial ratios and tests. In the event of a default under these agreements, lenders could terminate their commitments to lend or accelerate the loans and declare all amounts borrowed due and payable. Borrowings under other debt instruments that contain cross-acceleration or cross-default provisions may also be accelerated and become due and payable. If any of these events occur, our assets might not be sufficient to repay in full all of our outstanding indebtedness and we may be unable to find alternative financing. Even if we could obtain alternative financing, it might not be on terms that are favorable or acceptable to us. Additionally, we may not be able to amend our debt agreements or obtain needed waivers on satisfactory terms.

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Our borrowings under our senior secured revolving credit facility expose us to interest rate risk.

Our earnings are exposed to interest rate risk associated with borrowings under our senior secured revolving credit facility. Our senior secured revolving credit facility carries a floating interest rate based upon short-term interest rate indices. If interest rates increase, so will our interest costs, which may have a material adverse effect on our results of operations and financial condition. We use interest rate hedges in an effort to mitigate this risk, but those efforts may not prove successful.

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EXCHANGE OFFER

Purpose and Effect of the Exchange Offer

At the closing of the offering of the old notes, we entered into a registration rights agreement with the initial purchasers pursuant to which we agreed, for the benefit of the holders of the old notes, at our cost, to do the following:

•  file an exchange offer registration statement with the SEC with respect to the exchange offer for the new notes, and

•  use commercially reasonable efforts to have the exchange offer completed by the 360^th day following the date of the initial issuance of the notes (October 13, 2010).

Upon the SEC’s declaring the exchange offer registration statement effective, we agreed to offer the new notes in exchange for surrender of the old notes. We agreed to use commercially reasonable efforts to cause the exchange offer registration statement to be effective continuously, and to keep the exchange offer open for a period of not less than 20 business days.

For each old note surrendered to us pursuant to the exchange offer, the holder of such old note will receive a new note having a principal amount equal to that of the surrendered old note. Interest on each new note will accrue from the last interest payment date on which interest was paid on the surrendered old note. The registration rights agreement also contains agreements to include in the prospectus for the exchange offer certain information necessary to allow a broker-dealer who holds old notes that were acquired for its own account as a result of market-making activities or other ordinary course trading activities (other than old notes acquired directly from us or one of our affiliates) to exchange such old notes pursuant to the exchange offer and to satisfy the prospectus delivery requirements in connection with resales of new notes received by such broker-dealer in the exchange offer. We agreed to use commercially reasonable efforts to maintain the effectiveness of the exchange offer registration statement for these purposes for a period ending on the earlier of (i) one year from the date on which the exchange offer registration statement is declared effective and (ii) the date on which a broker-dealer is no longer required to deliver a prospectus in connection with market-making or other trading activities.

The preceding agreement is needed because any broker-dealer who acquires old notes for its own account as a result of market-making activities or other trading activities is required to deliver a prospectus meeting the requirements of the Securities Act. This prospectus covers the offer and sale of the new notes pursuant to the exchange offer and the resale of new notes received in the exchange offer by any broker-dealer who held old notes acquired for its own account as a result of market-making activities or other trading activities other than old notes acquired directly from us or one of our affiliates.

Based on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, we believe that the new notes issued pursuant to the exchange offer would in general be freely tradable after the exchange offer without further registration under the Securities Act. However, any purchaser of old notes who is an “affiliate” of ours or who intends to participate in the exchange offer for the purpose of distributing the related new notes:

•  will not be able to rely on the interpretation of the staff of the SEC,

•  will not be able to tender its new notes in the exchange offer, and

•  must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the old notes unless such sale or transfer is made pursuant to an exemption from such requirements.

Each holder of the old notes (other than certain specified holders) who desires to exchange old notes for the new notes in the exchange offer will be required to make the representations described below under “ — Your Representations to Us.”

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We further agreed to file with the SEC a shelf registration statement to register for public resale of old notes held by any holder who provides us with certain information for inclusion in the shelf registration statement if:

•  the exchange offer is not permitted by applicable law or SEC policy, or

•  the exchange offer is not for any reason completed by the 360^th day following the date of the initial issuance of the notes (October 13, 2010), or

•  upon completion of the exchange offer, any initial purchaser shall so request in connection with any offering or sale of notes.

We have agreed to use commercially reasonable efforts to keep the shelf registration statement continuously effective until the earlier of one year following its effective date and such time as all notes covered by the shelf registration statement have been sold. We refer to this period as the “shelf effectiveness period.”

The registration rights agreement provides that, in the event that either the exchange offer is not completed or the shelf registration statement, if required, is not declared effective (or does not automatically become effective) on or prior to the 360^th calendar day following the date of the initial issuance of the notes (October 13, 2010), the interest rate on the old notes will be increased by 1.00% per annum until the exchange offer is completed or the shelf registration statement is declared effective (or automatically becomes effective) under the Securities Act, at which time the increased interest shall cease to accrue.

If the shelf registration statement has been declared effective (or automatically becomes effective) and thereafter either ceases to be effective or the prospectus contained therein ceases to be usable for resales of the notes at any time during the shelf effectiveness period, and such failure to remain effective or usable for resales of the notes exists for more than 45 calendar days in any three-month period (whether or not consecutive) or 90 calendar days (whether or not consecutive) in any 12-month period, then the interest rate on the old notes will be increased by 1.00% per annum commencing on the 46^th day or 91^st day, respectively, in such period and ending on such date that the shelf registration statement has again been declared (or automatically becomes) effective or the prospectus again becomes usable, at which time the increased interest shall cease to accrue.

Holders of the old notes will be required to make certain representations to us (as described in the registration rights agreement) in order to participate in the exchange offer and will be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the registration rights agreement in order to have their old notes included in the shelf registration statement.

If we effect the registered exchange offer, we will be entitled to close the registered exchange offer 20 business days after its commencement as long as we have accepted all old notes validly rendered in accordance with the terms of the exchange offer.

This summary of the material provisions of the registration rights agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the registration rights agreement, a copy of which is filed as an exhibit to the registration statement which includes this prospectus.

Except as set forth above, after consummation of the exchange offer, holders of old notes which are the subject of the exchange offer have no registration or exchange rights under the registration rights agreement. See “— Consequences of Failure to Exchange.”

Terms of the Exchange Offer

Subject to the terms and conditions described in this prospectus and in the letter of transmittal, we will accept for exchange any old notes properly tendered and not withdrawn prior to 5:00 p.m. New York City time on the expiration date. We will issue new notes in principal amount equal to the principal amount of old notes

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surrendered in the exchange offer. Old notes may be tendered only for new notes and only in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.

The exchange offer is not conditioned upon any minimum aggregate principal amount of old notes being tendered for exchange.

As of the date of this prospectus, $300,000,000 in aggregate principal amount of the old notes is outstanding. This prospectus and the letter of transmittal are being sent to all registered holders of old notes. There will be no fixed record date for determining registered holders of old notes entitled to participate in the exchange offer.

We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement, the applicable requirements of the Securities Act and the Exchange Act and the rules and regulations of the SEC. Old notes that the holders thereof do not tender for exchange in the exchange offer will remain outstanding and continue to accrue interest. These old notes will continue to be entitled to the rights and benefits such holders have under the indenture relating to the notes.

We will be deemed to have accepted for exchange properly tendered old notes when we have given oral or written notice of the acceptance to the exchange agent and complied with the applicable provisions of the registration rights agreement. The exchange agent will act as agent for the tendering holders for the purposes of receiving the new notes from us.

If you tender old notes in the exchange offer, you will not be required to pay brokerage commissions or fees or, subject to the letter of transmittal, transfer taxes with respect to the exchange of old notes. We will pay all charges and expenses, other than certain applicable taxes described below, in connecting with the exchange offer. It is important that you read the section labeled “— Fees and Expenses” for more details regarding fees and expenses incurred in the exchange offer.

We will return any old notes that we do not accept for exchange for any reason without expense to their tendering holder promptly after the expiration or termination of the exchange offer.

Expiration Date

The exchange offer will expire at 5:00 p.m., New York City time, on          , 2011, unless, in our sole discretion, we extend it.

Extensions, Delays in Acceptance, Termination or Amendment

We expressly reserve the right, at any time or various times, to extend the period of time during which the exchange offer is open. We may delay acceptance of any old notes by giving oral or written notice of such extension to their holders. During any such extensions, all old notes previously tendered will remain subject to the exchange offer, and we may accept them for exchange.

In order to extend the exchange offer, we will notify the exchange agent orally or in writing of any extension. We will notify the registered holders of old notes of the extension no later than 9:00 a.m., New York City time, on the first business day following the previously scheduled expiration date.

If any of the conditions described below under “— Conditions to the Exchange Offer” have not been satisfied, we reserve the right, in our sole discretion:

•  to extend the exchange offer, or

•  to terminate the exchange offer,

by giving oral or written notice of such delay, extension or termination to the exchange agent. Subject to the terms of the registration rights agreement, we also reserve the right to amend the terms of the exchange offer in any manner.

Any extension, termination or amendment will be followed promptly by oral or written notice thereof to the registered holders of old notes. If we amend the exchange offer in a manner that we determine to

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constitute a material change, we will promptly disclose such amendment by means of a prospectus supplement. The supplement will be distributed to the registered holders of the old notes. Depending upon the significance of the amendment and the manner of disclosure to the registered holders, we may extend the exchange offer. In the event of a material change in the exchange offer, including the waiver by us of a material condition, we will extend the exchange offer period if necessary so that at least five business days remain in the exchange offer following notice of the material change.

Conditions to the Exchange Offer

We will not be required to accept for exchange, or exchange any new notes for, any old notes if the exchange offer, or the making of any exchange by a holder of old notes, would violate applicable law or any applicable interpretation of the staff of the SEC. Similarly, we may terminate the exchange offer as provided in this prospectus before accepting old notes for exchange in the event of such a potential violation.

In addition, we will not be obligated to accept for exchange the old notes of any holder that has not made to us the representations described under “— Purpose and Effect of the Exchange Offer,” “— Your Representations to Us” and “Plan of Distribution” and such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to allow us to use an appropriate form to register the new notes under the Securities Act.

We expressly reserve the right to amend or terminate the exchange offer, and to reject for exchange any old notes not previously accepted for exchange, upon the occurrence of any of the conditions to the exchange offer specified above. We will give prompt oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the old notes as promptly as practicable.

These conditions are for our sole benefit, and we may assert them or waive them in whole or in part at any time or at various times in our sole discretion. If we fail at any time to exercise any of these rights, this failure will not mean that we have waived our rights. Each such right will be deemed an ongoing right that we may assert at any time or at various times.

In addition, we will not accept for exchange any old notes tendered, and will not issue new notes in exchange for any such old notes, if at such time any stop order has been threatened or is in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture relating to the notes under the Trust Indenture Act of 1939.

Procedures for Tendering

In order to participate in the exchange offer, you must properly tender your old notes to the exchange agent as described below. It is your responsibility to properly tender your notes. We have the right to waive any defects. However, we are not required to waive defects and are not required to notify you of defects in your tender.

If you have any questions or need help in exchanging your notes, please call the exchange agent, whose contact information is set forth in “Prospectus Summary — The Exchange Offer — Exchange Agent.”

All of the old notes were issued in book-entry form, and all of the old notes are currently represented by global certificates held for the account of DTC. We have confirmed with DTC that the old notes may be tendered using the Automated Tender Offer Program (“ATOP”) instituted by DTC. The exchange agent will establish an account with DTC for purposes of the exchange offer promptly after the commencement of the exchange offer and DTC participants may electronically transmit their acceptance of the exchange offer by causing DTC to transfer their old notes to the exchange agent using the ATOP procedures. In connection with the transfer, DTC will send an “agent’s message” to the exchange agent. The agent’s message will state that DTC has received instructions from the participant to tender old notes and that the participant agrees to be bound by the terms of the letter of transmittal.

By using the ATOP procedures to exchange old notes, you will not be required to deliver a letter of transmittal to the exchange agent. However, you will be bound by its terms just as if you had signed it.

There is no procedure for guaranteed late delivery of the notes.

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Determinations Under the Exchange Offer

We will determine in our sole discretion all questions as to the validity, form, eligibility, time of receipt, acceptance of tendered old notes and withdrawal of tendered old notes. Our determination will be final and binding. We reserve the absolute right to reject any old notes not properly tendered or any old notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defect, irregularities or conditions of tender as to particular old notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, all defects or irregularities in connection with tenders of old notes must be cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old notes, neither we, the exchange agent nor any other person will incur any liability for failure to give such notification. Tenders of old notes will not be deemed made until such defects or irregularities have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the tendering holder, unless otherwise provided in the letter of transmittal, promptly following the expiration date.

When We Will Issue New Notes

In all cases, we will issue new notes for old notes that we have accepted for exchange under the exchange offer only after the exchange agent timely receives:

•  a book-entry confirmation of such old notes into the exchange agent’s account at DTC; and

•  a properly transmitted agent’s message.

Return of Old Notes Not Accepted or Exchanged

If we do not accept any tendered old notes for exchange or if old notes are submitted for a greater principal amount than the holder desires to exchange, the unaccepted or non-exchanged old notes will be returned without expense to their tendering holder. Such non-exchanged old notes will be credited to an account maintained with DTC. These actions will occur promptly after the expiration or termination of the exchange offer.

Your Representations to Us

By agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:

•  any new notes that you receive will be acquired in the ordinary course of your business;

•  you have no arrangement or understanding with any person or entity to participate in the distribution of the new notes;

•  you are not our “affiliate,” as defined in Rule 405 of the Securities Act; and

•  if you are a broker-dealer that will receive new notes for your own account in exchange for old notes, you acquired those notes as a result of market-making activities or other trading activities and you will deliver a prospectus (or to the extent permitted by law, make available a prospectus) in connection with any resale of such new notes.

Withdrawal of Tenders

Except as otherwise provided in this prospectus, you may withdraw your tender at any time prior to 5:00 p.m. New York City time on the expiration date. For a withdrawal to be effective you must comply with the appropriate procedures of DTC’s ATOP system. Any notice of withdrawal must specify the name and number of the account at DTC to be credited with withdrawn old notes and otherwise comply with the procedures of DTC.

We will determine all questions as to the validity, form, eligibility and time of receipt of notice of withdrawal. Our determination shall be final and binding on all parties. We will deem any old notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer.

Any old notes that have been tendered for exchange but are not exchanged for any reason will be credited to an account maintained with DTC for the old notes. This crediting will take place as soon as practicable

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after withdrawal, rejection of tender or termination of the exchange offer. You may retender properly withdrawn old notes by following the procedures described under “— Procedures for Tendering” above at any time prior to 5:00 p.m., New York City time, on the expiration date.

Fees and Expenses

We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, we may make additional solicitation by facsimile, telephone, electronic mail or in person by our officers and regular employees and those of our affiliates.

We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses.

We will pay the cash expenses to be incurred in connection with the exchange offer. They include:

•  all registration and filing fees and expenses;

•  all fees and expenses of compliance with federal securities and state “blue sky” or securities laws;

•  accounting fees, legal fees incurred by us, disbursements and printing, messenger and delivery services, and telephone costs; and

•  related fees and expenses.

Transfer Taxes

We will pay all transfer taxes, if any, applicable to the exchange of old notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if a transfer tax is imposed for any reason other than the exchange of old notes under the exchange offer.

Consequences of Failure to Exchange

If you do not exchange new notes for your old notes under the exchange offer, you will remain subject to the existing restrictions on transfer of the old notes. In general, you may not offer or sell the old notes unless the offer or sale is either registered under the Securities Act or exempt from the registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, we do not intend to register resales of the old notes under the Securities Act.

Accounting Treatment

We will record the new notes in our accounting records at the same carrying value as the old notes. This carrying value is the aggregate principal amount of the old notes adjusted for any bond discount or premium, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes in connection with the exchange offer.

Other

Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take.

We may in the future seek to acquire untendered old notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans to acquire any old notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered old notes.

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USE OF PROCEEDS

The exchange offer is intended to satisfy our obligations under the registration rights agreement. We will not receive any proceeds from the issuance of the new notes in the exchange offer. In consideration for issuing the new notes as contemplated by this prospectus, we will receive old notes in a like principal amount. The form and terms of the new notes are identical in all respects to the form and terms of the old notes, except the new notes will be registered under the Securities Act and will not contain restrictions on transfer, registration rights or provisions for additional interest. Old notes surrendered in exchange for the new notes will be retired and cancelled and will not be reissued. Accordingly, the issuance of the new notes will not result in any change in our outstanding indebtedness.

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SELECTED HISTORICAL FINANCIAL AND OTHER DATA

The following table presents our summary historical financial data for the periods indicated, giving effect to the Meridian acquisition from the acquisition date of May 13, 2010. The data as of and for the years ended December 31, 2010, 2009, 2008, 2007 and 2006 have been derived from our audited consolidated financial statements. For further information that will help you better understand the summary data, you should read this financial data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes and other financial information included elsewhere in this prospectus.

	Year Ended December 31,
	2010			2009			2008			2007			2006
	(Dollars in thousands)
Statement of Operations Data:
Revenues
Natural gas, oil and natural gas liquids	$	208,537		$	102,263		$	98,983		$	56,746		$	40,902
Other revenues		1,475			1,558			3,629			12,036			472
		210,012			103,821			102,612			68,782			41,374
Unrealized gain (loss) — oil and natural gas derivative contracts		10,088			(26,258	)		60,612			(14,457	)		17,867
Total revenues	$	220,100		$	77,563		$	163,224		$	54,325		$	59,241
Costs and expenses:
Lease and plant operating expense		41,905			23,871			20,658			14,642			12,046
Production and ad valorem taxes		11,141			4,755			6,954			4,406			3,393
Workover expense		7,409			8,988			8,113			7,825			6,635
Exploration expense		31,037			12,839			11,675			9,743			1,303
Depreciation, depletion, and amortization		59,090			48,659			49,219			31,298			11,340
Impairment expense		8,399			6,165			11,487			1,449			1,007
Accretion expense		1,370			492			729			627			538
General and administrative expense		20,135			8,738			6,401			5,321			3,617
Gain on sale of assets		(1,766	)		(738	)		—			—			—
Total expenses		178,720			113,769			115,236			75,311			39,879
Income (loss) from operations		41,380			(36,206	)		47,988			(20,986	)		19,362
Other income (expense):
Interest expense, net		(27,149	)		(13,831	)		(14,457	)		(10,792	)		(9,509	)
Gain on extinguishment of debt		—			—			3,349			4,302			—
Total other income (expense)		(27,149	)		(13,831	)		(11,108	)		(6,490	)		(9,509	)
(Provision) benefit for state income taxes		(2	)		750			(250	)		(500	)		—
Net income (loss)	$	14,229		$	(49,287	)	$	36,630		$	(27,976	)	$	9,853
Statement of Cash Flow Data:
Capital expenditures	$	110,083		$	100,261		$	111,096		$	89,604		$	38,720
Net cash flow provided by operating activities		61,120			34,343			20,300			38,618			868
Net cash used in investing activities(1)		(208,412	)		(86,573	)		(111,096	)		(98,604	)		(38,720	)
Net cash provided by financing activities		147,854			51,823			78,771			71,596			42,185
Balance Sheet Data (at period end):
Cash and cash equivalents	$	4,836		$	4,274		$	4,681		$	16,706		$	5,096
Property and equipment, net		456,264			236,196			201,327			132,719			74,672
Total assets		558,239			290,606			277,111			175,157			102,743
Total debt, including Notes to Founder		390,985			219,830			188,228			123,244			95,108
Total partners’ capital (deficit)		24,658			10,664			37,751			(11,661	)		(25,399	)

(1) Net cash used in investing activities includes $101.4 million for acquisition of Meridian in the year ended December 31, 2010.

38

RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth our ratios of earnings to fixed charges for the periods presented:

	Year Ended December 31,
	2010		2009		2008		2007		2006
Ratio of earnings to fixed charges(1)		1.59		—		5.00		—		2.01

(1) The ratio of earnings to fixed charges is calculated by dividing (i) earnings by (ii) fixed charges. Earnings consist of pre-tax income from continuing operations before fixed charges. Fixed charges consist of interest expense, including amortization of discount on the notes, amortization of capitalized costs related to debt, and an estimate of the interest within rental expense. Earnings were inadequate to cover fixed charges for the years ended December 31, 2007 and 2009 by $27 million and $50 million, respectively.

39

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the “Selected Historical Financial and Other Data” and the financial statements and related notes included elsewhere in this prospectus. The following discussion and analysis contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the volatility of oil and natural gas prices, production timing and volumes, estimates of proved reserves, operating costs and capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this prospectus, particularly in “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements”, all of which are difficult to predict. As a result of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. The historical financial information discussed below in this Management’s Discussion and Analysis of Financial Condition and Results of Operations represents Alta Mesa’s financial information for the periods indicated, giving effect to the Meridian acquisition from the acquisition date of May 13, 2010.

Overview

We currently generate significant amounts of our revenue, earnings and cash flow from the production and sale of oil and natural gas from our core properties in South Louisiana, East Texas, Oklahoma, the Deep Bossier resource play of East Texas and Eagle Ford Shale play in South Texas. We operate in one industry segment, oil and natural gas exploration and development, within one geographical segment, the United States.

The amount of cash we generate from our operations will fluctuate based on, among other things:

•  the prices at which we will sell our production;

•  the amount of oil and natural gas we produce; and

•  the level of our operating and administrative costs.

In order to mitigate the impact of changes in oil and natural gas prices on our cash flows, we are a party to hedging and other price protection contracts, and we intend to enter into such transactions in the future to reduce the effect of oil and natural gas price volatility on our cash flows.

Substantially all of our oil and natural gas activities are conducted jointly with others and, accordingly, amounts presented reflect our proportionate interest in such activities. Inflation has not had a material impact on our results of operations and is not expected to have a material impact on our consolidated results of operations in the future.

Significant Acquisitions

On May 13, 2010, we acquired The Meridian Resource Corporation (“Meridian”), a public exploration and production company with properties in or proximate to our own areas of operation and with proved reserves of 75 Bcfe as of December 31, 2009, for approximately $158 million. The acquisition was funded with borrowings under our senior secured revolving credit facility as well as a $50 million equity contribution from our private equity partner, AMIH. As a result of the acquisition, we increased total proved reserves 36% and have achieved a more balanced portfolio mix by increasing our total proved oil reserves by 69%. We also believe the acquisition gives us significant growth potential by increasing our proved undeveloped reserves by 51% as compared to undeveloped reserves at December 31, 2009 and adding a large library of 3-D and 2-D seismic data, much of which we are reprocessing and utilizing for the exploitation of known fields and identification and development of new prospects in certain of our operating areas.

On July 23, 2009, we made a payment of $25.5 million and took assignment of substantially all working interests that had been held by Chesapeake Energy Corporation in an approximate 50,000 acre area of Leon

40

and Robertson Counties, Texas in the Deep Bossier play. We had exercised our preferential right to purchase these interests from Gastar Exploration Ltd. in late 2005, but Gastar and Chesapeake had opposed this and Chesapeake took record title until we finally and conclusively prevailed, and in 2008 a Texas court of appeals directed that specific performance take place. In early 2009, the Texas Supreme Court denied the defendants’ request to hear the appeal. As a result, we were able to take working interests in over 30 producing wells and participate in further development of the area, primarily with EnCana, but also with Gastar. A subsequent payment to EnCana of $15.2 million plus purchase accounting adjustments of $3.8 million brought the total cost of the acquisition to $44.5 million. While the ownership of these interests has been decided by the courts, we are pursuing other claims against Chesapeake; Chesapeake is claiming an additional $36.5 million of past expenses from us.

Outlook

The U.S. and other world economies suffered a severe recession lasting well into 2009 and economic conditions remain uncertain. These uncertain economic conditions reduced demand for oil and natural gas, resulting in a decline in oil and natural gas prices received for our production in 2009 compared with years prior to and including 2008. In response to these lower oil and natural gas prices, we, along with many other oil and natural gas companies, scaled back our drilling programs.

While oil and natural gas prices have strengthened, they remain unstable and we expect them to remain volatile in the future. Factors affecting the price of oil include worldwide economic conditions, geopolitical activities, worldwide supply disruptions, weather conditions, actions taken by the Organization of Petroleum Exporting Countries and the value of the U.S. dollar in international currency markets. Factors affecting the price of natural gas include industrial demand for natural gas, power generation demand for natural gas, residential and commercial demand for natural gas, each of which is influenced to some degree by the U.S. and global economy as well as North American weather conditions; storage levels of natural gas; the availability and accessibility of natural gas deposits in North America; and the effects of international natural gas demand on the import and export of liquefied natural gas. If the global economic instability continues, commodity prices may be depressed for an extended period of time, which could alter our development plans and adversely affect our growth strategy and our ability to access additional funding in the capital markets.

The primary factors affecting our production levels are capital availability, the effectiveness and efficiency of our production operations, the success of our drilling program and our inventory of drilling prospects. We inherently face the challenge of natural production declines as reservoirs are depleted, pressures decline, and the rate of production from a given well decreases. We attempt to overcome the cumulative effects of these natural declines primarily through developing our existing undeveloped reserves through drilling, enhanced completions and well recompletions, and other enhanced recovery methods. Our future growth will depend on our ability to continue to add reserves in excess of production. Our ability to add reserves is dependent on our capital resources and can be limited by many factors, including our ability to timely obtain drilling permits and regulatory approvals. Any delays in drilling, completing or connecting our new wells to gathering lines will negatively affect our production, which will have an adverse effect on our revenues and, as a result, cash flow from operations.

41

Results of Operations: Year Ended December 31, 2010 v. Year Ended December 31, 2009

	Year Ended
	December 31,						Increase
	2010			2009			(Decrease)			% Change
	($ in thousands, except average sales price and unit costs)
Summary Operating Information:
Net Production:
Natural gas (MMcf)		24,026			10,610			13,416			126	%
Oil (MBbls)		964			505			459			91	%
Natural gas liquids (MBbls)		147			47			100			213	%
Total natural gas equivalent (Mmcfe)		30,694			13,919			16,775			121	%
Average daily gas production (Mmcfe per day)		84.1			38.1			46.0			121	%
Average Sales Price:
Natural gas (per Mcf) realized	$	5.24		$	6.25		$	(1.01	)		(16	)%
Natural gas (per Mcf) unhedged		4.27			3.72			0.55			15	%
Oil (per Bbl) realized		78.63			67.94			10.69			16	%
Oil (per Bbl) unhedged		78.86			59.23			19.63			33	%
Natural gas liquids (per Bbl) realized(1)		46.58			36.05			10.53			29	%
Combined (per Mcfe) realized		6.79			7.35			(0.56	)		(8	)%
Hedging Activities:
Realized natural gas revenue gain (loss)	$	23,206		$	26,835		$	(3,629	)		(14	)%
Realized oil revenue gain (loss)		(224	)		4,397			(4,621	)		(105	)%
Summary Financial Information:
Revenues
Natural gas	$	125,866		$	66,290		$	59,576			90	%
Oil		75,827			34,283			41,544			121	%
Natural gas liquids		6,844			1,690			5,154			305	%
Unrealized gain (loss) — oil and natural gas derivative contracts		10,088			(26,258	)		36,346			138	%
Other revenues		1,475			1,558			(83	)		(5	)%
Costs and Expenses
Lease and plant operating expense		41,905			23,871			18,034			76	%
Production and ad valorem taxes		11,141			4,755			6,386			134	%
Workover expense		7,409			8,988			(1,579	)		(18	)%
Exploration expense		31,037			12,839			18,198			142	%
Depreciation, depletion, and amortization		59,090			48,659			10,431			21	%
Impairment expense		8,399			6,165			2,234			36	%
Accretion expense		1,370			492			878			178	%
General and administrative expense		20,135			8,738			11,397			130	%
Gain on sale of assets		(1,766	)		(738	)		(1,028	)		(139	)%
Interest expense, net		27,149			13,831			13,318			96	%
(Benefit) provision for state income taxes		2			(750	)		752			100	%
Net income (loss)	$	14,229		$	(49,287	)	$	63,516			129	%
Average Unit Costs per Mcfe:
Lease and plant operating expense	$	1.37		$	1.71		$	(0.34	)		(20	)%
Production and ad valorem taxes		0.36			0.34			0.02			6	%
Workover expense		0.24			0.65			(0.41	)		(63	)%
Exploration expense		1.01			0.92			0.09			10	%
Depreciation, depletion, and amortization		1.93			3.50			(1.57	)		(45	)%
General and administrative expense		0.66			0.63			0.03			5	%

(1) We do not utilize hedging for natural gas liquids.

42

Revenues

Natural gas revenues for the year ended December 31, 2010 were $125.9 million, compared to $66.3 million for 2009, representing a $59.6 million or 90% increase. The increase in revenue was attributable to increased production volumes, which was partially offset by a lower average realized price during 2010. Approximately $83.8 million of the increase was due to an increase in production of 13.4 Bcf, or 126%. This increase in turn was primarily due to the addition of production from our Meridian acquisition in May 2010, and the full-year effect of the acquisition of our Deep Bossier properties in July 2009. Natural gas production attributable to the acquisition of Meridian for the year was 4.2 Bcf; the Deep Bossier properties produced 12.3 Bcf in 2010, as compared to 4.0 Bcf in 2009. The price of gas we received exclusive of hedging increased 15% in 2010; however, the overall realized price (including hedging gains and losses), decreased 16% from $6.25 per Mcf in 2009 to $5.24 per Mcf in 2010, resulting in a decrease in revenues of approximately $24.2 million.

Oil revenues for the year ended December 31, 2010 increased $41.5 million, or 121%, to $75.8 million from $34.3 million in 2009. The increase in revenue was due to higher production volumes coupled with a higher average realized sales price. Oil production increased to 964 MBbls from 505 MBbls in 2009, an increase of 91%. Of this, 472 MBbls were attributable to the acquisition of Meridian. During 2010, our average realized oil price increased 16% to $78.63 per Bbl from $67.94 per Bbl in 2009, primarily based on market increases to prices before hedging gains and losses. Market oil prices realized exclusive of hedging activities increased 33%, from $59.23 per Bbl to $78.86 per Bbl.

Natural gas liquids revenues increased during 2010 to $6.8 million from $1.7 million for 2009. The increase was primarily due to an increase in volume sold, from 47 MBbls to 147 MBbls; prices also increased between the two periods from $36.05 per Bbl to $46.58 per Bbl.

Other revenues were $1.5 million during 2010 as compared to $1.6 million during 2009. The decrease is primarily the result of decreased income from investments, which includes distributions from a drilling company we partially own and do not consolidate.

Unrealized gain (loss) — oil and natural gas derivative contracts was a gain of $10.1 million for 2010 as compared to a loss of $26.3 million for 2009. The significant fluctuation from period to period is due to the volatility of oil and natural gas prices and changes in our outstanding hedging contracts during these periods.

Expenses

Lease and plant operating expense increased $18.0 million to $41.9 million in 2010 as compared to $23.9 million in 2009, due primarily to lease operating costs of $9.0 million associated with production from the Meridian acquisition, which was acquired in May 2010. In addition, the Deep Bossier properties, acquired in late July 2009, contributed $10.4 million in operating expenses in 2010, as compared to $1.1 million for 2009. The increase at Deep Bossier included approximately $6.8 million in additional gas gathering and marketing expenses, based on a contract which originated in December 2009. Increased production from the Deep Bossier properties, from 4.0 Bcf to 12.3 Bcf, as well as increased production from other non-Meridian properties, also impacted lease operating expense. On a unit basis, lease and plant operating expense decreased from $1.71 per Mcfe to $1.37 per Mcfe.

Production and ad valorem taxes increased $6.3 million to $11.1 million, or 134%, for 2010, as compared to $4.8 million for 2009. The increase on a percentage basis follows the increase in our revenues from products, which was 104%. On a per unit basis, the expense increased to $0.36 for 2010 from $0.34 per Mcfe for 2009.

Workover expense decreased slightly from 2009 to 2010, from $9.0 million to $7.4 million, respectively. This expense varies depending on activities in the field.

Exploration expense includes the costs of our geology departments, costs of geological and geophysical data, delay rentals, expired leases, and dry holes. Exploration expense increased $18.2 million for 2010 to $31.0 million from $12.8 million for 2009. The increase is primarily due to an exploratory dry hole in South

43

Louisiana which cost $4.8 million, two exploratory dry holes in East Texas which cost a combined $10.2 million, and increased seismic expenditures.

Depreciation, depletion and amortization increased $10.4 million to $59.1 million for 2010 as compared to an expense of $48.7 million for 2009. On a per unit basis, this expense declined from $3.50 to $1.93 per Mcfe. This is the result of the acquisition of the Meridian and Deep Bossier properties.

Impairment expense increased $2.2 million to $8.4 million in 2010 from $6.2 million in 2009. This expense varies with the results of exploratory drilling, as well as with price declines which may render some projects uneconomic, resulting in impairment. See “Critical Accounting Policies and Estimates — Impairment” below for more details related to impairment.

Accretion expense is related to our obligation for retirement of oil and natural gas wells and facilities. We record these liabilities when we place the assets in service, using discounted present values of the estimated future obligation. We then record accretion of the liabilities as they approach maturity. Accretion expense was $1.4 million and $0.5 million for 2010 and 2009, respectively. The increase was due to the acquisition of Meridian.

General and administrative expense increased $11.4 million for 2010 to $20.1 million from $8.7 million for 2009. The increase in general and administrative expense resulted principally from increased payroll and burden costs of $8.8 million, which are predominately related to increased headcount due to the Meridian acquisition, the addition of other personnel, and to annual bonuses paid in the third quarter of 2010. The increase in payroll is partially offset by allocations to expense categories. Other general and administrative costs related to the acquisition of Meridian also increased, including office rent, which increased $1.2 million in 2010 as compared to 2009. Consulting expenses such as legal, engineering and other professional services increased a total of $2.0 million, primarily due to increased costs of outside drilling and reservoir engineers, and to services related to accounting and tax work and to acquisition reviews, including the acquisition of Meridian. On a unit basis, general and administrative expense increased to $0.66 per Mcfe for 2010, from $0.63 per Mcfe, for 2009. The increase in total general and administrative expense was largely mitigated on a unit basis by the increase in production.

Interest expense, net increased $13.3 million for 2010 to $27.1 million from $13.8 million for 2009, primarily due to new interest in the fourth quarter of 2010 from our notes payable issued in October 2010 ($6.2 million additional interest), to increases in the amount outstanding under our credit facility (approximately $0.6 million additional interest), to increased amortization of deferred loan costs (approximately $3.5 million), to a prepayment penalty on retirement of our subordinate credit facility ($0.8 million), to increased interest on our notes payable to the founder of the company ($0.2 million) and to increased interest rate hedge losses (approximately $1.5 million).

44

Results of Operations: Year Ended December 31, 2009 v. Year Ended December 31, 2008

	Year Ended
	December 31,						Increase
	2009			2008			(Decrease)			% Change
	($ in thousands, except average sales price and unit costs)
Summary Operating Information:
Net Production:
Natural gas (MMcf)		10,610			6,637			3,973			60	%
Oil (MBbls)		505			445			60			13	%
Natural gas liquids (MBbls)		47			47			—			—
Total natural gas equivalent (MMcfe)		13,919			9,593			4,326			45	%
Average daily gas production (MMcfe per day)		38.1			26.2			11.9			45	%
Average Sales Price:
Natural gas (per Mcf) realized	$	6.25		$	8.81		$	(2.56	)		(29	)%
Natural gas (per Mcf) unhedged		3.72			9.33			(5.61	)		(60	)%
Oil (per Bbl) realized		67.94			85.45			(17.51	)		(20	)%
Oil (per Bbl) unhedged		59.23			99.17			(39.94	)		(40	)%
Natural gas liquids (per Bbl) realized(1)		36.05			52.24			(16.19	)		(31	)%
Combined (per Mcfe) realized		7.35			10.32			(2.97	)		(29	)%
Hedging Activities:
Realized natural gas revenue gain (loss)	$	26,835		$	(3,446	)	$	30,281			879	%
Realized oil revenue gain (loss)		4,397			(6,112	)		10,509			172	%
Summary Financial Information:
Revenues
Natural gas	$	66,290		$	58,458		$	7,832			13	%
Oil		34,283			38,055			(3,772	)		(10	)%
Natural gas liquids		1,690			2,470			(780	)		(32	)%
Unrealized gain (loss) — oil and natural gas derivative contracts		(26,258	)		60,612			(86,870	)		(143	)%
Other revenues		1,558			3,629			(2,071	)		(57	)%
Costs and Expenses
Lease and plant operating expense		23,871			20,658			3,213			16	%
Production and ad valorem taxes		4,755			6,954			(2,199	)		(32	)%
Workover expense		8,988			8,113			875			11	%
Exploration expense		12,839			11,675			1,164			10	%
Depreciation, depletion, and amortization		48,659			49,219			(560	)		(1	)%
Impairment expense		6,165			11,487			(5,322	)		(46	)%
Accretion expense		492			729			(237	)		(33	)%
General and administrative expense		8,738			6,401			2,337			37	%
Gain on sale of assets		(738	)		—			(738	)		—
Interest expense, net		13,831			14,457			(626	)		(4	)%
Gain on extinguishment of debt		—			(3,349	)		3,349			—
(Benefit) provision for state income taxes		(750	)		250			(1,000	)		(400	)%
Net income (loss)	$	(49,287	)	$	36,630		$	(85,917	)		(235	)%
Average Unit Costs per Mcfe:
Lease and plant operating expense	$	1.71		$	2.15		$	(0.44	)		(20	)%
Production and ad valorem taxes		0.34			0.72			(0.38	)		(53	)%
Workover expense		0.65			0.85			(0.20	)		(24	)%
Exploration expense		0.92			1.22			(0.30	)		(25	)%
Depreciation, depletion, and amortization		3.50			5.13			(1.63	)		(32	)%
General and administrative expense		0.63			0.67			(0.04	)		(6	)%

(1) We do not utilize hedging for natural gas liquids.

45

Revenues

Natural gas revenues for 2009 increased $7.8 million (13%) to $66.3 million as compared to $58.5 million in 2008. The revenue increase was due to a 60% increase in production volumes, primarily related to the acquisition of the Deep Bossier properties on July 23, 2009, partially offset by a 29% decrease in our average natural gas prices realized during the year.

Oil revenues decreased in 2009 $3.8 million (10%) from 2008 revenues, primarily due to a 20% decrease in oil prices realized during the year, partially offset by a production volume increase of 13%.

Natural gas liquids revenues decreased by $0.8 million (32%), due to the 31% decrease in prices received during 2009 as compared to 2008. Production of NGLs was flat over the two year period.

Other revenues were $1.6 million for 2009 as compared to $3.6 million for 2008. The decrease is a result of decreased income from investments and decreased income from a drilling rig which was sold in 2009.

Unrealized gain (loss) — oil and natural gas derivative contracts was a loss of $26.3 million during 2009 as compared to a gain in 2008 of $60.6 million. The significant fluctuation from period to period is due to the extreme volatility of oil and gas prices and changes in our outstanding hedging contracts during these periods.

Costs and Expenses

Lease and plant operating expense on an aggregate basis increased $3.2 million (16%) to $23.9 million in 2009, compared to $20.7 million in 2008, due to increases in various expenses, including $1.1 million associated with the acquisition of the Deep Bossier properties in July 2009. The remainder of the increase was due primarily to the full-year effect of wells acquired or drilled in 2008. On a per unit basis, lease and plant operating expense decreased $0.44 per Mcfe to $1.71 per Mcfe for the year 2009 from $2.15 per Mcfe for the year 2008, due to higher production.

Production and ad valorem taxes decreased $2.2 million (32%) to $4.8 million in 2009, compared to $7.0 million in 2008. Total oil and gas revenues increased slightly between the two periods. However, realized hedging gains and losses, which we include with product revenues, are not subject to production tax. Excluding such realized gains and losses in revenue, total production and ad valorem taxes were 7% and 6% of product revenues in 2009 and 2008, respectively.

Workover expense increased slightly from period to period, to $9.0 million in 2009 from $8.1 million in 2008. This expense varies depending on activities in our various fields.

Exploration expense includes the costs of our geology departments, costs of geological and geophysical data, delay rentals, expired leases, and dry holes. Exploration expense increased $1.2 million for the year 2009 to $12.8 million from $11.7 million for the same time period 2008. The increase is primarily due to certain large purchases of 3-D seismic data during 2009.

Depreciation, depletion and amortization decreased by $0.5 million during 2009 to $48.7 million compared to $49.2 million for 2008. This was primarily a result of a decrease in the depletion rate, largely offset by the 45% increase in production volumes during the year 2009. The rate decrease is the result of the acquisition of the Deep Bossier properties, which were purchased at a unit cost which compared very favorably with our historical finding and acquisition costs. On a unit basis, depletion expenses decreased to $3.50 per Mcfe for 2009, compared to $5.13 per Mcfe for 2008.

Impairment expense for the year 2009 decreased $5.3 million to $6.2 million from $11.5 million for 2008. Commodity prices decreased sharply in the second half of 2008, resulting in a comparatively larger impairment expense for 2008. In 2009, prices partially recovered and impairment expense declined. See “— Critical Accounting Policies and Estimates — Impairment” below for more details related to impairment.

Accretion expense is related to our obligation for retirement of oil and gas wells and facilities. We record these liabilities when we place the assets in service, using discounted present values of the estimated future obligation. We then record accretion of the liabilities as they approach maturity. Accretion expense was comparable for the two periods, at $0.5 million and $0.7 million in 2009 and 2008, respectively.

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General and administrative expense increased $2.3 million to $8.7 million in 2009 from $6.4 million in 2008. Increases included $0.9 million in legal fees, a portion of which were related to the acquisition of our Deep Bossier properties in 2009, and $0.8 million in consulting fees related to increased drilling and pre-drilling activities. Other fees increased as well, primarily related to the redetermination of the borrowing base under our senior revolving credit agreement. On a unit basis, general and administrative expense decreased in 2009 to $0.63 per Mcfe from $0.67 per Mcfe, due to increased production.

Interest expense, net decreased $0.6 million for the year ended December 31, 2009 to $13.8 million from $14.5 million for 2008, primarily due to a variance in interest rate hedging gains and losses. In 2009, hedging losses totaled $2.0 million, as compared to losses of $5.4 million for 2008. Offsetting this, the Company incurred $2.1 million additional interest expense in 2009 related to increased borrowings under our bank credit facility. Amortization of loan costs also increased in 2009 based on incremental loan costs incurred during the year.

Liquidity and Capital Resources

Our principal requirements for capital are to fund our day-to-day operations, our exploration and development activities, and to satisfy our contractual obligations, primarily for the repayment of debt and any amounts owed during the period related to our hedging positions.

Our 2010 capital budget was primarily focused on the development of existing core areas through exploitation and development. Currently, we anticipate a capital budget of approximately $200 million for 2011. Approximately 75% of our 2011 capital budget is allocated to our properties in Deep Bossier, East Texas, Eagle Ford, and South Louisiana. Our future drilling plans, plans of our drilling operators and capital budgets are subject to change based upon various factors, some of which are beyond our control, including drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, actions of our operators, gathering system and pipeline transportation constraints and regulatory approvals. Because a large percentage of our acreage is held by production, we have the ability to materially decrease our drilling and recompletion budget in response to market conditions with minimal risk of losing significant acreage.

In October 2010, we adjusted our capital structure by issuing $300 million of 95/8% senior notes due 2018. The old notes were issued at a discount of $2.1 million, bringing the effective rate to 9.75%. The net proceeds of the notes offering were used to repay in full the $40 million drawn under our $150 million second lien term loan facility with UnionBanCal Equities Inc., as the administrative agent, which was due to mature in March 2013, to repay $199.7 million of the borrowings outstanding under our senior secured revolving credit facility, and to provide a $50 million distribution to AMIH.

The old notes are unsecured senior general corporate obligations, and effectively rank junior to any of our existing or future secured indebtedness, which includes our credit facility. The old notes are unconditionally guaranteed on a senior unsecured basis by each of our material, wholly owned subsidiaries. Pursuant to the terms of the exchange offer described in this prospectus, we are offering to exchange the old notes for an identical principal amount of new notes.

Our senior secured revolving credit facility (“credit facility”) is subject to a current $220 million borrowing base limit with Wells Fargo Bank, N.A. as the administrative agent. As of December 31, 2010, we had $73.3 million outstanding under the credit facility. Our restricted subsidiaries are guarantors of the credit facility. The credit facility provides that we may not issue senior unsecured debt securities in excess of $400 million, including the notes. See “Description of Certain Indebtedness — Senior Secured Revolving Credit Facility.”

The credit facility provides for two alternative interest rate bases and margins. Eurodollar loans accrue interest generally at the one-month London Interbank Offered Rate plus a margin ranging from 2.50% to 3.25%, depending on the utilization of our borrowing base. “Reference rate” loans accrue interest at the prime rate of Wells Fargo Bank, N.A., plus a margin ranging from 1.50% to 2.25%, depending on the utilization of

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our borrowing base. The total rate on all loans outstanding as of December 31, 2010 under the credit facility was 2.875%, which was based on the Eurodollar option.

The credit facility includes covenants requiring that we maintain certain financial covenants including a Current Ratio, Leverage Ratio, and Interest Coverage Ratio. At December 31, 2010, we were in compliance with the covenants. The terms of the credit facility also restrict our ability to make distributions and investments.

We expect to fund our 2011 capital budget predominantly with cash flows from operations. If necessary, we may also access capital through proceeds from potential asset dispositions, borrowings under the credit facility and the future issuance of debt and/or equity securities, subject to the distribution of proceeds therefrom as set forth in our partnership agreement. See Note 15, “Partners’ Capital,” in the accompanying Notes to Consolidated Financial Statements for further information. In addition, we may need to raise additional capital in order to develop our estimated proved undeveloped reserves over the next five years. We strive to maintain financial flexibility and may access capital markets as necessary to maintain substantial borrowing capacity under our credit facility, facilitate drilling on our large undeveloped acreage position, and permit us to selectively expand our acreage position. In the event our cash flows are materially less than anticipated and other sources of capital we historically have utilized are not available on acceptable terms, we may curtail our capital spending.

Cash Flow Provided by Operating Activities

Operating activities provided cash of $61.1 million in 2010, as compared to $34.3 million for 2009. The $26.8 million increase in operating cash flows was primarily attributable to our increase in earnings. Cash-based items of net income, including revenues (exclusive of unrealized commodity gains or losses), operating expenses and taxes, general and administrative expenses, and the cash portion of our interest expense, provided a net increase of approximately $58.2 million in earnings and a positive impact on cash flow. However, partially offsetting these items were changes in our working capital accounts, which used $30.2 million of cash flows as compared to having provided $1.4 million in cash in 2009. This reversal resulted in a total decrease of $31.6 million in cash flow, which as noted above, partially offset the positive effects of increased earnings. Although accounts payable and accrued liabilities increased $54.6 million in 2010, this was primarily due to the acquisition of Meridian, and to an increase in accrued liabilities for capital expenditures, which do not impact operating cash flow. Underlying activity included a net use of cash to meet working capital requirements.

Operating activities provided cash of $34.3 million in 2009 as compared to cash provided by operations of $20.3 million in 2008. The increase in operating cash flows was principally attributable to the timing of working capital requirements resulting in higher 2008 payments for accounts payable and accrued liabilities compared to 2009, partially offset by higher production and exploration cash operating expenses in 2009 compared to 2008.

Cash Flow Used in Investing Activities

Investing activities used cash of $208.4 million for the year ended December 31, 2010 as compared to cash used in investing of $86.6 million for the year ended December 31, 2009. The increase in cash used in investing activities was primarily related to the acquisition of Meridian, for which cash expenditures were $101.4 million. Drilling and development expenditures also increased by $10 million, and proceeds from sales of properties decreased $11 million.

Investing activities used cash of $86.6 million in 2009 as compared to cash used in investing of $111.1 million in 2008. The decrease in cash used in investing activities was primarily related to a decrease in capital expenditure activity, including the purchase of producing properties in each year, as well as proceeds of $13.7 million from the sale of fixed assets in 2009.

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Cash Flow Provided by Financing Activities

Financing activities provided cash of $147.9 million during 2010 as compared to cash provided by financing of $51.8 million during 2009, an increase of $96.1 million. The increase in cash flows provided by financing activities was primarily due to the acquisition of Meridian, which was financed by increased borrowing under our credit facility, as well as a $50 million contribution from our private equity partner, AMIH. The cash and debt retirement paid for the Meridian acquisition was $101.4 million. The proceeds from the issuance of the notes were used to retire other debt and to provide a $50 million distribution to AMIH, and had no net effect on cash flows from financing.

Financing activities provided cash of $51.8 million in 2009 as compared to cash provided by financing of $78.8 million in 2008. The decrease in cash flows provided in financing activities was primarily related to a decrease in capital expenditure activity, resulting in fewer additions to the outstanding balance under our credit facility.

Risk Management Activities — Commodity Derivative Instruments

Due to the volatility of oil and natural gas prices, we periodically enter into price-risk management transactions (e.g., swaps, collars, puts, calls, and financial basis swap contracts) for a portion of our oil and natural gas production. This allows us to achieve a more predictable cash flow, as well as to reduce exposure from price fluctuations. The commodity derivative instruments apply to only a portion of our production, and provide only partial price protection against declines in oil and natural gas prices, and may partially limit our potential gains from future increases in prices. At December 31, 2010, commodity derivative instruments were in place covering approximately 70% of our projected oil and natural gas production from proved developed properties for 2011. See Note 6 to our consolidated financial statements as of December 31, 2010, “Derivative Financial Instruments”, for further information.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2010:

	Year Ended December 31,
	Total		2011		2012-2013		2014-2015		Thereafter
	(Dollars in thousands)
Debt(1)	$	392,999	$	—	$	73,290	$	—	$	319,709
Interest(1)		244,619		30,982		59,594		57,750		96,293
Operating leases		16,068		2,881		2,760		2,732		7,695
Drilling rigs		928		928		—		—		—
Settlement obligations		4,200		1,200		2,000		1,000		—
Derivative contract premiums(2)		6,233		1,580		4,653		—		—
Abandonment liabilities		42,713		1,617		4,837		6,481		29,778
Total	$	707,760	$	39,188	$	147,134	$	67,963	$	453,475

(1)	Interest includes interest on the outstanding balance under our revolving credit agreement maturing in 2012, payable quarterly; on our senior notes due 2018, payable semiannually; and on the debt to our founder, which is payable with principal, at maturity in 2018. Projected obligation amounts are based on the payment schedules for interest, and are not presented on an accrual basis.
(2)	Derivative contract premiums relate to open derivative contracts in place at December 31, 2010 and are due over time as the contracts mature and settle. They are included on our consolidated balance sheet with the related derivative contracts. Amounts presented above are net of $2.8 million for premiums due to us under derivative contracts from the same counterparties.

In addition to the items above, we have a contingent commitment to pay an amount up to a maximum of approximately $5 million for properties acquired in 2008 and prior years. The additional purchase

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consideration will be paid only if certain product price conditions are met. We cannot estimate the amounts that will be paid in the future, if any, or the fiscal years in which such amounts could become due.

We also have a remaining obligation under an acquisition agreement totaling $411,000 as of December 31, 2010. This obligation is paid monthly in varying amounts, depending on the relationship of the commodity price received for production of the acquired properties, to certain contractually specified amounts. The obligation was reduced by approximately $392,000 during 2010.

Off-Balance Sheet Arrangements

As of December 31, 2010 we had no guarantees of third party obligations. Our off-balance sheet arrangements at December 31, 2010 consist of bonds posted in the aggregate amount of $8.8 million, primarily to cover future abandonment costs.

We have no plans to enter into any off-balance sheet arrangements in the foreseeable future.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). As used herein, the following acronyms have the following meanings: “FASB” means the Financial Accounting Standards Board; the “Codification” refers to the Accounting Standards Codification, the collected accounting and reporting guidance maintained by the FASB; “ASC” means Accounting Standards Codification and is generally followed by a number indicating a particular section of the Codification; and “ASU” means Accounting Standards Update, followed by an identification number, which are the periodic updates made to the Codification by the FASB.

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect our reported results of operations and the amount of reported assets, liabilities and proved oil and natural gas reserves. Some accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. Actual results may differ from the estimates and assumptions used in the preparation of our consolidated financial statements. Described below are the most significant policies we apply in preparing our consolidated financial statements, some of which are subject to alternative treatments under accounting principles generally accepted in the United States. We also describe the most significant estimates and assumptions we make in applying these policies.

Use of Estimates.  The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Reserve estimates significantly impact depreciation and depletion expense and potential impairments of oil and natural gas properties and are subject to change based on changes in oil and natural gas prices and trends and changes in estimated reserve quantities. We analyze estimates, including those related to oil and natural gas reserves, the value of oil and natural gas properties, oil and natural gas revenues, bad debts, oil and natural gas properties, derivative contracts, income taxes and contingencies and litigation. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Property and Equipment.  Oil and gas producing activities are accounted for using the successful efforts method of accounting. Under the successful efforts method, lease acquisition costs and all development costs, including unsuccessful development wells, are capitalized.

Unproved Properties.  Acquisition costs associated with the acquisition of leases are recorded as unproved leasehold costs and capitalized as incurred. These consist of costs incurred in obtaining a mineral interest or right in a property, such as a lease in addition to options to lease, broker fees, recording fees and

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other similar costs related to activities in acquiring properties. Leasehold costs are classified as unproved until proved reserves are discovered, at which time related costs are transferred to proved oil and gas properties.

Exploration Expense.  Exploration expenses, other than exploration drilling costs, are charged to expense as incurred. These expenses include seismic expenditures and other geological and geophysical costs, expired leases, and lease rentals. The costs of drilling exploratory wells and exploratory-type stratigraphic wells are initially capitalized pending determination of whether the well has discovered proved commercial reserves. If the exploratory well is determined to be unsuccessful, the cost of the well is transferred to expense. Exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made.

Proved Oil and Gas Properties.  Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering, and storing oil and gas are capitalized. All costs incurred to drill and equip successful exploratory wells, development wells, development-type stratigraphic test wells, and service wells, including unsuccessful development wells, are capitalized.

Impairment.  The capitalized costs of proved oil and gas properties are reviewed at least annually for impairment in accordance with ASC 360-10-35, Property, Plant and Equipment, Subsequent Measurement, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset or asset group exceeds its fair market value and is not recoverable. The determination of recoverability is based on comparing the estimated undiscounted future net cash flows at a producing field level to the carrying value of the assets. If the future undiscounted cash flows, based on estimates of anticipated production from proved reserves and future crude oil and natural gas prices and operating costs, are lower than the carrying cost, the carrying cost of the asset or group of assets is reduced to fair value. For our proved oil and natural gas properties, we estimate fair value by discounting the projected future cash flows at an appropriate risk-adjusted discount rate.

Unproved leasehold costs are assessed at least annually to determine whether they have been impaired. Individually significant properties are assessed for impairment on a property-by-property basis, while individually insignificant unproved leasehold costs may be assessed in the aggregate. If unproved leasehold costs are found to be impaired, an impairment allowance is provided and a loss is recognized in the statement of operations.

Depreciation, Depletion and Amortization.  Depreciation, depletion and amortization (“DD&A”) of capitalized costs of proved oil and gas properties is computed using the unit-of-production method based upon estimated proved reserves. Assets are grouped for DD&A on the basis of reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field. The reserve base used to calculate DD&A for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. The reserve base used to calculate DD&A for lease and well equipment costs, which include development costs and successful exploration drilling costs, includes only proved developed reserves.

Revenue Recognition.  We recognize oil, gas and natural gas liquids revenues when products are delivered at a fixed or determinable price, title has transferred and collectability is reasonably assured (sales method). Oil and natural gas sold is not significantly different from the Company’s share of production. Revenue from drilling rigs has been recorded when services are performed.

Derivative Financial Instruments.  We use derivative contracts to hedge the effects of fluctuations in the prices of oil, natural gas and interest rates. We account for such derivative instruments in accordance with ASC 815, Derivatives and Hedging, which establishes accounting and disclosure requirements for derivative instruments and requires them to be measured at fair value and recorded as assets or liabilities in the statements of financial position (see Note 5 of the accompanying Notes to Consolidated Financial Statements for further information on fair value).

Under ASC 815, hedge accounting is used to defer recognition of unrealized changes in the fair value of such financial instruments, for those contracts which qualify as fair value or cash flow hedges, as defined in

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the guidance. Historically, we have not designated any of our derivative contracts as fair value or cash flow hedges. Accordingly, the unrealized changes in fair value of the contracts are included in net income in the period of the change as “Unrealized gain (loss) — oil and natural gas derivative contracts” for oil and gas contracts, and in interest expense for interest derivative contracts. Realized gains and losses are recorded in income in the period of settlement, and included in the related revenue account or in interest expense. Cash flows from settlements of derivative contracts are classified with the income or expense item to which such settlements directly relate.

Income Taxes.  We have elected under the Internal Revenue Code provisions to be treated as individual partnerships for tax purposes. Accordingly, items of income, expense, gains and losses flow through to the partners and are taxed at the partner level. Accordingly, no tax provision for federal income taxes is included in the consolidated financial statements.

We are subject to the Texas margin tax, which is considered a state income tax, and is included in “Benefit from (provision for) state income tax” on the statement of operations. We record state income tax (current and deferred) based on taxable income as defined under the rules for the margin tax.

Acquisitions.  Acquisitions are accounted for as purchases and, accordingly, the results of operations are included in our statement of operations from the closing date of the acquisition. Purchase prices are allocated to acquired assets and assumed liabilities based on their estimated fair value at the time of the acquisition.

Asset Retirement Obligations.  We estimate the present value of future costs of dismantlement and abandonment of our wells, facilities, and other tangible, long-lived assets, recording them as liabilities in the period incurred. We follow ASC 410, Asset Retirement and Environmental Obligations. ASC 410 requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred or becomes determinable (as defined by the standard), with an associated increase in the carrying amount of the related long-lived asset. The cost of the tangible asset, including the initially recognized asset retirement cost, is depreciated over the useful life of the asset and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash outflows for abandonment discounted generally at our cost of capital at the time of recognition.

Investment.  Our investment consists of a 10% ownership interest in a drilling company, Orion Drilling Company, LP (“Orion”). The investment is accounted for under the cost method. Under this method, our share of earnings or losses of the investment are not included in the statements of operations. Distributions from Orion are recognized in current period earnings as declared.

Deferred Financing Costs.  Deferred financing costs are amortized using the straight-line method over the term of the related debt, so long as this approximates the interest rate method.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to certain market risks that are inherent in our consolidated financial statements that arise in the normal course of business. We may enter into derivative instruments to manage or reduce market risk, but do not enter into derivative agreements for speculative purposes.

We do not designate these or future derivative instruments as hedges for accounting purposes. Accordingly, the changes in the fair value of these instruments are recognized currently in earnings.

Commodity Price Risk and Hedges

Our major market risk exposure is to prices for oil, natural gas and natural gas liquids. These prices have historically been volatile. As such, future earnings are subject to change due to changes in these prices. Realized prices are primarily driven by the prevailing worldwide price for oil and regional spot prices for natural gas. We have used, and expect to continue to use, oil and natural gas derivative contracts to reduce our exposure to the risks of changes in the prices of oil and natural gas. Pursuant to our risk management policy,

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we engage in these activities as a hedging mechanism against price volatility associated with pre-existing or anticipated sales of oil and natural gas.

As of December 31, 2010, we have hedged approximately 70% of our forecasted production from proved developed reserves through 2014 at average annual prices ranging from $5.75 per MMBtu to $6.94 per MMBtu and $78.62 per Bbl to $85.00 per Bbl. Forecasted production from proved reserves is estimated in our December 2010 reserve report using prices, costs and other assumptions required by SEC rules. Our actual production will vary from the amounts estimated in the report, perhaps materially. Please read the disclosures under “Our estimated oil and natural gas reserve quantities and future production rates are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or the underlying assumptions will materially affect the quantities and present value of our reserves” in the “Risk Factors” section above.

The fair value of our oil and natural gas derivative contracts and basis swaps at December 31, 2010 was a net asset of $24.6 million. A 10% increase or decrease in oil and natural gas prices with all other factors held constant would result in an unrealized loss or gain, respectively, in the fair value (generally correlated to our estimated future net cash flows from such instruments) of our oil and natural gas commodity contracts of approximately $23.2 million (unrealized loss) or $21.7 million (unrealized gain), respectively.

Interest Rates

We are subject to interest rate risk on our long-term fixed interest rate debt and variable interest rate borrowings. We use interest rate swaps to mitigate the effect of fluctuating interest rates on interest expense. Floating to fixed rate swaps hedge the variable interest rate under our Credit Facility. We entered into a fixed to floating interest rate swap which effectively reduces our fixed interest rate on half the principal of our $300 million senior notes in the short term, with an offsetting risk related to the floating rate over the term of the contract, which is approximately four years. The total fair value of our interest rate swaps at December 31, 2010 was a liability of $5.4 million. A 1% increase in interest rates (100 LIBOR basis points) would increase the fair value of our interest rate derivatives. However, such an increase in interest rates would also increase interest expense on our variable rate debt by approximately $7.3 million annually, assuming the outstanding balance under our Credit Facility were to remain at the December 31, 2010 balance of $73.3 million.

Recent Accounting Pronouncements

In January 2010, the FASB updated Topic 820 with ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements”. This ASU requires new disclosures and clarifies certain existing disclosure requirements about fair value measurements. ASU 2010-06 requires a reporting entity to disclose significant transfers in and out of Level 1 and Level 2 fair value measurements, to describe the reasons for the transfers and to present separately information about purchases, sales, issuances, and settlements for fair value measurements using significant unobservable inputs. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which is effective for interim and annual reporting periods beginning after December 15, 2010; early adoption is permitted. We adopted the new guidance effective January 1, 2010. We do not expect the additional disclosure requirements will have any material impact on our consolidated financial position or results of operations.

In December 2008, the SEC published a Final Rule, “Modernization of Oil and Gas Reporting”. The new rule permits the use of new technologies to determine proved reserves if those technologies have been demonstrated to lead to reliable conclusions about reserves volumes. The new requirements also allow companies to disclose their probable and possible reserves to investors. In addition, the new disclosure requirements require companies to:

•  report the independence and qualifications of its reserves preparer or auditor;

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•  file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and

•  report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices.

The use of average prices affects impairment and depletion calculations. The new rule became effective for reserve reports as of December 31, 2009; the FASB incorporated the new guidance into the Codification as ASU 2010-03, effective also on December 31, 2009, ASC Topic 932, “Extractive Activities — Oil and Gas”.

We adopted the new guidance effective December 31, 2009; information about our reserves has been prepared in accordance with the new guidance and is included in Note 19 of the accompanying Notes to Consolidated Financial Statements. As of December 31, 2009, our reserves were affected primarily by the use of the average prices rather than the period-end prices required under the prior rules. The changes resulting from the new rules did not significantly impact our impairment testing, depreciation, depletion and amortization expense, or other results of operations.

In December 2009, the FASB issued revised authoritative guidance regarding consolidation of variable interest entities (“VIEs”) in ASU 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”, codified as ASC 810-10-05-08. The ASU (originally issued as SFAS No. 167 in June 2009) amends existing consolidation guidance for variable interest entities. Variable interest entities generally are thinly-capitalized entities which under previous guidance may not have been consolidated. The revised guidance requires a company to perform a qualitative analysis to determine whether to consolidate a VIE, which includes consideration of control issues other than the primarily quantitative considerations utilized prior to this revision. In addition, the revised guidance requires ongoing assessments of whether to consolidate VIEs, rather than only when specific events occur. The revised guidance also requires additional disclosures about consolidated and unconsolidated VIEs, including their impact on the company’s risk exposure and its financial statements. The revised guidance is effective for financial statements for annual and interim periods beginning after November 15, 2009. We adopted the new guidance effective January 1, 2010. The adoption had no material impact on consolidated financial position or results of operations.

In April 2009, the FASB issued new authoritative guidance regarding interim disclosures about the fair value of financial instruments, which enhances consistency in financial reporting by increasing the frequency of fair value disclosures. The guidance was effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted the new guidance effective April 1, 2009. The adoption did not have a material impact on consolidated financial position or results of operations of the Company. The disclosures are included in Note 2 of the accompanying Notes to Consolidated Financial Statements, under the subheading “Financial Instruments.”

In May 2009, the FASB issued SFAS 165, “Subsequent Events”, codified in ASC 855. ASC 855 defines the period during which management should evaluate events or transactions that occur after the balance sheet date for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date, and the disclosures about such subsequent events. It did not substantially change existing guidance, but added a new disclosure of the date through which events have been evaluated and whether that is the date of issuance of the financial statements or an alternate date. The new guidance was effective for interim or annual financial periods ending after June 15, 2009. We adopted the new guidance effective June 30, 2009; the adoption did not have a material impact on consolidated financial position or results of operations of the Company. The disclosures are included in Note 16 of the accompanying Notes to Consolidated Financial Statements.

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BUSINESS

Our Company

We are a privately held company primarily engaged in onshore oil and natural gas acquisition, exploitation, exploration and production whose focus is to maximize the profitability of our assets in a safe and environmentally sound manner. We seek to maintain a portfolio of lower risk properties in plays where we identify a large inventory of drilling, development, and enhanced recovery and exploitation opportunities in known resources. We believe our balanced portfolio of assets — principally historically prolific fields in South Louisiana, conventional liquids-rich gas and oil fields of East Texas, shallow long-lived oil fields in Oklahoma, and resource plays in the Deep Bossier of East Texas and Eagle Ford Shale in South Texas — has decades of future development potential. We maximize the profitability of our assets by focusing on advanced engineering analytics, enhanced geological techniques including 3-D seismic analysis, and proven drilling, stimulation, completion, and production methods.

From December 2008 through December 2010, we increased production at an annualized compounded rate of approximately 80% through a focused program of drilling and field re-development and strategic acquisitions. As of December 31, 2010, our estimated total proved oil and natural gas reserves were approximately 325 Bcfe, of which 66% were classified as proved developed. Our proved reserve mix is approximately 74% natural gas, 23% oil and 3% natural gas liquids with a pro forma reserve life index of 9.4 for the year ended December 31, 2010. Excluding the Deep Bossier resource play, which includes approximately 16% of the PV-10 value of our proved reserves and where EnCana is the principal operator, we maintain operational control of approximately 83% of the PV-10 value of our proved reserves. Of this, we operate 68% directly and the remainder is structured under operating arrangements with minority interest holders where we contribute significantly to the development of the assets through use of our internal engineering and geologist staffs and we have the ability to control the drilling schedule and remove the operator.

Our areas of focus are typically characterized by multiple hydrocarbon pay zones, and because we are re-developing fields and areas left behind by major oil and natural gas companies and other previous operators, our assets are typically served by existing infrastructure. As a result, our approach lowers geological, mechanical, and market-related risks. We focus on properties within our core operating areas that we believe have significant development and exploration opportunities and where we can apply our technical experience and economies of scale to increase production and proved reserves while lowering lease operating and capital costs. Additionally, we have consistently created value through workovers and re-completions of existing wells, infill drilling, operations improvements, secondary recovery and 3-D seismic-driven drilling. We expect to continue production growth in our core areas by exploiting known resources with continued well workovers, development drilling and enhanced recovery programs, and disciplined exploration.

Meridian Acquisition

On May 13, 2010, we acquired The Meridian Resource Corporation, a public exploration and production company with properties in or proximate to our own areas of operation and proved reserves of 75 Bcfe as of December 31, 2009, for $158 million. The acquisition was funded with borrowings under our senior secured revolving credit facility as well as a $50 million equity contribution from AMIH. As a result of the acquisition, we increased total proved reserves 36% and have achieved a more balanced portfolio mix by increasing our total proved oil reserves by 69%. We also believe the acquisition gives us significant growth potential by increasing our proved undeveloped reserves by 51% as compared to undeveloped reserves at December 31, 2009 and adding a large library of 3-D and 2-D seismic data, much of which we are reprocessing and utilizing for the exploitation of known fields and identification and development of new prospects in certain of our operating areas.

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Deep Bossier Acquisition

On July 23, 2009, Navasota Resources Ltd., LLP, a wholly owned subsidiary of ours, made a payment of $25.5 million and took assignment of substantially all working interests that had been held by Chesapeake in an approximate 50,000 acre area of Leon and Robertson Counties, Texas in the Deep Bossier play. We had exercised our preferential right to purchase these interests from Gastar in late 2005, but Gastar and Chesapeake had opposed this and Chesapeake took record title of our assets. We filed suit in late 2005 and after several years of litigation in which we ultimately prevailed, in 2008 a Texas court of appeals directed that specific performance take place. In early 2009, the Texas Supreme Court denied the defendants’ request to hear the appeal. As a result, we took 25%-33% working interests in over 30 producing wells and were able to participate more significantly in further development of the area, primarily with EnCana, but also with Gastar. Subsequent payments and adjustments resulted in a final purchase price of $44.5 million. The Deep Bossier properties contribute 93 Bcfe, or 29%, of our proved reserves as of December 31, 2010. The number of wells has increased from 30 at acquisition to 48 as of December 31, 2010.

Our Strategy

Our objective is to increase reserves and production by applying advanced engineering analytics and enhanced geological techniques in areas we have identified as under-developed and over-looked.

•  Exploit Known Resources in a Repeatable Manner.  The majority of our assets are in mature fields previously developed by major oil and natural gas companies or other independent producers. We seek to enhance existing production in these properties by using our engineering and geological expertise to convert PDNP and PUD reserves to the PDP reserve category while creating repeatable efficiencies to lower operating and capital costs. We intend to concentrate our efforts in areas where we can leverage previous experience and knowledge to continually improve our operations and guide our future development and expansion.

•  Maximize Development Opportunities with Sound Engineering and Technology.  We seek to exploit and redevelop mature properties by using state-of-the-art technology including 2-D and 3-D seismic imaging and advanced seismic modeling. We use various recovery techniques, including recompletions, modern well log analysis, advanced fracture stimulation design, and infill/step out drilling to enhance oil and natural gas production. Our geologists, geophysicists, engineers, and petrophysicists systematically integrate reservoir performance data with geologic and geophysical data, an approach that reduces drilling risks, lowers finding costs and provides for more efficient production of oil and natural gas from our properties.

•  Create High-Potential, High-Impact Opportunities while Mitigating Exploration Risk.  We target high impact prospects that offer an opportunity to significantly grow reserves. We minimize exploration risk by amassing and synthesizing engineering, geologic, and seismic data to create a robust knowledge of producing zones in and around our prospective areas. We seek multiple targets in a given exploratory well to maximize and prolong the impact of our capital spending, and seek exploration opportunities that will, upon success, lead to multiple development wells. We diversify our risk across a number of prospects and further mitigate risk by typically bringing in industry partners to participate in our exploration prospects.

•  Optimize Production Mix Based on Market Conditions.  Our diversified asset base enables us to adjust our development approach based on market price differentials. Currently, we intend to take advantage of the favorable oil price environment by continuing to exploit oil and natural gas liquids opportunities within our portfolio. Oil and natural gas liquids represent 22% of our 2010 production and 39% of our oil and natural gas revenue for the year ended December 31, 2010. For the second half of 2010, which includes the full effect of the Meridian acquisition, oil and natural gas liquids represent 28% of production and 45% of oil and natural gas revenues. Oil and condensate-rich gas opportunities represented approximately 60% of our 2010 capital budget and represent approximately two thirds of our 2011 capital budget. Commodity mix will be a key consideration as we evaluate future drilling and acquisition opportunities.

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•  Pursue Value-Based Acquisitions that Leverage Current Internal Knowledge.  We continually review opportunities to acquire producing properties, leasehold acreage and drilling prospects. We pursue acquisition targets where our own field exploitation methods can be profitably employed, and identify lower-valued, non-strategic properties of other energy companies. While we are biased toward acquisitions that leverage our local knowledge and proprietary field exploitation methods to obtain readily executable opportunities, we aim for geographic and geological diversity to mitigate market, weather and other risk. While we seek to control operations, we also engage in partnerships with other operators and service providers so we can capitalize on their data, knowledge and access to equipment.

•  Mitigate Commodity Price Risk.  Due to the volatility of oil and natural gas prices, we periodically enter into and actively manage derivative transactions for a portion of our oil and natural gas production. This allows us to reduce exposure to price fluctuations and achieve more predictable cash flows, while retaining commodity price upside potential through future production and reserve growth. As of December 31, 2010, we have hedged approximately 70% of our forecasted PDP production through 2014 at average annual prices ranging from $5.75 per MMBtu to $6.94 per MMBtu and $78.62 per Bbl to $85.00 per Bbl.

•  Maintain Financial Flexibility.  In order to maintain our financial flexibility, we plan to fund our 2011 capital budget predominantly with cash flow from operations. Our operational control enables us to manage the timing of a substantial portion of our capital investments. At December 31, 2010, under our senior secured revolving credit facility, we had $73.3 million in borrowings outstanding and $146.7 million available for borrowing.

Our Strengths

We believe that the following strengths provide us with significant competitive advantages and position us to continue to achieve our business objective and execute our strategies:

•  Proven Track Record of Reserves and Production Growth.  From December 2008 through December 2010, we increased production at an annualized compounded rate of approximately 80% through a focused program of drilling and field re-development and strategic acquisitions largely in our core areas. Based on our long-term historical performance and our business strategy, we believe we have the opportunities, experience and knowledge to continue growing both our reserves and production.

•  High Quality Portfolio of Under-Exploited Properties and Multi-Year, Low-Risk Drilling and Wellbore Utilization Inventory.  The bulk of our assets are producing properties with significant opportunities for additional exploitation and exploration. We have created and expect to maintain a multi-year drilling inventory and a continuing program of well recompletions, typically to shallower productive zones as deeper formations deplete over time. As of December 31, 2010, our inventory of proved reserve projects consists of 234 PDNP opportunities, 105 of which are recompletions in East Texas, and 125 PUD locations, including 20 PUD locations in the Deep Bossier resource play. By targeting productive zones in multiple stacked pays we are able to minimize exploration risk and costs.

•  Geographically and Geologically Diverse Asset Base.  We have a balanced portfolio of low-risk conventional and high-impact resource assets across various historically productive basins. Our core assets are located in South Louisiana, where the most significant field is Weeks Island, a large oil field with multiple stacked pay sands; in East Texas legacy fields with condensate-rich gas; in Oklahoma, which are predominantly shallow-decline, long-lived oil fields; in the Deep Bossier, a prolific natural gas sand formation in East Texas; and in the Eagle Ford Shale in South Texas. Our core properties are located in areas that benefit from an experienced well-established service sector, efficient state regulation, and readily available midstream infrastructure and services. In addition, based on our estimated net proved reserves as of December 31, 2010, approximately 50% of our future revenues are expected to be generated from the production of proved oil and NGL reserves. We believe our geographic and geologic diversification enables us to allocate our capital more profitably, manage market, weather and regulatory risks, and capitalize on technological improvements.

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•  Operational Control and Low Cost Structure.  We maintain operational control in properties holding approximately 83% of the PV-10 value of our proved reserves, excluding our Deep Bossier resource play which includes approximately 16% of the PV-10 value of our proved reserves and where EnCana is the principal operator. This control allows us to more effectively manage production, control operating costs, allocate capital and control the timing of field development. We have achieved low average finding and development costs of $2.16 per Mcfe for the three years ended December 31, 2010. Leases covering only approximately 9% of the net acreage of our core properties are set to expire through December 31, 2011, giving us greater flexibility over our activities.

•  Strong Management Team and Seasoned Technical Expertise.  We have an experienced and technically-adept management team, averaging more than 25 years of industry experience among our top eight executives. We have built a strong technical staff of geologists and geophysicists, field operations managers, and engineers in all relevant disciplines. Our engineers and operations staff typically began their careers with major oil companies, large independent producers, or leading service companies, and have direct experience in our areas of operation. We believe our engineers are among the best in their respective fields.

Reserve and Production Overview

The following table describes our reserves and production profile as of December 31, 2010.

						Oil and
						NGLs									Pro Forma
	Total					as %									Average
	Proved					of Total			PV-10				Net		Daily Net		Reserve Life
	Reserves		% Proved			Proved			($ in		Net		Producing		Production		Index
Property	(Bcfe)		Developed(1)			Reserves (1)			(millions)(2)		Acreage(3)		Wells		(MMcfe/d)(4)		(Years)(5)
South Louisiana		75.7		73.6	%		27.8	%	$	229.2		36,505		34.7		30.6		6.8
East Texas		63.0		83.7	%		26.3	%		153.9		41,594		51.4		14.0		12.3
Oklahoma		43.7		61.8	%		53.7	%		129.2		36,878		152.7		5.2		23.0
Deep Bossier		93.2		56.3	%		0.0	%		111.9		16,998		11.2		33.6		7.6
Eagle Ford		3.3		52.3	%		87.1	%		13.2		3,611		0.6		0.3		9.0
Other		46.1		53.2	%		42.5	%		67.8		36,839		61.6		10.8		11.7
All Properties		325.0		65.9	%		25.7	%	$	705.2		172,425		312.2		94.5		9.4

(1)	Computed as a percentage of total reserves of the property.
(2)	Based on unweighted average prices as of the first of each month during the 12 months ended December 31, 2010 of $79.43 per Bbl and $4.38 per MMBtu.
(3)	Includes developed and undeveloped acreage.
(4)	Pro forma for 2010 taking into account the Meridian acquisition as if it had occurred on January 1, 2010.
(5)	Calculated by dividing total proved reserves as of December 31, 2010 by pro forma average daily net production for 2010 taking into account the Meridian acquisition. Eagle Ford reserve life has been computed using estimated annualized 2010 production, as these wells only began producing late in 2010 and actual production is not representative of a full year.

Our Properties

Our core properties are located in South Louisiana, East Texas, Oklahoma, the Deep Bossier resource play of East Texas and the Eagle Ford Shale play in South Texas. The majority of our assets are producing properties located in mature fields characterized by what we believe to be low geologic risk and a large inventory of repeatable development opportunities with multiple pay zones.

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South Louisiana

We have four major areas of operation in South Louisiana, in fields originally developed by major oil companies, where as of December 31, 2010, we have working interests in 53 producing wells covering 59,017 gross acres (36,505 net acres). These areas have multiple low-risk exploration and development targets, potential for exploiting substantial bypassed and overlooked oil pay zones, and opportunities to increase profitability through facilities de-bottlenecking, production enhancements and drilling. We have identified 35 PDNP opportunities and 10 PUD locations in this area as of December 31, 2010.

Weeks Island Field.  Weeks Island, located in Iberia Parish, is a historically-prolific oil field with 55 potential pay zones that are structurally trapped against a piercement salt dome, which we believe offer significant future opportunities for added production and reserves. The main field pay zones are characterized by high, stable production rates due to the predominant water-drive production mechanism and high-porosity sands. The field was discovered in 1945 by Shell and subsequently developed by Shell and Exxon. Shell’s development activity peaked in the early 1950s with most of the drilling completed by 1962. Meridian acquired Shell’s interest in Weeks Island in 1998, and utilizing a 100 square mile 3-D survey in conjunction with subsurface data from 650 wellbores, continued development of the field and increased reserves. We operate all the wells in this field in which we have an interest. As of December 31, 2010, we owned an average 81% working interest in 18 producing wells with 18 PDNP opportunities and seven PUD locations over approximately 5,294 net acres.

South Hayes Field.  The South Hayes field is located primarily in Cameron Parish, Louisiana. We own and control operations with an average 44% working interest in the South Hayes field as of December 31, 2010. South Hayes is in the center of prolific fields originally developed by Shell, Texaco, and Exxon, most notably the Chalkley and Thornwell fields, and has been the focus of our geologic and geophysical efforts for 15 years, including a 3-D survey by Alta Mesa in 2009 of highly-prospective acreage. This proprietary 3-D seismic survey covered 90 square miles, of which the majority had never been shot before, imaged key structures, and was seamlessly integrated with over 300 square miles of previously-existing 3-D data. In 2010, we drilled our first prospect generated from this survey. We have drilled five wells since 2006 with 100% success, one of these being the Lacassane 26-1, the highest-value single producing well in our company (based on discounted future net revenues at December 31, 2010). We have multiple low-risk exploration and development targets in prospective pay zones that have historically produced at high, stable rates. Additionally, we have invested in fluid gathering and treating infrastructure that will facilitate future field development. As of December 31, 2010, we have four producing wells as well as four PDNP opportunities.

Bayou Biloxi Field.  The Bayou Biloxi field is located in St. Bernard Parish, Louisiana and was discovered by Meridian as the result of a large 3-D seismic survey. As of December 31, 2010, we owned and operated an average 91% working interest in five producing wells. We have one PDNP recompletion and no PUD locations as of December 31, 2010. We have identified what we believe is significant exploration potential in this field and are in discussions to bring in industry partners to jointly pursue this with us.

Ramos Field.  The Ramos field is a multi-well, multi-zone producing field located in Terrebonne Parish, Louisiana acquired by us through the Meridian acquisition. As of December 31, 2010, we owned and operated an average 73% working interest in six producing wells and have four PDNP recompletions and two PUD locations. We believe there is additional opportunity to increase the profitability of Ramos through facilities de-bottlenecking, production well and facility enhancements, and drilling.

East Texas

Our operations in this area are low-risk expansions of well-established fields through a consistent, integrated, multi-discipline technical approach to field re-development. Our principal assets in the area are the Urbana and Cold Springs fields, which are adjacent fields with similar geologic formations producing condensate-rich gas principally from the Wilcox formation. These fields were originally discovered in the 1950s and 1960s by major oil companies and were developed based on technology available at the time. The area is served by a robust pipeline and services infrastructure, and established local operators familiar with the fields, wells, and facilities. Wells are typically brought online relatively rapidly, and production is long-lived

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as we progressively produce from multiple pay zones. We have materially increased reserves and extended the life of these fields by utilizing modern well log and geochemical analyses, modern fracture stimulation techniques, and the integration of 3-D seismic for exploitation as well as exploration. Additionally, through Meridian we acquired an interest in over 26,508 net acres in the Austin Chalk and Wilcox formations, and have integrated these field operations with those of the nearby Urbana field. We have interests in 114 producing wells covering 41,594 net acres, and have identified 105 PDNP opportunities and 21 PUD locations as of December 31, 2010.

Urbana Field.  We are the operator of the Urbana field, located in San Jacinto County, Texas and have an average 97% working interest in 23 producing wells as of December 31, 2010. Urbana is a known structure with multiple pay zones, and as many as 35 productive reservoirs from 7,200 feet to 11,600 feet deep. Advances in fracturing techniques and low-resistivity log analyses have been the key to identifying profitable drilling opportunities and additional productive zones. The liquids/oil to natural gas ratio of approximately 39 barrels per million cubic feet of natural gas (based on 2010 production) from Urbana make our wells economic even at low natural gas prices. We completed the first-ever 3-D survey over the Urbana structure in late 2009, which has allowed us to identify additional development of the main field structure, deeper horizons, and additional nearby geologic features.

Cold Springs Field.  The Cold Springs field is located west of the Urbana field in San Jacinto County, Texas. We are the largest working interest owner with an average 42% working interest in 35 producing wells as of December 31, 2010. We acquired our interests from other working interest owners in the field after we recognized the applicability of our geologic analyses and production practices in the nearby Urbana field and the potential to increase reserves at Cold Springs.

The Cold Springs field is a known structure with multiple pay zones, similar to the Urbana field but larger and with greater development and expansion potential. The liquids/oil to natural gas makeup of our production in this field ranges from 50 to 80 barrels per million cubic feet of natural gas, and makes our wells economic even at low natural gas prices. Since 2008, we have identified additional field-wide pay zones and a western structural extension to the field.

Austin Chalk.  As part of the Meridian transaction we acquired interests in the Anne Parsons field, an Austin Chalk play located in Polk County, Texas. The Austin Chalk is typically developed with horizontal wells, and production is characterized by high initial rates, high oil/liquids content, and attractive long-lived reserves. We have nine PUD locations identified as of December 31, 2010. As of December 31, 2010, we owned an average 41% working interest in 17 producing wells in the field. Operators in this field are the Company, Border to Border Exploration, LLC, and Devon Energy Corporation.

Oklahoma

Our assets in Oklahoma are located in large fields with multiple pay zones at depths from less than 2,000 feet to 7,500 feet. The fields are located in the Sooner Trend area of the Anadarko Basin and were initially developed by Conoco, Texaco and Exxon. These assets are predominantly shallow-decline, long-lived oil fields originally drilled on uniform, 80-acre spacing and waterflooded to varying degrees. We own an 84% interest in the Lincoln North Unit which consists of approximately 74 unit producing wells and two non-unit producing wells. We had 12 PDNP opportunities and 30 PUD locations as of December 31, 2010 in Lincoln North. We own an 89% interest in the Lincoln SE Unit, which consists of 33 producing wells, 12 PDNP opportunities and no PUD locations, and we own an 81% interest in the East Hennessey Unit, which consists of 52 producing wells, six PDNP opportunities and three PUD locations. Our other assets in this area are wells completed in deeper formations in these fields, but which are not part of the state-designated units, and are largely PDP. In the aggregate, these Oklahoma areas represent approximately 18% of the PV-10 value of our total proved reserves and 28% of our total proved reserves for oil and natural gas liquids as of December 31, 2010. Our operations in these fields include infill drilling and downspacing, waterflood expansion and new waterfloods in the unit zones. Additionally, we will continue low-risk drilling below unit formations and recompletions above unit formations. Our Oklahoma properties have remaining exploitation potential in down-spacing, production from non-unit intervals and exploration upside in the underlying Woodford Shale.

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Deep Bossier

We believe our Deep Bossier assets provide us with a solid base for future production and reserve growth through drilling, advanced fracture stimulation, recompletions, and exploitation of the Bossier sand, and other formations. The Deep Bossier is a prolific natural gas formation under active development because of attractive well qualities, including high production rates, potential for multi-pay exploration and development and low unit costs for finding, development, and operations. The region also benefits from an experienced and well-established service sector, efficient state regulation, and readily available midstream infrastructure and services. The Deep Bossier play has grown substantially over the past decade through the development activities of Burlington Resources (now ConocoPhillips), EnCana, Gastar, XTO Energy (now ExxonMobil), Chesapeake, and others. Wells in this area target multiple natural gas formations and are typically characterized by high initial production and significant reserves.

We have a large, contiguous acreage position in the adjacent Amoruso and Hilltop fields in Leon and Robertson Counties, Texas, where we own participating interests in approximately 50,010 gross acres (16,998 net acres) as of December 31, 2010. EnCana is the primary operator, managing approximately two-thirds of our production, with Gastar operating the remainder. Our operating agreements with EnCana and Gastar allow us substantial input related to operations and control of our capital expenditures, including provisions that permit us to either propose or non-consent individual wells. The primary objective is the lower Bossier sand series at depths from 15,000 feet to greater than 20,000 feet, which we have historically drilled vertically. There are also shallower horizons with commercial production near our leasehold, including the Eagle Ford, Woodbine, Travis Peak, Knowles, Glen Rose, and Buda formations. Our interests in this area include 48 producing wells, 12 PDNP opportunities and 20 PUD locations as of December 31, 2010. We, EnCana, and Gastar have licensed a 3-D survey covering this acreage and have regular technical collaboration regarding drilling and completion plans, with an objective of identifying additional PUD locations resulting from ongoing drilling.

South Texas Eagle Ford Shale

Our Eagle Ford Shale assets have increased in significance to Alta Mesa, and we believe they will be a growing portion of our portfolio in terms of oil production, oil reserves, and investment for several years. As part of the Meridian transaction, we acquired interests primarily in an area of Karnes County, Texas referred to as the Eagleville field. Our acreage position also includes portions of Goliad and DeWitt Counties. The Eagle Ford is a shale typically developed with horizontal wells, which produce a mix of oil, gas, and natural gas liquids. We have six PUD locations identified as of December 31, 2010. As of December 31, 2010, we owned an average 20% working interest in three producing wells in the field. The wells are operated by Murphy Oil Corporation.

Other Assets

In addition to our core areas, we conduct operations in other areas including the Blackjack Creek field in Florida, the Marcellus Shale in West Virginia, and various fields in South Texas. We have identified a total of 49 PDNP opportunities and 12 PUD locations in these areas as of December 31, 2010. We continually evaluate the experience and data we gain from operations in these areas to determine future development, expansion and strategic divestiture plans. We own an approximate 98% working interest in Blackjack Creek, where we are operating a waterflood in this shallow-decline field originally developed by Exxon. We have a 1,307 net acre position (2,700 gross acres) in West Virginia where we successfully drilled two vertical wells in the Marcellus Shale in 2010.

In South Texas, other than the Eagle Ford, our most substantial operations are in the Indian Point field where, as of December 31, 2010, we operated six wells. In addition, we partnered with EOG Resources on two Frio wells completed in 2010. In East Bay City, we have initiated a natural gas co-production project to return a formerly-abandoned field to production. In both Indian Point and other areas, our geologists and geophysicists continue to use our proprietary seismic data to identify additional potential.

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Our Oil and Natural Gas Reserves

The table below summarizes our estimated proved reserves as of December 31, 2010.

	As of December 31, 2010
	Oil and NGLs		Natural Gas
	(MMBbls)		(Bcf)
Proved Reserves(1)
Developed		9.2		159.2
Undeveloped		4.7		82.2
Total Proved		13.9		241.4

(1) Our proved reserves as of December 31, 2010 were calculated using oil and natural gas price parameters established by current SEC guidelines and accounting rules based on average prices as of the first day of each of the twelve months ended on such date. These average prices were $79.43 per Bbl for oil and $4.38 per MMBtu for natural gas. Pricing was adjusted for basis differentials by field based on our historical realized prices. See “Note 19 — Supplemental Oil and Natural Gas Disclosures” in the accompanying Notes to Consolidated Financial Statements included elsewhere in this prospectus for information concerning proved reserves.

The table above represents estimates only. Reserves estimates are based upon various assumptions, including assumptions required by the SEC relating to oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The process of estimating reserves is complex. This process requires significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. Furthermore, different reserve engineers may make different estimates of reserves and cash flow based on the same available data and these differences may be significant. Therefore, these estimates are not precise. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves will most likely vary from those estimated. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing oil and natural gas prices and other factors, many of which are beyond our control.

Internal Control and Qualifications

The reserve estimation process begins with our internal engineering department, which prepares much of the data used in estimating reserves. Working and net revenue interests are cross-checked and verified by our land department. Cost data are provided by our accounting department on a preliminary basis and reviewed by the engineering department. Our Chief Operating Officer is the technical person primarily responsible for overseeing the preparation of our reserve estimates. His qualifications include the following:

•  over 30 years of practical experience in petroleum engineering, including the estimation and evaluation of reserves;

•  Bachelor of Science degree in Civil Engineering; and

•  member in good standing of the Society of Petroleum Engineers.

We engaged two third-party engineering firms to prepare 100% of our reserves estimates, using the data provided by our engineering department, as well as other data. Their methodologies include reviews of production trends, material balance calculations, analogy to comparable properties, and/or volumetric analysis. Performance methods are preferred. Reserve estimates for developed non-producing properties and for undeveloped properties are based primarily on volumetric analysis or analogy to offset production in the same field.

We maintain internal controls including the following to ensure the reliability of reserves estimations:

•  no employee’s compensation is tied to the amount of reserves booked;

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•  we follow comprehensive SEC-compliant internal policies to determine and report proved reserves;

•  reserves estimates are made by experienced reservoir engineers or under their direct supervision; and

•  each quarter, our Chief Operating Officer and Chief Executive Officer review all significant reserves changes and all new proved undeveloped reserves additions.

In addition, because of recent growth and in anticipation of filing reports with the Securities and Exchange Commission, we engaged a third-party engineering firm to audit 100% of our 2010 reserve estimates. The portion of our estimated proved reserves prepared or audited by each of our third-party engineering firms as of December 31, 2010 is presented below.

	%
	(by Volume)	Principal Properties
Netherland, Sewell & Associates, Inc.	100% audited	All
T. J. Smith & Company, Inc.	96% prepared	All but those prepared by W. D. Von Gonten & Co.
W.D. Von Gonten & Co.	4% prepared	All properties in the Eagleville Field; certain other properties in South Texas; and all properties in the Marcellus Shale.

Copies of the reports issued by the engineering firms are filed with this registration statement of which this prospectus forms a part as Exhibits 99.2-99.4. The qualifications of the technical person at each of these firms primarily responsible for overseeing his firm’s preparation of our reserve estimates are set forth below.

Netherland, Sewell & Associates, Inc.:

•  over 28 years of practical experience in petroleum engineering and in the estimation and evaluation of reserves

•  a Registered Professional Engineer in the state of Texas

•  Bachelor of Science Degree in Petroleum Engineering

T. J. Smith & Company, Inc.:

•  over 40 years of practical experience in petroleum engineering, with 35 years in the estimation and evaluation of reserves

•  a Registered Professional Engineer in the states of Texas and Louisiana

•  Member of the Society of Petroleum Engineers

•  Bachelor of Science Degree in Petroleum Engineering

W.D. Von Gonten & Co.:

•  over 22 years of practical experience in petroleum geology and in the estimation and evaluation of reserves

•  a Registered Professional Engineer in the state of Texas

•  Member of the Society of Petroleum Engineers

•  Bachelor of Science Degree in Petroleum Engineering

The audit by Netherland, Sewell & Associates, Inc. conformed to the meaning of “reserves audit” as presented in the SEC’s Regulation S-K, Item 1202.

A reserves audit and a financial audit are separate activities with unique and different processes and results. These two activities should not be confused. As currently defined by the SEC within Regulation S-K, Item 1202, a reserves audit is the process of reviewing certain of the pertinent facts interpreted and assumptions underlying a reserves estimate prepared by another party and the rendering of an opinion about the appropriateness of the methodologies employed, the adequacy and quality of the data relied upon, the depth and thoroughness of the reserves estimation process, the classification of reserves appropriate to the relevant definitions used, and the reasonableness of the estimated reserves quantities. A financial audit includes

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examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. A financial audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

Proved Undeveloped Reserves

At December 31, 2010 we had proved undeveloped reserves of 111 Bcfe, or approximately 34% of total proved reserves. The PUDs are primarily in our Deep Bossier area, in South Louisiana, and in our Blackjack Creek field in Florida. Total PUDs at December 31, 2009 were 91 Bcfe, or 39% of our total reserves. The acquisition of Meridian in 2010, including PUDs booked post-acquisition for Meridian properties, accounts for the majority of the increase in PUDs (25 Bcfe). In addition, there were extensions at Blackjack Creek and certain fields in East Texas, which added approximately 19 Bcfe, offset by a downward revision at Deep Bossier (22 Bcfe).

In 2010, we converted 12.6 Bcfe, or 14% of total year end 2009 PUDs, to proved developed reserves. In addition, we converted 7.0 Bcfe, or 17%, of PUDs acquired in the Meridian acquisition, to proved developed reserves. Costs relating to the development of PUDs (including Meridian) were approximately $28.4 million in 2010. Costs of PUD development in 2010 do not represent the total costs of these conversions, as additional costs may have been recorded in previous years. Estimated future development costs relating to the development of 2010 year-end PUDs are $156 million. Our 2010 proved undeveloped reserves conversion rate is not indicative of the planned pace of development of our proved reserves at year-end 2010. All PUDs but one are scheduled to be drilled by 2015. The basis for our development plans are (i) allocation of capital to projects in our 2011 capital budget and (ii) in subsequent years, on the basis of capital allocation in our five-year business plan, each of which generally is governed by our expectations of internally generated cash flow. Reserve calculations at any end-of-year period are representative of our development plans at that time. Changes in commodity pricing, oilfield service costs and availability, and other economic factors may lead to changes in development plans.

Approximately 7.6 Bcfe of our PUDs at December 31, 2010 originated more than five years ago. The most significant of these is a 5.6 Bcfe waterflood expansion project at the East Hennessey Unit in Oklahoma which has been underway for four years and is proceeding in stages. We expect to reach full implementation of the project over the next two to five years.

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Production, Price and Production Cost History

The following table sets forth certain information regarding the production volumes, average prices received and average production costs associated with our sale of oil and natural gas for the periods indicated below.

	Year Ended December 31,
	2010		2009		2008
Net production:
Natural gas (MMcf)		24,026		10,610		6,637
Oil (MBbls)		964		505		445
Natural gas liquids (MBbls)		147		47		47
Total (MMcfe)		30,694		13,919		9,593
Average sales price per unit before hedging effects:
Natural gas (per Mcf)	$	4.27	$	3.72	$	9.33
Oil (per Bbl)		78.86		59.23		99.17
Natural gas liquids (per Bbl)		46.58		36.05		52.24
Combined (per Mcfe)		6.05		5.10		11.31
Average sales price per unit after hedging effects:
Natural gas (per Mcf)	$	5.24	$	6.25	$	8.81
Oil (per Bbl)		78.63		67.94		85.45
Natural gas liquids (per Bbl)		46.58		36.05		52.24
Combined (per Mcfe)		6.79		7.35		10.32
Average production costs per Mcfe:
Lease and plant operating expense	$	1.37	$	1.71	$	2.15
Production and ad-valorem taxes		0.36		0.34		0.72
Workover expense		0.24		0.65		0.85
Depreciation, depletion and amortization		1.93		3.50		5.13
General and administrative		0.66		0.63		0.67

Drilling Activity

The following tables sets forth, for each of the three years ended December 31, 2010, the number of net productive and dry exploratory and developmental wells completed, regardless of when drilling was initiated (all wells are located in the United States). The information should not be considered indicative of future performance, nor should it be assumed that there is necessarily any correlation between the number of productive wells drilled, quantities of reserves found or economic value. We own one drilling rig which currently is under contract to a third party.

	Year Ended December 31,
	2010		2009		2008
Development wells (net):
Productive		17.69		12.2		14.0
Dry		—		0.6		0.8
Total development wells		17.69		12.8		14.8
Exploratory wells (net):
Productive		3.82		2.7		5.1
Dry		4.30		0.3		2.1
Total exploratory wells		8.12		3.0		7.2

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Present Activities

As of December 31, 2010, we were drilling 27 gross (10.6 net) wells, which included 10 wells drilling and 17 awaiting completion.

Productive Wells

The following table sets forth information with respect to our ownership interest in productive wells, all of which are located in the United States, as of December 31, 2010:

	December 31,
	2010
	Gross		Net
Oil wells:
South Louisiana		20		15.3
East Texas		25		5.2
Oklahoma		203		150.7
Deep Bossier		—		—
Eagle Ford		3		0.6
Other		26		18.6
All properties		277		190.4
Natural gas wells:
South Louisiana		33		19.4
East Texas		89		46.2
Oklahoma		7		2.0
Deep Bossier		48		11.2
Eagle Ford		—		—
Other		75		43.0
All properties		252		121.8

Of the total well count for 2010, one well (one net) is a multiple completion.

Developed and Undeveloped Acreage Position

The following table sets forth information with respect to our gross and net developed and undeveloped oil and natural gas acreage under lease as of December 31, 2010, all of which is located in the United States:

	Developed Acres				Undeveloped Acres				Total Acres
Property:	Gross		Net		Gross		Net		Gross		Net
South Louisiana		34,127		26,046		24,890		10,459		59,017		36,505
East Texas		35,217		17,217		45,939		24,377		81,156		41,594
Oklahoma		56,597		36,878		—		—		56,597		36,878
Deep Bossier		16,000		5,332		34,010		11,666		50,010		16,998
Eagle Ford		2,111		396		19,092		3,215		21,203		3,611
Other		77,440		26,853		14,905		9,986		92,345		36,839
All properties		221,492		112,722		138,836		59,703		360,328		172,425

As is customary in the oil and natural gas industry, we can generally retain interest in undeveloped acreage through drilling activity that establishes commercial production sufficient to maintain the leases or by paying delay rentals during the remaining primary term of leases. The oil and natural gas leases in which we have an interest are for varying primary terms and, if production under a lease continues from developed lease acreage beyond the primary term, we are entitled to hold the lease for as long as oil or natural gas is

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produced. The oil and natural gas properties consist primarily of oil and natural gas wells and interests in leasehold acreage, both developed and undeveloped.

Undeveloped Acreage Expirations

The following table sets forth information with respect to our gross and net undeveloped oil and natural gas acreage under lease as of December 31, 2010, all of which is located in the United States, that will expire over the following three years by region unless production is established within the spacing units covering the acreage prior to the expiration dates:

	2011				2012				2013
Property:	Gross		Net		Gross		Net		Gross		Net
South Louisiana		—		—		14,992		6,297		9,898		4,162
East Texas		16,775		8,528		9,619		5,468		19,545		10,381
Oklahoma		—		—		—		—		—		—
Deep Bossier		8,008		2,722		5,639		1,942		5,019		1,750
Eagle Ford		10,112		1,689		4,012		682		3,798		646
Other		8,023		3,768		951		676		5,931		5,541
All properties		42,918		16,707		35,213		15,065		44,191		22,480

Corporate Partner and Structure

We began operations in 1987, and have funded development and operating activities primarily through cash from operations, capital raised from equity contributed by our founder, capital contributed by a private equity partner, borrowings under our bank credit facilities, and proceeds from the issuance in October 2010 of $300 million principal amount of our senior secured notes due October 15, 2018. Our capital partner, AMIH, is an affiliate of DCPF IV. DCPF IV is advised by Denham Capital Management LP, a private equity firm focused on energy and commodities. Since investing in us as a limited partner in 2006, AMIH has contributed $150 million in equity, which includes a $50 million contribution as part of the Meridian acquisition (described below). In October 2010, AMIH received a $50 million distribution from the proceeds of the offer and sale of the old notes.

As a limited partnership, our operations and activities are managed by the board of directors of our general partner, Alta Mesa GP, and the officers of Alta Mesa Services, an entity wholly owned by us. The sole member of Alta Mesa GP is Alta Mesa Resources, LP, an entity owned by Michael E. Ellis, the founder of our company, Chief Operating Officer, and Chairman of the Board of Directors of Alta Mesa GP, and his spouse, Mickey Ellis.

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Marketing and Customers

The market for our oil and natural gas production depends on factors beyond our control, including the extent of domestic production and imports of oil and natural gas, the proximity and capacity of natural gas pipelines and other transportation facilities, the demand for oil and natural gas, the marketing of competitive fuels and the effect of state and federal regulation. The oil and natural gas industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers. The prices received for oil and natural gas sales are generally tied to monthly or daily indices as quoted in industry publications.

Crude oil and natural gas purchasers vary by area. We market substantially all our oil and natural gas production pursuant to marketing contracts. We are not currently committed to provide a fixed and determinable quantity of oil or gas in the near future under our contracts.

For the year ended December 31, 2010, based on revenues excluding hedging activities, one major customer, EnCana Oil & Gas (USA), Inc., accounted for 10% or more of those revenues individually, with a contribution of $38.4 million. We believe that the loss of such customers would not have a material adverse effect on us because alternative purchasers are readily available.

Competition

We encounter intense competition from other oil and natural gas companies in all areas of our operations, including the acquisition of producing properties and undeveloped acreage. Our competitors include major integrated oil and natural gas companies, numerous independent oil and natural gas companies and individuals. Many of our competitors are large, well-established companies with substantially larger operating staffs and greater capital resources and have been engaged in the oil and natural gas business for a much longer time than us. These companies may be able to pay more for productive oil and natural gas properties, exploratory prospects and to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit. Our ability to acquire additional properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in this highly competitive environment.

We are also affected by competition for drilling rigs and the availability of related equipment. In the past, the oil and natural gas industry has experienced shortages of drilling rigs, equipment, pipe and personnel, which have delayed development, exploitation and exploration activities. We are unable to predict when, or if, such shortages may occur or how they would affect our exploitation and development program.

Employees

As of December 31, 2010, we had 126 full-time employees. We are not a party to any collective bargaining agreements and have not experienced any strikes or work stoppages. We believe our relationships with our employees are good. From time to time, we utilize the services of independent contractors to perform various field and other services. See “Certain Relationships and Related Party Transactions — Land Consulting Services.”

Legal Proceedings

We are party to various litigation matters arising in the ordinary course of business. We do not believe the outcome of such disputes or legal actions will have a material adverse effect on our consolidated financial statements. Accruals for losses associated with litigation are made when losses are deemed probable and can be reasonably estimated.

On July 23, 2009, we made a payment of $25.5 million and took assignment of substantially all working interests that had been held by Chesapeake in an approximate 50,000 acre area of Leon and Robertson Counties, Texas in the Deep Bossier play. We had exercised our preferential right to purchase these interests from Gastar in late 2005, but Gastar and Chesapeake had opposed this and Chesapeake took record title until we finally and conclusively prevailed, and in 2008 a Texas court of appeals directed that specific performance take place. In early 2009, the Texas Supreme Court denied the defendants’ request to hear the appeal. As a result, we were able to take 25% - 33% working interests in over 30 producing

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wells and participate in further development of the area, primarily with EnCana, but also with Gastar. A subsequent payment to EnCana of $15.2 million plus purchase accounting adjustments of $3.8 million brought the total cost of the acquisition to $44.5 million. While the ownership of these interests has been decided by the courts, we are pursuing other claims against Chesapeake; Chesapeake is claiming an additional $36.5 million of past expenses. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable, or potential gain should the outcome be favorable. Therefore, we have not provided any amount for this matter in our consolidated financial statements at December 31, 2010.

In January 2011, Sydson Energy brought suit for declaratory relief, breach of contract and tortious interference related to certain assignments of oil and gas interests. On April 21, 2011, we completed the purchase of certain oil and natural gas assets primarily located in Texas and South Louisiana from Sydson Energy and certain of its related parties. Total net proved reserves acquired are estimated to be 800,000 BOE (5 Bcfe), 45% of which is oil. By virtue of this acquisition, we increased our after payout net revenue interest in the Eagle Ford Shale by over 50%. All claims related to the suit filed in January 2011 by Sydson Energy were settled in connection with the transaction.

In November, 2010, Texas Oil Distribution & Development, Inc. and Matrix Petroleum LLC (together, “TODD”), filed a petition seeking declaratory relief based on TODD’s employment of Thomas Tourek, one of our former independent contractors. Mr. Tourek owed certain contractual and common law obligations to us, including, without limitation, confidentiality and non-compete obligations. TODD seeks declaratory relief of those obligations. In addition, on January 10, 2011, TODD filed an amended petition for declaratory relief, breach of contract and tortious interference related to certain assignments of oil and gas interests and joined Meridian as a defendant. Meridian filed a counterclaim for declaratory relief and seeking rescission of the disputed assignments. We intend to contest this matter vigorously. We have not provided any amount for this matter in our consolidated financial statements at December 31, 2010.

Management has established a liability for soil contamination in Florida of approximately $943,000 and $898,000 at December 31, 2010 and 2009, respectively, based on our engineering estimates. The obligations are included in other long-term liabilities in the accompanying consolidated balance sheets.

Various landowners have sued Meridian (along with numerous other oil companies) in lawsuits concerning several fields in which Meridian has had operations. The lawsuits seek injunctive relief and other relief, including unspecified amounts in both actual and punitive damages for alleged breaches of mineral leases and alleged failure to restore the plaintiffs’ lands from alleged contamination and otherwise from Meridian’s oil and natural gas operations. We are unable to express an opinion with respect to the likelihood of an unfavorable outcome of the various environmental claims or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for these claims in our consolidated financial statements at December 31, 2010.

Environmental Matters and Regulation

Our operations are subject to stringent and complex federal, state and local laws and regulations that govern the protection of the environment, as well as the discharge of materials into the environment. These laws and regulations may, among other things:

•  require the acquisition of various permits before drilling commences;

•  require the installation of pollution control equipment in connection with operations;

•  place restrictions or regulations upon the use of the material based on our operations;

•  restrict the types, quantities and concentrations of various substances that can be released into the environment or used in connection with drilling, production and transportation activities;

•  limit or prohibit drilling activities on lands lying within wilderness, wetlands and other protected areas; and

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•  require remedial measures to mitigate pollution from former and ongoing operations, such as site restoration, pit closure and plugging of abandoned wells.

These laws, rules and regulations may also restrict the rate of oil and natural gas production below the rate that would otherwise be possible. The regulatory burden on the oil and natural gas industry increases the cost of doing business in the industry and consequently affects profitability. Additionally, Congress and federal, state and local agencies frequently revise environmental laws and regulations, and such changes could result in increased costs for environmental compliance, such as waste handling, permitting, or cleanup for the oil and natural gas industry and could have a significant impact on our operating costs.

The following is a summary of some of the existing laws, rules and regulations to which our business operations are subject.

Solid and Hazardous Waste Handling

The federal Resource Conservation and Recovery Act, or RCRA and comparable state statutes regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous solid waste. Although oil and natural gas waste generally is exempt from regulations as hazardous waste under RCRA, we generate waste as a routine part of our operations that may be subject to RCRA. Although a substantial amount of the waste generated in our operations are regulated as non-hazardous solid waste rather than hazardous waste, there is no guarantee that the Environmental Protection Agency (“EPA”) or individual states will not adopt more stringent requirements for the handling of non- hazardous waste or categorize some non-hazardous waste as hazardous in the future. Any such change could result in an increase in our costs to manage and dispose of waste, which could have a material adverse effect on our results of operations and financial position.

Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”)

CERCLA imposes joint and several liability for costs of investigation and remediation and for natural resource damages without regard to fault or legality of the original conduct, on certain classes of persons with respect to the release into the environment of substances designated under CERCLA as hazardous substances (“Hazardous Substances”). These classes of persons, or so-called potentially responsible parties (“PRPs”) include the current and past owners or operators of a site where the release occurred and anyone who disposed or arranged for the disposal of a hazardous substance found at the site. CERCLA also authorizes the EPA and, in some instances, third parties to take actions in response to threats to public health or the environment and to seek to recover from the PRPs the costs of such action. Many states have adopted comparable or more stringent state statutes.

Although CERCLA generally exempts “petroleum” from the definition of Hazardous Substance, in the course of our operations, we have generated and will generate wastes that may fall within CERCLA’s definition of Hazardous Substances and may have disposed of these wastes at disposal sites owned and operated by others. We may also be the owner or operator of sites on which Hazardous Substances have been released. To our knowledge, neither we nor our predecessors have been designated as a PRP by the EPA under CERCLA; we also do not know of any prior owners or operators of our properties that are named as PRPs related to their ownership or operation of such properties. In the event contamination is discovered at a site on which we are or have been an owner or operator or to which we sent Hazardous Substances, we could be liable for the costs of investigation and remediation and natural resources damages.

We currently own, lease, or operate numerous properties that have been used for oil and natural gas exploration and production for many years. Although we believe we have utilized operating and waste disposal practices that were standard in the industry at the time, Hazardous Substances, wastes or hydrocarbons may have been released on or under the properties owned or leased by us, or on or under other locations, including offsite locations, where such materials have been taken for disposal. In addition, some of these properties have been operated by third parties or by previous owners or operators whose treatment and disposal of Hazardous Substances, wastes, or hydrocarbons were not under our control. These properties and the materials disposed or released on them may be subject to CERCLA or RCRA and analogous state laws. In the future, we could be required to remediate property, including groundwater, containing or impacted by previously disposed

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materials (including wastes disposed or released by prior owners or operators, or property contamination, including groundwater contamination by prior owners or operators) or to perform remedial plugging operations to prevent future or mitigate existing contamination.

Clean Water Act

The Federal Water Pollution Control Act (the “Clean Water Act”) and analogous state laws impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of produced water and other oil and natural gas wastes, into waters of the United States, a term broadly defined. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by EPA or an analogous state agency. The Clean Water Act also prohibits the discharge of dredge and fill material in regulated waters, including wetlands, unless authorized by a permit issued by the U.S. Army Corps of Engineers. Federal and state regulatory agencies can impose administrative, civil and criminal penalties, as well as require remedial or mitigation measures, for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations. In the event of an unauthorized discharge of wastes, we may be liable for penalties and costs.

Safe Drinking Water Act (“SDWA”)

The SWDA regulates, among other things, underground injection operations. Currently, most hydraulic fracturing activities are regulated at the state level, as the SDWA exempts most hydraulic fracturing. Recent legislative activity has occurred which, if successful, would impose additional regulation under the SDWA upon the use of hydraulic fracturing fluids. Congress is considering two companion bills entitled the FRAC Act. If enacted, the legislation would impose on our hydraulic fracturing operations permit and financial assurance requirements, requirements that we adhere to construction specifications, fulfill monitoring, reporting and recordkeeping obligations, and meet plugging and abandonment requirements. In addition to subjecting the injection of hydraulic fracturing to the SDWA regulatory and permitting requirements, the proposed legislation would require the disclosure of the chemicals within the hydraulic fluids, which could make it easier for third parties opposing hydraulic fracturing to initiate legal proceedings based on allegations that specific chemicals used in the process could adversely affect ground water. Neither piece of legislation has been passed. Many states and other local regulatory authorities have enacted or are considering regulations on hydraulic fracturing, including disclosure requirements and regulations that could restrict hydraulic fracturing in certain circumstances. In addition, the EPA has commenced a study of the potential adverse effects that hydraulic fracturing may have on water quality and public health, and a committee of the U.S. House of Representatives has commenced its own investigation into hydraulic fracturing practices. If the pending or similar legislation is enacted or other new requirements or restrictions regarding hydraulic fracturing are adopted as a result of these studies, we could incur substantial compliance costs and the requirements could negatively impact our ability to conduct fracturing activities on our assets.

Oil Pollution Act

The primary federal law related to oil spill liability is the Oil Pollution Act (the “OPA”) which amends and augments oil spill provisions of the Clean Water Act and imposes certain duties and liabilities on certain “responsible parties” related to the prevention of oil spills and damages resulting from such spills in or threatening United States waters or adjoining shorelines. A liable “responsible party” includes the owner or operator of a facility, vessel or pipeline that is a source of an oil discharge or that poses the substantial threat of discharge, or in the case of offshore facilities, the lessee or permittee of the area in which a discharging facility is located. OPA assigns joint and several liability, without regard to fault, to each liable party for oil removal costs and a variety of public and private damages. Although defenses exist to the liability imposed by OPA, they are limited. In the event of an oil discharge or substantial threat of discharge, we may be liable for costs and damages.

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Air Emissions

Our operations are subject to local, state and federal regulations for the control of emissions from sources of air pollution. Federal and state laws require new and modified sources of air pollutants to obtain permits prior to commencing construction. Major sources of air pollutants are subject to more stringent, federally imposed requirements including additional permits. Federal and state laws designed to control hazardous air pollutants, might require installation of additional controls. Administrative enforcement actions for failure to comply strictly with air pollution regulations or permits are generally resolved by payment of monetary fines and correction of any identified deficiencies. Alternatively, regulatory agencies could bring lawsuits for civil penalties or require us to forego construction, modification or operation of certain air emission sources.

National Environmental Policy Act

Oil and natural gas exploration and production activities on federal lands (including offshore leasing) may be subject to the National Environmental Policy Act (the “NEPA”), which requires federal agencies, including the Department of Interior, to evaluate major agency actions having the potential to significantly impact the environment. In the course of such evaluations, an agency will prepare an Environmental Assessment that assesses the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed Environmental Impact Statement that may be made available for public review and comment. All of our current exploration and production activities, as well as proposed exploration and development plans, on federal lands require governmental permits that are subject to the requirements of NEPA. As a result of the events in the Gulf of Mexico, the NEPA process is being reviewed and may become more stringent. This process has the potential to delay or impose additional conditions upon the development of oil and natural gas projects.

Climate Change Regulation and Legislation

More stringent laws and regulations relating to climate change and greenhouse gases (“GHGs”) may be adopted in the future and could cause us to incur material expenses in complying with them. Both houses of Congress have actively considered legislation to reduce emissions of GHGs, but no legislation has yet passed. In the absence of comprehensive federal legislation on GHG emission control, the EPA has been moving forward with rulemaking under the CAA to regulate GHGs as pollutants under the CAA. The EPA has adopted regulations that would require a reduction in emissions of GHGs from motor vehicles, thus triggering permit requirements for GHGs from certain stationary sources. In June 2010, EPA adopted the Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, which phases in permitting requirements for stationary sources of GHGs, beginning January 2, 2011. This rule “tailors” these permitting programs to apply to certain stationary sources of GHG emissions in a multi-step process, with the largest sources first subject to permitting. We do not believe our operations currently are subject to subject to these permitting requirements, but if our operations become subject to these or other similar requirements, we could incur significant costs to control our emissions and comply with regulatory requirements. In addition, the EPA has adopted a mandatory GHG emissions reporting program that imposes reporting and monitoring requirements on various types of facilities and industries. In November 2010, the EPA expanded its GHG reporting rule to include onshore and offshore oil and natural gas production, processing, transmission, storage, and distribution facilities, requiring reporting of GHG emissions from such facilities on an annual basis, with reporting beginning in 2012 for emissions occurring in 2011. We do not believe our operations to be subject to GHG reporting requirements, but there is no guarantee that the EPA will not further expand the program to additional sources and facilities. Should we be required to report GHG emissions, it could require us to incur costs to monitor, keep records of, and report emissions of GHGs.

Because of the lack of any comprehensive legislative program addressing GHGs, there is a great deal of uncertainty as to how and when federal regulation of GHGs might take place. Some members of Congress have expressed the intention to promote legislation to curb EPA’s authority to regulation GHGs. In addition to possible federal regulation, a number of states, individually and regionally, also are considering or have implemented GHG regulatory programs. These potential regional and state initiatives may result in so-called cap and trade programs, under which overall GHG emissions are limited and GHG emissions are then

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allocated and sold, and possibly other regulatory requirements, that could result in our incurring material expenses to comply, e.g., by being required to purchase or to surrender allowances for GHGs resulting from our operations. The federal, regional and local regulatory initiatives also could adversely affect the marketability of the oil and natural gas we produce. The impact of such future programs cannot be predicted, but we do not expect our operations to be affected any differently than other similarly situated domestic competitors.

OSHA and Other Laws and Regulation

We are subject to the requirements of the federal Occupational Safety and Health Act (“OSHA”) and comparable state statutes. These laws and the implementing regulations strictly govern the protection of the health and safety of employees. The OSHA hazard communication standard, the EPA community right-to-know regulations under the Title III of CERCLA and similar state statutes require that we organize and/or disclose information about hazardous materials used or produced in our operations. We believe that we are in substantial compliance with these applicable requirements and with other OSHA and comparable requirements.

We believe that we are in substantial compliance with all existing environmental laws and regulations applicable to our current operations and that our continued compliance with existing requirements will not have a material adverse impact on our financial condition and results of operations. We did not incur any material capital expenditures for remediation or pollution control activities for the years ended December 31, 2010, 2009 and 2008. Additionally, we are not aware of any environmental issues or claims that will require material capital expenditures during 2011 or that will otherwise have a material impact on our financial position or results of operations in the future. However, we cannot assure you that the passage of more stringent laws and regulations in the future will not have a negative impact our business activities, financial condition or results of operations.

Other Regulation of the Oil and Natural Gas Industry

The oil and natural gas industry is extensively regulated by numerous federal, state and local authorities. Legislation affecting the oil and natural gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue rules and regulations binding on the oil and natural gas industry and its individual members, some of which carry substantial penalties for failure to comply. Although the regulatory burden on the oil and natural gas industry increases our cost of doing business and, consequently, affects our profitability, these burdens generally do not affect us any differently or to any greater or lesser extent than they affect other companies in the industry with similar types, quantities and locations of production.

Legislation continues to be introduced in Congress and development of regulations continues in the Department of Homeland Security and other agencies concerning the security of industrial facilities, including oil and natural gas facilities. Our operations may be subject to such laws and regulations. Presently, it is not possible to accurately estimate the costs we could incur to comply with any such facility security laws or regulations, but such expenditures could be substantial.

Drilling and Production

Our operations are subject to various types of regulation at the federal, state and local levels. These types of regulation include requiring permits for the drilling of wells, drilling bonds and reports concerning operations. Most states and some counties and municipalities in which we operate also regulate one or more of the following:

•  the location of wells;

•  the method of drilling and casing wells;

•  the surface use and restoration of properties upon which wells are drilled; and

•  the plugging and abandoning of wells.

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State laws regulate the size and shape of drilling and spacing units or proration units governing the pooling of oil and natural gas properties. Some states allow forced pooling or integration of tracts to facilitate exploitation while other states rely on voluntary pooling of lands and leases. In some instances, forced pooling or unitization may be implemented by third parties and may reduce our interest in the unitized properties. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally prohibit the venting or flaring of natural gas and impose requirements regarding the ratability of production. These laws and regulations may limit the amount of oil and natural gas we can produce from our wells or limit the number of wells or the locations at which we can drill. Moreover, each state generally imposes a production, ad valorem or severance tax with respect to the production and sale of oil, natural gas and natural gas liquids within its jurisdiction.

In addition, 11 states have enacted surface damage statutes (“SDAs”). These laws are designed to compensate for damage caused by mineral development. Most SDAs contain entry notification and negotiation requirements to facilitate contact between operators and surface owners/users. Most also contain bonding requirements and specific expenses for exploration and producing activities. Costs and delays associated with SDAs could impair operational effectiveness and increase development costs.

We do not control the availability of transportation and processing facilities used in the marketing of our production. For example, we may have to shut-in a productive natural gas well because of a lack of available natural gas gathering or transportation facilities.

If we conduct operations on federal, state or Indian oil and natural gas leases, these operations must comply with numerous regulatory restrictions, including various non-discrimination statutes, royalty and related valuation requirements, and certain of these operations must be conducted pursuant to certain on-site security regulations and other appropriate permits issued by the Bureau of Land Management, Minerals Management Service or other appropriate federal or state agencies.

Federal Natural Gas Regulation

The availability, terms and cost of transportation significantly affect sales of natural gas. The interstate transportation and sale for resale of natural gas is subject to federal regulation, including regulation of the terms, conditions and rates for interstate transportation, storage and various other matters, primarily by the Federal Energy Regulatory Commission (“FERC”). Federal and state regulations govern the price and terms for access to natural gas pipeline transportation. FERC’s regulations for interstate natural gas transmission in some circumstances may also affect the intrastate transportation of natural gas. FERC regulates the rates, terms and conditions applicable to the interstate transportation of natural gas by pipelines under the Natural Gas Act as well as under Section 311 of the Natural Gas Policy Act.

Since 1985, FERC has implemented regulations intended to increase competition within the natural gas industry by making natural gas transportation more accessible to natural gas buyers and sellers on an open-access, nondiscriminatory basis. FERC has announced several important transportation related policy statements and rule changes, including a statement of policy and final rule issued February 25, 2000, concerning alternatives to its traditional cost-of-service rate-making methodology to establish the rates interstate pipelines may charge for their services. The final rule revises FERC’s pricing policy and current regulatory framework to improve the efficiency of the market and further enhance competition in natural gas markets.

FERC has also issued several other generally pro-competitive policy statements and initiatives affecting rates and other aspects of pipeline transportation of natural gas. On May 31, 2005, FERC generally reaffirmed its policy of allowing interstate pipelines to selectively discount their rates in order to meet competition from other interstate pipelines. On June 15, 2006, the FERC issued an order in which it declined to establish uniform standards for natural gas quality and interchangeability, opting instead for a pipeline-by-pipeline approach. Four days later, on June 19, 2006, in order to facilitate development of new storage capacity, FERC established criteria to allow providers to charge market-based (i.e. negotiated) rates for storage services. On June 19, 2008, the FERC removed the rate ceiling on short-term releases by shippers of interstate pipeline transportation capacity.

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Although natural gas prices are currently unregulated, Congress historically has been active in the area of natural gas regulation. We cannot predict whether new legislation to regulate natural gas might be proposed, what proposals, if any, might actually be enacted by Congress or the various state legislatures, and what effect, if any, the proposals might have on the operations of the underlying properties. Sales of condensate and natural gas liquids are not currently regulated and are made at market prices.

State Natural Gas Regulation

Various states regulate the drilling for, and the production, gathering and sale of, natural gas, including imposing severance taxes and requirements for obtaining drilling permits. States also regulate the method of developing new fields, the spacing and operation of wells and the prevention of waste of natural gas resources. States may regulate rates of production and may establish maximum daily production allowables from natural gas wells based on market demand or resource conservation, or both. States do not regulate wellhead prices or engage in other similar direct economic regulation, but there can be no assurance that they will not do so in the future. The effect of these regulations may be to limit the amounts of natural gas that may be produced from our wells and to limit the number of wells or locations we can drill.

Other Regulation

In addition to the regulation of oil and natural gas pipeline transportation rates, the oil and natural gas industry generally is subject to compliance with various other federal, state and local regulations and laws. Some of those laws relate to occupational safety, resource conservation and equal employment opportunity.

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MANAGEMENT

As is the case with many partnerships, we do not directly employ officers, directors or employees. Our operations and activities are managed by the board of directors of our general partner, Alta Mesa Holdings GP, LLC (“Alta Mesa GP”), and the officers and directors of Alta Mesa Services, LP (“Alta Mesa Services”), an entity wholly owned by us. Prior to the offering of the old notes in October 2010, Alta Mesa Services was owned by Michael E. and Mickey Ellis. References to our directors are references to the directors of Alta Mesa GP. References to our officers and employees are references to the officers and employees of Alta Mesa Services.

All of our executive management personnel are employees of Alta Mesa Services and devote all of their time to our business and affairs. We also utilize a significant number of employees of Alta Mesa Services to operate our properties and provide us with certain general and administrative services. Under the shared services and expenses agreement, we reimburse Alta Mesa Services for its operational personnel who perform services for our benefit. See “Certain Relationships and Related Party Transactions — Shared Services and Expenses Agreement.”

Board Leadership Structure

Our Chairman is Michael E. Ellis, our Chief Operating Officer and founder of the Company. Our Board of Directors has no policy regarding the separation of the positions of Chief Executive Officer and Chairman. We also do not have a lead independent director.

Board Oversight of Risk

Like all businesses, we face risks in our business activities. Many of these risks are discussed under the caption “Risk Factors” elsewhere in this prospectus. The board of directors has delegated to management the primary responsibility of risk management, while it has retained oversight of management in that regard.

In addition, our Board of Directors considers our practices regarding risk assessment and risk management, reviews our contingent liabilities, reviews our oil and natural gas reserve estimation practices, as well as major legislative and regulatory developments that could affect us. Our Board reviews and attempts to mitigate risks which may result from our compensation policies.

Executive Officers and Directors

The following table sets forth the names, ages and offices of our present directors and executive officers as of December 31, 2010. Members of our Board of Directors are elected for one-year terms.

			Director
Name	Age		Since		Position
Harlan H. Chappelle		54		2005	President, Chief Executive Officer and Director
Michael E. Ellis		54		1987	Founder, Chairman, Vice President of Engineering and Chief Operating Officer
Mickey Ellis		52		1987	Director
Michael A. McCabe		55		—	Vice President and Chief Financial Officer
F. David Murrell		49		—	Vice President, Land and Business Development

The following is a biographical summary of the business experience of these directors and executive officers:

Harlan H. Chappelle joined Alta Mesa as President and CEO in November 2004, and has led the company in a period of significant growth, building a strong management and technical team, focusing the company on its greatest opportunities, making strategic acquisitions, and restructuring its financing. Mr. Chappelle has over 25 years in field operations, engineering, management, marketing and trading, acquisitions and divestitures, and field re-development in collaboration with majors including Exxon and Chevron. He has worked for Louisiana Land & Exploration Company, Burlington Resources, Southern Company, and Mirant. Mr. Chappelle retired as a Commander from the U.S. Navy Reserve. He has a Bachelor

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of Chemical Engineering from Auburn University and a Master of Science in Petroleum Engineering from The University of Texas at Austin.

Michael E. Ellis founded Alta Mesa in 1987 after beginning his career with Amoco, and is our Chairman and Chief Operating Officer, as well as Vice President of Engineering. Mr. Ellis manages all day-to-day engineering and field operations of Alta Mesa. He built the company’s asset base by starting with small earn-in exploitation projects, then progressively growing the company with successive acquisitions of fields from major oil companies, and consistent success in exploration and development drilling. He has over 30 years’ experience in management, engineering, exploration, and acquisitions and divestitures in the Gulf Coast, Midcontinent and West Texas regions. Mr. Ellis holds a Bachelor of Science in Civil Engineering from West Virginia University.

Mickey Ellis has served as a Director since the company’s inception in 1987. Ms. Ellis is actively involved in the leadership of charitable organizations, as a Board Member of Houston Area Respite Care and The Confessing Movement of the United Methodist Church, Treasurer of the National Charity League Star Chapter, Committee Member on several committees within Mission Bend United Methodist Church, and Building Relocation Coordinator for Mission Bend Christian Academy. She is a major fundraiser for the Susan G. Komen Foundation, and an active volunteer for CanCare. Ms. Ellis is the spouse of Michael E. Ellis.

Michael A. McCabe, our Chief Financial Officer, joined Alta Mesa in September 2006. Mr. McCabe has over 25 years of corporate finance experience, with a focus on the energy industry. From 2004 until 2006, Mr. McCabe served as President and sole owner of Bridge Management Group, Inc., a private consulting firm primarily providing advisory services to us and to MultiFuels, Inc., a Houston based developer of natural gas storage facilities. He has served in senior positions with Bank of Tokyo, Bank of New England, and Key Bank. Mr. McCabe holds a Bachelor of Science in Chemistry and Physics from Bridgewater State University, a Masters of Science in Chemical Engineering from Purdue University and a Masters of Business Administration in Financial Management from Pace University.

David Murrell has served as our Vice President, Land and Business Development since 2007. Mr. Murrell has over 25 years of experience in Gulf Coast leasing, exploration and development programs, contract management and acquisitions and divestitures. He created a structured land management system for Alta Mesa, and built a team of lease analysts, landmen, and field representatives that has facilitated our company’s growth. Mr. Murrell earned a Bachelor of Business Administration in Petroleum Land Management from the University of Oklahoma.

Qualifications of Directors

Mr. Chappelle’s experience as our Chief Executive Officer since 2004, combined with his significant equity ownership of us, uniquely qualify him to serve as a director of our general partner.

Mr. Ellis is our founder; his experience in that capacity and as one of our executive officers since 1987 provide him intimate knowledge of our operations, finances and strategy and uniquely qualify him to serve as the Chairman of our general partner.

Ms. Ellis’ role in working with us since our inception in 1987 provides her with valuable knowledge of our business and operations.

Executive Compensation and Other Information

Compensation Discussion and Analysis

Because we are a partnership, we do not directly employ any of the persons responsible for managing our business. Our operations and activities are managed by the Board of Directors of our general partner, Alta Mesa GP, and the officers of Alta Mesa Services, our wholly owned subsidiary. References to our officers and employees are references to the officers and employees of Alta Mesa Services. We refer to the Board of Directors of Alta Mesa GP as “our Board” or “our Board of Directors.”

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Prior to our offering of the old notes in October 2010, Alta Mesa Services was owned by an affiliate of our general partner and it provided services, including accounting, corporate development, finance, land administration and engineering, to us pursuant to an administrative services agreement. Pursuant to the administrative services agreement, expenses were allocated to us based on the portion of time that the employees allocated to our business. During 2010, all of Alta Mesa Services’ expenses were allocated to us under the above formula.

In connection with the note offering, we acquired Alta Mesa Services. All of our executive officers are employees of Alta Mesa Services and devote all of their time to our business and affairs.

Prior to the note offering, Alta Mesa Services had the ultimate decision-making authority with respect to our compensation program for our executive officers. The board of Alta Mesa Services was comprised of Michael E. Ellis, our Chief Operating Officer, Mickey Ellis, his wife, and Harlan H. Chappelle, our President and Chief Executive Officer. After the offering, our Board of Directors assumed responsibility for overseeing our executive remuneration programs and the fair and competitive compensation of our executive officers. Our Board consists of Michael E. Ellis, Mickey Ellis and Harlan H. Chappelle and meets each year to review our compensation program and to determine compensation levels for the ensuing fiscal year.

In this Compensation Discussion and Analysis, we discuss our compensation objectives, our decisions and the rationale behind those decisions relating to 2010 compensation for our named executive officers.

Objectives of Our Compensation Program

Our executive compensation program is intended to motivate our executive officers to achieve strong financial and operating results for us. In addition, our program is designed to achieve the following objectives:

•  attract and retain talented executive officers by providing reasonable total compensation levels competitive with that of executives holding comparable positions in similarly situated organizations;

•  provide total compensation that is justified by individual performance; and

•  provide performance-based compensation that is tied to both individual and our performance.

What Our Compensation Program is Designed to Reward

Our strategy is to increase reserves and production by applying advanced engineering analytics and enhanced geological techniques in areas we have identified as under-developed and over-looked. Our compensation program is designed to reward performance that contributes to the achievement of our business strategy. In addition, we reward qualities that we believe help achieve our strategy such as teamwork; individual performance in light of general economic and industry specific conditions; performance that supports our core values; resourcefulness; the ability to manage our existing corporate assets; the ability to explore new avenues to increase oil and gas production and reserves; level of job responsibility; and tenure with the company.

Elements of Our Compensation Program and Why We Pay Each Element

To accomplish our objectives, our compensation program is comprised of three elements: base salary, cash bonus and benefits. We currently do not offer equity-based compensation.

We pay base salary in order to recognize each executive officer’s unique value and historical contributions to our success in light of salary norms in the industry and the general marketplace; to match competitors for executive talent; to provide executives with sufficient, regularly-paid income; and to reflect an executive’s position and level of responsibility.

We include an annual cash bonus as part of our compensation program because we believe this element of compensation helps to motivate executives to achieve key corporate objectives by providing annual recognition of achievement. The annual cash bonus also allows us to be competitive from a total remuneration standpoint.

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We offer benefits such as a 401(k) plan and payment of insurance premiums in order to provide a competitive remuneration package as well as a measure of financial security to our employees.

How We Determine Each Element of Compensation

In determining the elements of compensation, we consider our ability to attract and retain executives as well as various measures of company and industrial performance including debt levels, revenues, cash flow, capital expenditures, reserves of oil and gas and costs. We did not retain a consultant with respect to determining 2010 compensation.

Messrs. Ellis, Chappelle, McCabe and Murrell are parties to employment agreements with Alta Mesa Services. The employment agreements automatically renew annually, subject to prior notice of cancellation by either Alta Mesa Services or the executive. These employment agreements establish set minimum base salaries for each officer of $400,000, $400,000, $300,000 and $190,000 per annum, respectively, which we believe are competitive with other independent oil and gas companies with whom we compete for managerial talent. In addition, the employment agreements provide that the executives are each entitled to an annual bonus equal to a percentage of his respective annual base salary if performance criteria set by the board for the applicable period are met. The agreements also provide for benefits such as reimbursement of business expenses, participation in employee benefit plans and key man life insurance.

Base Salary.  In reviewing base salaries, the board takes into account a combination of subjective factors, primarily relying on their own personal judgment and experience. Subjective factors the board considers include individual achievements, our performance, level of responsibility, experience, leadership abilities, increases or changes in duties and responsibilities and contributions to our performance. Mr. Ellis and Mr. Chappelle participate in and are present during the board’s review and determination of their respective base salaries. For 2010, the Board set the base salaries for Messrs. Ellis, Chappelle, McCabe and Murrell at $450,000, $450,000, $350,000 and $275,000, respectively.

Bonus.  A portion of each executive’s total compensation may be paid as bonus compensation. The board takes into consideration the company’s achievements during the year and each executive’s contribution toward such achievements. While performance criteria may be set, the board takes into account subjective factors in determining if these criteria were met. Bonuses for any one year are usually determined and paid in May of the following year. Accordingly, bonus compensation for our executive officers for 2010 has not yet been determined. However, bonuses paid in 2010 for 2009 performance ranged from approximately 55% to 100% of base salary.

Benefits.  We provide company benefits or perquisites that we believe are standard in the industry to all of our employees. These benefits consist of a group medical and dental insurance program for employees and their qualified dependents and a 401(k) employee savings and protection plan. The costs of these benefits are paid for entirely by the company. We do not provide employee life insurance amounts surpassing the Internal Revenue Service maximum. We make matching contributions to the 401(k) contribution of each qualified participant. The company pays all administrative costs to maintain the plan. In addition, we provide Messrs. Ellis and Chappelle with company automobiles.

Other Compensation.  As part of his employment agreement, we reimburse Mr. McCabe for the rental cost of an apartment near our headquarters and pay his commuting expenses to and from his permanent home to Houston. In 2010, these housing and commuting expenses totaled $77,599. We agreed to provide these benefits to Mr. McCabe because our Board believed it was necessary to retain Mr. McCabe’s services despite the fact that his permanent residence is outside of the Houston area. The Board considered the value of this additional compensation in evaluating Mr. McCabe’s total compensation package.

How Elements of Our Compensation Program are Related to Each Other

We view the various components of compensation as related but distinct and emphasize “pay for performance” with a portion of total compensation reflecting a risk aspect tied to our financial and strategic goals. We determine the appropriate level for each compensation component based in part, but not exclusively,

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on our view of internal equity and consistency, and other considerations we deem relevant, such as rewarding extraordinary performance.

Assessment of Risk

Our Board takes risk into account when making compensation decisions and has concluded that the executive compensation program as it is currently structured does not encourage excessive risk or unnecessary risk-taking.

Accounting and Tax Considerations

We have structured our compensation program to comply with Internal Revenue Code Section 409A. If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A, and such benefits do not comply with Section 409A, then the benefits are taxable in the first year they are not subject to a substantial risk of forfeiture. In such case, the service provider is subject to regular federal income tax, interest and an additional federal income tax of 20% of the benefit includible in income.

Summary Compensation

The following table summarizes, with respect to our named executive officers, information relating to the compensation earned for services rendered in all capacities during the fiscal year ended December 31, 2010. There was no compensation awarded to, earned by or paid to any of the named executive officers related to option awards or non-equity incentive compensation plans. In addition, none of the named executive officers participate in a defined benefit pension plan.

								All Other
Name and Principal Position	Year		Salary			Bonus(1)		Compensation			Total
Harlan H. Chappelle		2010	$	450,000			—		18,639	(2)	$	468,639
President, Chief Executive Officer
Michael E. Ellis		2010	$	450,000			—		26,429	(3)	$	476,429
Chief Operating Officer, Vice President of Engineering, and Chairman of the Board
Michael A. McCabe		2010	$	350,000			—		88,016	(4)	$	438,016
Vice President, Chief Financial Officer
David Murrell		2010	$	273,750	(5)		—		8,250	(6)	$	282,000
Vice President of Land and Business Development

(1)	Bonuses for 2010 have not yet been determined. We expect these bonuses will be determined before the end of June 2011. Bonuses paid in 2010 for 2009 performance were $450,000 for Mr. Chappelle, $350,000 for Mr. McCabe, and $150,000 for Mr. Murrell. Mr. Ellis declined to receive a bonus paid in 2010.
(2)	Mr. Chappelle’s other compensation consists of $8,250 in matching funds to his 401(k) account and $10,389 in auto expenses.
(3)	Mr. Ellis’ other compensation consists of $8,250 in matching funds to his 401(k) account and $18,179 in auto expenses.
(4)	Mr. McCabe’s other compensation consists of $10,417 in matching funds to his 401(k) account, and $77,599 in travel and living expenses, which includes $20,239 for an apartment in Houston and $57,360 for travel, which consists primarily of airfare and the cost of rental cars and parking.
(5)	Mr. Murrell’s salary was raised to $275,000 during 2010.
(6)	Mr. Murrell’s other compensation consists of $8,250 in matching funds to his 401(k) account.

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Narrative Disclosure to Summary Compensation Table

Mr. Chappelle

Mr. Chappelle entered into an employment agreement on August 31, 2006 that provides that he will act as President and Chief Executive Officer until August 31, 2010, subject to automatic one year renewals of the term if neither party submits a notice of termination at least 60 days prior to the end of the then-current term. In accordance with the provisions of the employment agreement, in 2010, the agreement was automatically renewed for an additional one-year term. This agreement may be terminated by either party, at any time, subject to severance obligations in the event Mr. Chappelle is terminated by us without cause or he dies or is disabled.

Mr. Chappelle’s employment agreement provides for a minimum base salary of $400,000 and an annual bonus equal to a percentage of his base salary paid during each such annual period, such percentage to be established by our Board of Directors in the Board’s sole discretion.

Mr. Ellis

Mr. Ellis entered into an employment agreement on August 31, 2006 that provides that he will act as Vice President and Chief Operating Officer until August 31, 2010, subject to automatic one year renewals of the term if neither party submits a notice of termination at least 60 days prior to the end of the then-current term. In accordance with the provisions of the employment agreement, in 2010, the agreement was automatically renewed for an additional one-year term. This agreement may be terminated by either party, at any time, subject to severance obligations in the event Mr. Ellis is terminated by us without cause or he dies or is disabled.

Mr. Ellis’ employment agreement provides for a minimum base salary of $400,000 and an annual bonus equal to a percentage of his base salary paid during each such annual period, such percentage to be established by our Board of Directors in the Board’s sole discretion.

Mr. McCabe

Mr. McCabe entered into an employment agreement on August 31, 2006 that provides that he will act as Vice President and Chief Financial Officer until August 31, 2010, subject to automatic one year renewals of the term if neither party submits a notice of termination at least 60 days prior to the end of the then-current term. In accordance with the provisions of the employment agreement, in 2010, the agreement was automatically renewed for an additional one-year term. This agreement may be terminated by either party, at any time, subject to severance obligations in the event Mr. McCabe is terminated by us without cause or he dies or is disabled.

Mr. McCabe’s employment agreement provides for a minimum base salary of $300,000 and an annual bonus equal to a percentage of his base salary paid during each such annual period, such percentage to be established by our Board of Directors in the Board’s sole discretion.

Mr. McCabe’s employment agreement also provides that he is allowed to work from his residence in Massachusetts as well as in our Houston office so long as he is capable of performing his duties assigned to him. In his employment agreement, we also agree to provide Mr. McCabe with suitable housing (or a housing allowance) and an automobile or reimbursement for the lease of an automobile while he is in Houston.

Mr. Murrell

Mr. Murrell entered into an employment agreement on October 1, 2006 that provides that he will act as Vice President of Land and Business Development until October 1, 2007, subject to automatic one year renewals of the term if neither party submits a notice of termination at least 60 days prior to the end of the then-current term. In accordance with the provisions of the employment agreement, in 2010, the agreement was automatically renewed for an additional one-year term. This agreement may be terminated by either party,

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at any time, subject to severance obligations in the event Mr. Murrell is terminated by us without cause or he dies or is disabled.

Mr. Murrell’s employment agreement provides for a minimum base salary of $190,000 and an annual bonus equal to 0.5% of the after-tax profits of Alta Mesa Holdings, LP, subject to a minimum bonus of $50,000 and a maximum bonus such that his combined salary plus bonus does not exceed $1,000,000.

Grants of Plan-Based Awards for Fiscal Year 2010

There were no grants of plan-based awards to our named executive officers during the fiscal year ended December 31, 2010.

Outstanding Equity Awards Value at 2010 Fiscal Year-End

There were no outstanding equity awards for our named executive officers as of December 31, 2010.

Option Exercises and Equity Awards Vested in Fiscal Year 2010

There were no exercises of equity awards and no vesting of equity awards for our named executive officers during fiscal 2010.

Pension Benefits

We do not provide pension benefits for our named executive officers.

Nonqualified Deferred Compensation

We do not have a nonqualified deferred compensation plan and, as such, no compensation has been deferred by our named executive officers.

Termination of Employment and Change-in-Control Provisions

Messrs. Chappelle, Ellis, McCabe and Murrell are parties to employment agreements which provide them with post-termination benefits in a variety of circumstances. The amount of compensation payable in some cases may vary depending on the nature of the termination, whether as a result of retirement/voluntary termination, involuntary not-for-cause termination, termination following a change of control and in the event of disability or death of the executive. The discussion below describes the varying amounts payable in each of these situations. It assumes, in each case, that the officer’s termination was effective as of December 31, 2010. In presenting this disclosure, we describe amounts earned through December 31, 2010 and, in those cases where the actual amounts to be paid out can only be determined at the time of such executive’s separation from us, our estimates of the amounts which would be paid out to the executives upon their termination.

Provisions Under the Employment Agreements

Under the employment agreements, if the executive’s employment with us terminates, the executive is entitled to unpaid salary for the full month in which the termination date occurred. However, if the executive is terminated for cause, the executive is only entitled to receive accrued but unpaid salary through the termination date. In addition, if the executive’s employment terminates, the executive is entitled to unpaid vacation days for that year which have accrued through the termination date, reimbursement of reasonable business expenses that were incurred but unpaid as of the termination date, a pro rata portion of the annual bonus for that year and COBRA coverage as required by law. Salary and accrued vacation days are payable in cash lump sum less applicable withholdings. Business expenses are reimbursable in accordance with normal procedures.

If the executive’s employment is involuntarily terminated by us (except for cause or due to the death of the executive) or if the executive’s employment is terminated due to disability or retirement or by the executive for good reason, we are obligated to pay as additional compensation an amount in cash equal to two

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years, except in the case of Mr. Murrell, in which case it is six months, of the executive’s base salary in effect as of the termination date. Under the terms of Mr. Murrell’s employment agreement, upon such involuntary termination, he would also be paid 50% of the annual bonus then in effect. Assuming termination as of December 31, 2010, for both Messrs. Chappelle and Ellis, the termination benefit would have been $900,000; for Mr. McCabe, $700,000; and for Mr. Murrell, $212,500. In addition, the executive is entitled to continued group health plan coverage following the termination date for the executive and the executive’s eligible spouse and dependents for the maximum period for which such qualified beneficiaries are eligible to receive COBRA coverage. The executive shall not be required to pay more for COBRA coverage than officers who are then in active service for us and receiving coverage under the plan. Assuming termination as of December 31, 2010, the total cost to the Company of providing this benefit would have been $22,689 for Mr. Chappelle, $33,918 for Mr. Ellis, $26,915 for Mr. McCabe, and $33,918 for Mr. Murrell.

“Cause” means:

•  the executive’s conviction by a court of competent jurisdiction of a crime involving moral turpitude or a felony, or entering the plea of nolo contendere to such crime by the executive;

•  the commission by the executive of a demonstrable act of fraud, or a misappropriation of funds or property, of or upon us or any affiliate;

•  the engagement by the executive without approval of us and the board of directors in any material activity which directly competes with the business of us or any affiliate or which would directly result in a material injury to the business or reputation of us or any affiliate (including the partners of Alta Mesa); or

•  the breach by the executive of any material provision of the employment agreement, and the executive’s continued failure to cure such breach within a reasonable time period set by us but in no event less than twenty calendar days after the executive’s receipt of such notice.

“Good reason” means the occurrence of any of the following, if not cured and correct by us or our successor, within 60 days after written notice thereof is provided by the executive to us or our successor:

•  the demotion or reduction in title or rank of the executive, or the assignment to the executive of duties that are materially inconsistent with the executive’s current positions, duties, responsibilities and status with us, or any removal of the executive from, or any failure to re-elect the executive to, any of such positions (other than a change due to the executive’s disability or as an accommodation under the Americans with Disabilities Act), except for any such demotion, reduction, assignment, removal or failure that occurs in connection with (i) the executive’s termination of employment for cause, disability or death, or (ii) the executive’s prior written consent;

•  the reduction of the executive’s annual base salary or bonus opportunity as effective immediately prior to such reduction without the prior written consent of the executive; or

•  a relocation of the executive’s principal work location to a location in excess of 50 miles from its then current location.

“Retirement” means the termination of the executive’s employment for normal retirement at or after attaining age 70, provided that the executive has been with us for at least five years.

The employment agreements do not separately provide for benefits upon a change of control.

Compensation of Directors

The employee and non-employee members of the Board of Directors do not receive compensation for their services as directors. However, our directors may be reimbursed for their expenses in attending board meetings.

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Corporate Governance Matters

Audit and Compensation Committee

We do not have a formal compensation committee and our full Board serves as our audit committee. Because the registration statement of which this prospectus forms a part registers only debt securities and because we do not have and are not seeking to list any securities on a national securities exchange or on an inter-dealer quotation system, we are not subject to a number of the corporate governance requirements of the SEC or of any national securities exchange or inter-dealer quotation system. For example, we are not required to have a board of directors comprised of a majority of independent directors or to have an audit committee comprised of independent directors. Accordingly, our Board of Directors has not made any determination as to whether any of the members of our Board of Directors or committees thereof would qualify as independent under the listing standards of any national securities exchange or any inter-dealer quotation system or under any other independence definition. Additionally, for the same reason, we have not yet determined whether any of our directors is an audit committee financial expert.

Code of Ethics

The Board of Directors has adopted a Code of Ethics for Senior Financial Officers. The Code of Ethics is posted on the investor relations section of our website at www.altamesa.net and is available free of charge upon written request to 15415 Katy Freeway, Suite 800, Houston, Texas 77094.

Compensation Committee Interlocks and Insider Participation

We do not currently have a compensation committee. None of our executive officers has served as a director or member of the compensation committee of any other entity whose executive officers served as a director or member of our compensation committee.

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THE PARTNERSHIP AGREEMENT

The following is a summary of the material provisions of our partnership agreement, as amended.

Organization and Duration

Our partnership was organized in September 2005 and will have a perpetual existence.

Purpose

Our purpose under the partnership agreement is (a) exploring, developing, operating, investing in, acquiring, expanding, selling, managing and financing, directly or indirectly, oil and gas properties, including those properties held by the partnership as of the effective date and after the effective date and (b) taking all such other actions incidental to any of the foregoing as may be necessary or desirable and for which a Texas limited partnership may legally engage.

Our general partner is authorized in general to perform all acts it determines to be necessary or appropriate to carry out our purposes and to conduct our business.

Capital Contributions

Our general partner and Class A limited partners have no obligation to make additional capital contributions. Our Class B limited partner is obligated to make additional capital contributions in the amounts set forth in the partnership agreement and contribution agreement, which are referred to as the “Class B Commitment”. In the event the Class B limited partner defaults in making additional capital contributions required under the partnership agreement, the general partner may extinguish certain of the Class B limited partner’s rights under the partnership or withhold distributions to the Class B limited partner.

Cash Distributions

Our partnership agreement specifies the manner in which we will make cash distributions to our general and limited partners.

Net Cash from Operations.  Except for tax distributions and as the general partner and the Class B limited partner otherwise agree, prior to January 1, 2012, net cash from operations is otherwise to be retained by the company to fund the activities of the company and the subsidiaries, including development, exploration and acquisition activities. After January 1, 2012, the Class B limited partner may require the general partner to make distributions of net cash from operations upon notice to the general partner, provided, however, that such distributions are subject to our compliance with the covenants set forth in any senior debt, including the notes, and our bank credit facility. “Net cash from operations” means the gross cash proceeds from operations (including sales and dispositions of properties in the ordinary course of business) less the portion thereof used to pay or fund our costs, expenses, contract operating costs (including operators’ general and administrative expenses), marketing costs, debt payments, capital expenditures, reserve replacements, tax distributions to the partners and Agreed Reserves (as defined below). Subject to the foregoing, net cash from operations is to be distributed:

•  first, 85% to the Class B limited partner and 15% to the general partner and the Class A limited partners until the Class B limited partner has received aggregate distributions since September 1, 2006 equal to the Class B limited partner’s aggregate capital contributions since the effective date (the “1x Return Amount”);

•  second, 85% to the Class B limited partner and 15% to the general partner and the Class A limited partners until the cumulative amount of distributions to the Class B limited partner results in the Class B limited partner achieving a 15% internal rate of return;

•  third, 65% to the Class B limited partner and 35% to the general partner and the Class A limited partners until the cumulative amount of distributions to the Class B limited partner result in the Class B limited partner achieving a 27.5% internal rate of return; and

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•  thereafter, 25% to the Class B limited partner and 75% to the general partner and the Class A limited partners.

Net Cash from Liquidity Events.  Except as otherwise agreed upon by the general partner and the Class B limited partners, net cash from a liquidity event is to be distributed to the partners, subject to the retention of agreed reserves:

•  if the liquidity event occurs prior to January 1, 2012, net cash from a liquidity event shall generally be distributed in the same manner as net cash from operations provided that such distributions provide the Class B limited partner aggregate distributions from the company since September 1, 2006 equal to at least 200% of the Class B limited partner’s aggregate capital contributions since September 1, 2006 (the “2x Return Amount”); or

•  if the liquidity event occurs on or after January 1, 2012, net cash from a liquidity event is to be distributed to the partners as follows:

(i) first, 100% to the Class B limited partner until the Class B limited partner receives aggregate distributions equal to the 1x Return Amount;

(ii) second, 85% to the Class B limited partner and 15% to the general partner and the Class A limited partners until the cumulative amount of distributions to the Class B limited partner result in the Class B limited partner achieving a 10% internal rate of return;

(iii) third, 100% to the general partner and the Class A limited partners until the aggregate distributions have been distributed 85% to the Class B limited partner and 15% to the general partner and Class A limited partners;

(iv) fourth, 85% to the Class B limited partner and 15% to the general partner and the Class A limited partners until the cumulative amount of distributions to the Class B limited partner result in the Class B limited partner achieving a 15% internal rate of return;

(v) fifth, 65% to the Class B limited partner and 35% to the general partner and the Class A limited partners until the cumulative amount of distributions to the Class B limited partner result in the Class B limited partner achieving a 27.5% internal rate of return ; and

(vi) thereafter, 25% to the Class B limited partner and 75% to the general partner and the Class A limited partners.

All distributions made to the general partner and the Class A limited partners are pro rata to such partners.

A “liquidity event” is any event in which the company receives cash proceeds outside the ordinary course of the company’s business, including (a) a sale of the company and its subsidiaries, whether structured as a merger or consolidation, share exchange, sale of interests or the equity of the subsidiaries, or a sale of all or substantially all of the assets of the company and the subsidiaries outside the normal course of business, (b) a public or private offering of the interests or other public or private sale of debt or equity securities of the company or a subsidiary; and (c) a financing transaction or leveraged recapitalization of the company or a subsidiary.

“Agreed reserves” are a reserve of cash to pay reasonably anticipated future costs and liabilities of the company, as agreed upon by the general partner and the Class B limited partner.

Amounts due by the company in respect of (i) certain related party subordinated debt and (ii) indemnity obligations under the Contribution Agreement are to be made by the company exclusively from the general partner’s and the Class A limited partners’ allocable share of distributions of net cash from operations and of net cash from a liquidity event.

Distributions for Payment of Taxes.  In addition, in each fiscal year, the general partner is to distribute to the partners, to the extent of available cash, in proportion to the taxable income allocated to them, such amount as the general partner reasonably determines is necessary to enable the partners who were allocated

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taxable income during that fiscal year to pay their income taxes on their distributive shares of the company’s taxable income.

Management by General Partner; Approval Rights of Class B Limited Partner

Our business and affairs are managed by our general partner, which has full and exclusive power and authority on our behalf to manage, control, administer and operate our properties, business and affairs. Without the written consent of the Class B limited partner, however, our general partner cannot cause:

(a) any sale of any property or asset of the company or a subsidiary (in a single transaction or a series of related transactions) having a value in each case in excess of $10,000,000 or any sales of properties or assets of the company or its subsidiaries during any 12 month period having an aggregate value in excess of ten percent (10%) of the proved reserves value of the properties as reflected under the most recent engineering report delivered under Section 8.2 (c) of the partnership agreement;

(b) except in connection with the senior credit facility, the incurrence by the company or any subsidiary of indebtedness for borrowed money in excess of amounts drawn under a company credit facility that was approved by the Class B limited partner;

(c) the guaranty by the company or any subsidiary of the payment of money or the performance of any contract or other obligation of any person other than the company or any subsidiary, except in connection with indebtedness permitted under (a) above;

(d) the grant of liens on any assets of the company or its subsidiaries, except in connection with the indebtedness permitted under (a) above or for customary liens contained in joint operating agreements;

(e) the adoption of the development plan and budget pursuant to the terms of the partnership agreement, and making any material amendments to thereto;

(f) the acquisition of properties and other assets (whether in one or in a series of related transactions) having a purchase price or, if not a cash transaction, a fair market value, which exceeds $10,000,000 and which acquisition is not expressly budgeted for in the approved budget;

(g) the appointment of any successor to the Chief Executive Officer or any other senior officer and the payment of any executive compensation to the senior officers;

(h) the approval of any policy of director and officers liability insurance;

(i) entering into a partnership or joint venture with any other party for the purpose of carrying on any business other than in the ordinary course of business;

(j) creating any subsidiary other than in the ordinary course of business;

(k) any amalgamation, reconstruction, liquidation, dissolution, commencement of bankruptcy, or similar proceedings with respect to the company or any subsidiary, or compromise with a creditor;

(l) the merger or consolidation of the company with any entity, the conversion of the company into any other organizational form, or the exchange of interests with any other person or entity;

(m) any issuance of interests, ownership interests, debentures, bonds or any other security, including issuances of securities in connection with any employee incentive plan or as consideration in any acquisition (whether by purchase of ownership interests, asset purchase or merger);

(n) any transaction or series of related transactions (not otherwise expressly permitted) between the company or any subsidiary, on the one hand, and any partner or affiliate of any partner, on the other hand;

(o) pursuant to the partnership agreement, any amendment to the partnership agreement, any adoption of or amendment to the partnership agreement, memorandum and articles of association, certificate and articles of incorporation, bylaws, or other organizational documents, of the company or any subsidiary;

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(p) except for the exercise of certain warrants, any redemption or other change in the interests or ownership interest, or options or other rights to acquire such interests, in the company or the subsidiaries;

(q) the initiation, compromise or settlement of any lawsuit, administrative matter or other dispute where the amount the company may recover or might be obligated to pay, as applicable, is in excess of $100,000;

(r) the extension of any loans by the company to any third party (including the general partner or any affiliate thereof);

(s) the grant of any approval by the company under Section 6 of the Shared Services Agreement by and among Alta Mesa Services, LP, on the one hand, and the general partner, the company and certain of the subsidiaries of the company, on the other hand, or

(t) the amendment or modification of the terms of certain warrants, the waiver of any material right of the company under the warrants or the making of any material determination or election by the company under the warrants.

Additional Class B Rights

Development Plan and Operating Budget.  The general partner is to prepare and submit to the Class B limited partner a proposed development plan and budget annually, on or before the 60th day prior to the end of each fiscal year, which shall set forth, for the next following fiscal year, the proposed operations, time schedule for implementing operations, estimated revenues, operating expenditures, and capital expenditures for the company and each of its subsidiaries. All development plans and budgets are subject to the prior written approval of the Class B limited partner.

Price Risk Mitigation.  Subject to any restrictions contained in any credit facility or other agreement to which the company or its subsidiaries are parties or any of their respective properties are subject, the Class B limited partner can require the company and its subsidiaries to implement reasonable measures to mitigate commodity price risks.

Initiation of Liquidity Event.  Following the earlier of (i) January 1, 2012, and (b) a breach of or default by the company under any representation, warranty, covenant or agreement contained in any loan or credit agreement to which the company is a party or by which its assets are bound, following the expiration of any cure periods, the Class B limited partner can, without consent of any other partner, upon notice to the general partner and Class A partners, request that the general partner take such actions to cause the company and its subsidiaries, or the assets of the company and the subsidiaries to be sold to one or more third parties, subject to a Class A partners’ right of right of first offer to purchase the Class B limited partner’s interests.

Conflicts of Interest.  The general partner and its affiliates may transact business with the company and the subsidiaries provided that the terms of such transaction are fair and reasonable to the company and the subsidiaries and no less favorable to the company and the subsidiaries than those the company and the subsidiaries could obtain from unrelated third parties. In connection with any such transaction, the general partner must provide prompt written notice to the Class B limited partner of such transaction.

Meetings of Partners.  The Class B limited partner, by notice to the other partners, may call a meeting of partners at such times and places inside the State of Texas as the Class B limited partner may determine upon not less than two business days prior to the date of such meeting.

Business Opportunities.  The Class B limited partner has no duty to disclose to the company business opportunities, whether or not competitive with the company’s business whether or not the company might be interested in such business opportunity for itself.

Removal of General Partner.  The Class B limited partner may remove our general partner with cause and select a new general partner to operate and carry on our business and affairs. “With cause” includes the commission by the general partner of fraud, willful or intentional misconduct or gross negligence in the performance of its duties hereunder; a default by the general partner in the performance or observation of any material agreement, covenant, term, condition or obligation under the partnership agreement; a false material

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representation or warranty made by the general partner in the partnership agreement or by the general partner or any of its officers in any writing furnished in connection with or pursuant to the partnership agreement; and the dissolution (or other similar event) of the general partner.

Issuance of Additional Securities

In accordance with Texas law and the provisions of our partnership agreement, we may issue additional partnership securities in the future.

Amendment of the Partnership Agreement

Except as otherwise provided in the partnership agreement, the partnership agreement may be amended, or any provision waived, only with the written consent of each of the general partner, those Class A limited partners holding percentage interests in the aggregate equal to or greater than 662/3% of percentage interests held by all Class A limited partners, and the Class B limited partner; provided that no amendment or waiver can materially and adversely affect disproportionately the rights of any limited partner when compared with its effect on any other limited partner without the prior written approval of such disadvantaged limited partner.

Termination and Dissolution

We will continue as a limited partnership until terminated under our partnership agreement. We will dissolve upon:

•  the consent in writing signed by all the partners;

•  the sale or other disposition of all or substantially all of the our assets;

•  the entry of a final judgment, order or decree of a court of competent jurisdiction adjudicating the company to be bankrupt and the expiration without appeal of the period, if any, allowed by applicable law in which to appeal;

•  the entry of a judicial order dissolving the company in accordance with Section 8.02 of the Act;

•  any withdrawal or retirement from the company by the general partner;

•  the election of the Class B limited partner by written notice to the general partner if at the time such notice is given (i) the general partner has committed fraud, willful or intentional misconduct or gross negligence in the performance of its duties hereunder, (ii) subject to Section 5.13, the general partner is in default in the performance or observation of any material agreement, covenant, term, condition or obligation under the partnership agreement, which default is not cured, or (iii) a material representation or warranty made by the general partner in the partnership agreement or by the general partner or any of its officers in any writing furnished in connection with or pursuant to the partnership agreement shall be false in any respect on the date as of which made; or

•  the election of the Class B limited partner by written notice to the general partner upon (i) the dissolution (or other similar event) of the general partner; or (ii) the death, insanity, legal disability, bankruptcy or insolvency of a key person, or the resignation, retirement or removal of a key person or a key person is not otherwise actively involved in the day-to-day management of the business and operations of the general partner and the company and such key person is not replaced by another officer reasonably acceptable to Class B limited partner.

Withdrawal of General Partner

Upon the withdrawal or retirement from the company of the general partner, the business of the company will be continued if within 90 calendar days the Class B limited partner elects by written action to continue the business of the company and designate a replacement general partner. If the Class B limited partner fails to continue the company’s business, the company will be liquidated.

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Reimbursement of Expenses

Our partnership agreement requires us to reimburse our general partner for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner in connection with operating our business.

Books and Reports

We keep books of account and records in accordance with GAAP. Such books and records are maintained at our principal office. The Class B limited partner and any Class A limited partner have the right to audit any and all financial and operational records with respect to the properties, the company and its subsidiaries and their respective operations. The calendar year is the accounting year of the company, and the books of account are maintained on an accrual basis.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the limited partnership interests in Alta Mesa beneficially owned by:

•  all persons who, to the knowledge of our management team, beneficially own more than 5% of our outstanding limited partnership interests;

•  each current director of Alta Mesa GP, our general partner;

•  each principal officer of Alta Mesa GP; and

•  all current directors and principal officers of Alta Mesa GP as a group.

	Percentage of			Percentage of
	Class A Limited			Class B Limited
	Partnership			Partnership
	Interests			Interests
	Beneficially			Beneficially
Name of Beneficial Owner(1)	Owned			Owned
Alta Mesa Investment Holdings Inc.(2)		—			100.0	%
Macquarie Bank Limited(3)		5.0	%		—
RBS Equity Corporation(4)		5.0	%		—
Michael E. Ellis(5)		84.5	%		—
Mickey Ellis(6)		—			—
Harlan H. Chappelle		5.0	%		—
Michael A. McCabe		—			—
David Murrell		—			—
Directors and principal officers as a group (5 persons)		89.5	%		—

(1)	Unless otherwise indicated, the address for all beneficial owners in this table is at 15415 Katy Freeway, Suite 800, Houston, Texas 77094.
(2)	The address of Alta Mesa Investment Holdings Inc. is c/o Denham Capital Management LP, 600 Travis, Suite 2310, Houston, Texas 77002. For more information on the ability of our Class B Limited Partner to cause a liquidity event, see “The Partnership Agreement”.
(3)	The address of Macquarie Bank Limited is 333 Clay Street, Houston, Texas 77002.
(4)	The address of RBS Equity Corporation is c/o The Royal Bank of Scotland plc, 600 Travis, Suite 6500, Houston, Texas 77002.
(5)	Mr. Ellis does not own directly any partnership interests. Includes limited partner interests held by Alta Mesa Resources, LP, Galveston Bay Resources Holdings, LP, Petro Acquisition Holdings, LP and Petro Operating Company Holdings, Inc., all entities owned and controlled by Mr. Ellis.
(6)	Mickey Ellis is the spouse of Michael E. Ellis. Ms. Ellis may be deemed to be the beneficial owner of the partnership interests owned by Mr. Ellis.

Additionally, our general partner, Alta Mesa GP, is owned by Mr. and Ms. Ellis. For further information regarding the manner in which we make cash distributions to our general and limited partners, see “The Partnership Agreement — Cash Distributions”.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Ownership in Us and Our General Partner by Founder

Michael E. Ellis, our Chairman and Chief Operating Officer, and his spouse Mickey Ellis, one of our directors, own 84.5% of our Class A interests. Our general partner, Alta Mesa GP, is owned 100% by Alta Mesa Resources, LP, an entity owned by Michael E. Ellis and Mickey Ellis. Our general partner has a 0.1% interest in us.

Shared Services and Expenses Agreement

Through a Shared Services and Expenses Agreement with us, our general partner and our subsidiaries, Alta Mesa Services, LP (“Alta Mesa Services”), an entity owned by us, conducts our business and operations and, in addition to the board of directors of our general partner, makes decisions on our behalf. In addition, Alta Mesa Services agrees to make available its personnel, including our chief operating officer, chief executive officer and chief financial officer, which permits us to carry on our business. Prior to the offering of the notes in October 2010, Alta Mesa Services was owned by Michael E. and Mickey Ellis.

During the years ended December 31, 2010, 2009 and 2008, we and our subsidiaries reimbursed Alta Mesa Services an aggregate of $14.6 million, $5.9 million and $6.1 million, respectively, under the Shared Services and Expenses Agreement. No fees are paid to Alta Mesa Services pursuant to the agreement. Our consolidated financial statements include the activity of Alta Mesa Services for the years ended December 31, 2010, 2009, and 2008, respectively. We expect that Alta Mesa Services will continue to provide services to our non-wholly owned subsidiaries.

Founder Notes

We were founded in 1987 by Michael E. Ellis and we or our subsidiaries have over time entered into promissory notes to repay Mr. Ellis for contributions of working capital and other amounts. See “Description of Certain Indebtedness — Founder Notes.”

Land Consulting Services

David Murrell, our Vice President, Land and Business Development, is the principal of David Murrell and Associates, which provides land consulting services to us. The primary employee of David Murrell & Associates is his spouse, Brigid Murrell. Services are provided at a pre-negotiated hourly rate based on actual time employed by the company. Payments for the years ended December 31, 2010, 2009 and 2008 were approximately $146,000, $131,000 and $119,000, respectively. The contract may be terminated by either party without penalty upon 30 days’ notice.

Employee

David McClure, the son-in-law of our CEO, Harlan H. Chappelle, is employed by us as a senior engineer. He received total compensation during 2010 of $95,031. Additionally, his position provides him with the use of a company vehicle, similar to our other engineers whose duties include field oversight.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

Senior Secured Revolving Credit Facility

We have a $500 million senior secured revolving credit facility currently subject to a $220 million borrowing base limit with Wells Fargo Bank, N.A. as the administrative agent. As of December 31, 2010, we had approximately $73.3 million outstanding under the senior facility. Each of our material operating subsidiaries is a guarantor of the senior secured revolving credit facility. Our senior secured revolving credit facility provides that we may not issue senior debt securities in excess of $400.0 million, including the $300.0 million of notes issued in October 2010. The borrowing base under the senior facility will be automatically reduced by 25 cents per dollar of any additional notes issued in the future.

Our senior secured revolving credit facility was amended in connection with the Meridian acquisition in order to refinance Meridian’s debt with ours and for other administrative matters. It matures on November 13, 2012, and principal amounts borrowed are payable on the maturity date with such borrowings bearing interest, payable quarterly. We have a choice of borrowing in Eurodollars or at the base rate. Eurodollar loans bear interest at a rate per annum equal to the rate appearing on the Reuters Reference LIBOR1 page as the London Interbank Offered Rate, for deposits in Dollars at 11:00 a.m. (London, England time) for one, three, or six months plus an applicable margin ranging from 250 to 325 basis points, depending on the percentage of our borrowing base utilized. Base rate loans bear interest at a rate per annum equal to the greatest of (i) the agent bank’s reference rate, (ii) the federal funds effective rate plus 50 basis points and (iii) the rate for one month Eurodollar loans plus 1%, plus an applicable margin ranging from 150 to 225 basis points, depending on the percentage of our borrowing base utilized. The next redetermination of our borrowing base is scheduled to be on or about May 1, 2011. Following the next scheduled borrowing base redetermination, we may be subject to restrictions on our ability to incur indebtedness or our borrowing base may be reduced. The amount outstanding under the senior secured revolving credit facility is secured by first priority liens on substantially all of our oil and natural gas properties and associated assets. Our credit facility contains restrictive covenants that may limit our ability to, among other things:

•  incur additional indebtedness;

•  sell assets;

•  guaranty or make loans to others;

•  make investments;

•  enter into mergers;

•  make certain payments and distributions;

•  enter into hedge agreements;

•  incur liens; and

•  engage in certain other transactions without the prior consent of the lenders.

The senior secured revolving credit facility also requires us to maintain the following three financial ratios:

•  a current ratio, tested quarterly, of our consolidated current assets to our consolidated current liabilities of not less than 1.0 to 1.0 as of the end of each fiscal quarter;

•  a leverage ratio, tested quarterly, of our consolidated debt (other than obligations under hedge agreements) as of the end of such fiscal quarter to our consolidated EBITDAX (adjusted to annualize the EBITDAX attributable to Meridian over the four quarter period commencing June 30, 2010) over the four quarter period then ended of not greater than 4.0 to 1.0.

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•  an interest coverage ratio, tested quarterly, of our consolidated EBITDAX (adjusted to annualize the EBITDAX attributable to Meridian over the four quarter period commencing June 30, 2010) to interest expense, to be at least 3.00 to 1.00.

Founder Notes

We were founded in 1987 by Michael E. Ellis and we or our subsidiaries have over time entered into promissory notes to repay Mr. Ellis for contributions of working capital and other amounts. The loans bear interest at 10.0% paid-in-kind and mature on December 31, 2018 and are subordinated to the notes. The aggregate amount payable under the notes as of December 31, 2010 was $19.7 million. During the years ended December 31, 2010, 2009 and 2008, no amounts were paid in principal or interest. Interest on the notes payable is not compounded and amounted to $1.4 million during 2010, and $1.2 million during each of 2009 and 2008. Such amounts have been added to the balance of the notes.

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DESCRIPTION OF NEW NOTES

We will issue the new Notes under an indenture dated as of October 13, 2010 (the “Indenture”), among the Issuers, the Subsidiary Guarantors and Wells Fargo Bank, N.A., as trustee (the “Trustee”). On October 13, 2010, the Issuers issued $300.0 million principal amount of old Notes under the Indenture. The terms of the new Notes include those expressly set forth in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”). References in this “Description of New Notes” to “Issue Date” mean October 13, 2010.

The Issuers may issue an unlimited principal amount of additional notes having identical terms and conditions as the Notes (the “Additional Notes”). The Issuers will only be permitted to issue such Additional Notes in compliance with the covenant described under the subheading “— Certain Covenants — Limitation on Indebtedness and Preferred Stock”. Any Additional Notes will be part of the same series as the Notes and will vote on all matters with the holders of the Notes. Unless the context otherwise requires, for all purposes of the Indenture and this “Description of New Notes”, references to the Notes include the new Notes, the old Notes and any Additional Notes actually issued.

This “Description of New Notes” is intended to be a useful overview of the material provisions of the Notes and the Indenture. Since this description is only a summary, you should refer to these documents for a complete description of the obligations of the Issuers and the Subsidiary Guarantors and your rights. A copy of the Indenture has been filed as an exhibit to the registration statement of which the prospectus is a part.

You will find the definitions of capitalized terms used in this description under the heading “— Certain Definitions”. For purposes of this description, references to “the Co-Issuer” refer only to Alta Mesa Finance Services Corp., the co-issuer of the Notes, and references to “the Company”, “we”, “our” and “us” refer only to Alta Mesa Holdings, LP and not to any of its subsidiaries. The Co-Issuer and the Company are referred to jointly as the “Issuers”.

The registered holder of a new Note will be treated as the owner of it for all purposes. Only registered holders of the Notes have rights under the Indenture, and all references to “holders” in this “Description of New Notes” are to registered holders of the Notes.

If the exchange offer contemplated by this prospectus is consummated, holders of old Notes who do not exchange those Notes for new Notes in the exchange offer will vote together with holders of new Notes for all relevant purposes under the Indenture. In that regard, the Indenture requires that certain actions by the holders thereunder must be taken, and certain rights must be exercised, by specified minimum percentages of the aggregate principal amount of the outstanding securities issued under the Indenture. In determining whether holders of the requisite percentage in principal amount have given any notice, consent or waiver or taken any other action permitted under the Indenture, any old Notes that remain outstanding after the exchange offer will be aggregated with the new Notes, and the holders of such old Notes and the new Notes will vote together as a single class for all such purposes. Accordingly, all references herein to specified percentages in aggregate principal amount of the Notes outstanding shall be deemed to mean, at any time after the exchange offer is consummated, such percentages in aggregate principal amount of the old Notes and the new Notes then outstanding.

General

The New Notes

The new Notes:

•  will be general unsecured, senior obligations of each Issuer;

•  will mature on October 15, 2018;

•  will be issued initially in an aggregate principal amount of $300.0 million and in denominations of $2,000 and integral multiples of $1,000 in excess thereof;

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•  will be represented by one or more registered Notes in global form, but in certain circumstances may be represented by Notes in definitive form, as described in “Book-entry; Delivery and Form”;

•  will rank senior in right of payment to any future Subordinated Obligations of each Issuer;

•  will rank equally in right of payment to any other existing and future senior Indebtedness of each Issuer, without giving effect to collateral arrangements; and

•  will be initially unconditionally guaranteed on a senior unsecured basis by each current Subsidiary of the Company (other than the Co-Issuer and certain Immaterial Subsidiaries) and future Domestic Subsidiaries (other than Immaterial Subsidiaries), as described in “— Subsidiary Guarantees”; and

•  will effectively rank junior to any existing or future secured Indebtedness of each Issuer, including under the Senior Secured Credit Agreement, to the extent of the value of the collateral securing such Indebtedness.

The Subsidiary Guarantees

Initially, all of the Subsidiaries of the Company (other than the Co-Issuer and certain Immaterial Subsidiaries) will unconditionally guarantee the Notes on a senior unsecured basis. In addition, future Domestic Subsidiaries (other than Immaterial Subsidiaries) of the Company will guarantee the Notes. See “— Certain Covenants — Future Subsidiary Guarantors”.

Each Subsidiary Guarantee of the Notes:

•  will be general unsecured senior obligations of the Subsidiary Guarantor;

•  will rank senior in right of payment to any future Guarantor Subordinated Obligations of the Subsidiary Guarantor;

•  will rank equally in right of payment to any other existing and future senior Indebtedness of the Subsidiary Guarantor, without giving effect to collateral arrangements;

•  will effectively rank junior to all existing and future secured Indebtedness of the Subsidiary Guarantor, including under the Senior Secured Credit Agreement, to the extent of the value of the collateral securing such Indebtedness; and

•  will effectively rank junior to all future Indebtedness of any non-guarantor Subsidiary of the Subsidiary Guarantor.

Not all of our Subsidiaries will be Subsidiary Guarantors. As of and for the six months ended June 30, 2010, on a pro forma basis, our non-Guarantor Subsidiaries collectively held less than 1.0% of our consolidated total assets and generated less than 1.0% of our consolidated revenues and had no outstanding indebtedness, except that certain of such non-Guarantor Subsidiaries have provided guarantees under our Senior Secured Credit Agreement. The Notes and Guarantees will effectively be subordinated to the claims of creditors of any non-Guarantor Subsidiaries to the extent of the value of the assets thereof.

Initially, all of the Subsidiaries of the Company (including the Co-Issuer) will be Restricted Subsidiaries, but under the circumstances described below in the definition of “Unrestricted Subsidiary” under the heading “— Certain Definitions”, the Company may designate certain of its Subsidiaries as “Unrestricted Subsidiaries”. Unrestricted Subsidiaries will not guarantee the Notes and will not be subject to the restrictive covenants in the Indenture.

Interest

Interest on the Notes will:

•  accrue at the rate of 95/8% per annum;

•  accrue from the Issue Date or, if interest has already been paid, from the most recent interest payment date;

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•  be payable in cash semi-annually in arrears on April 15 and October 15, commencing on April 15, 2011;

•  be payable to the holders of record on the April 1 and October 1 immediately preceding the related interest payment dates; and

•  be computed on the basis of a 360-day year comprised of twelve 30-day months.

The Issuers will pay interest on any overdue principal of the new Notes and on any overdue installment of interest at the above rate plus 1.0%, to the extent lawful.

If an interest payment date falls on a day that is not a Business Day, the interest payment to be made on such interest payment date will be made on the next succeeding Business Day with the same force and effect as if made on such interest payment date, and no additional interest will accrue as a result of such delayed payment.

Payments on the Notes; Paying Agent and Registrar

The Issuers will pay principal of, premium, if any, and interest on the Notes at the office or agency designated by us in the City and State of New York, except that they may, at their option, pay interest on the Notes by check mailed to holders of the Notes at their registered address as it appears in the registrar’s books. The Issuers have initially designated the Trustee to act as their paying agent at the corporate trust office of the Trustee in New York, New York, and they have also designated the Trustee to act as registrar at its corporate trust office in Dallas, Texas. The Issuers may, however, change the paying agent or registrar without prior notice to the holders of the Notes, and the Company or any of its Restricted Subsidiaries may act as paying agent or registrar.

The Issuers will pay principal of, premium, if any, and interest on, Notes in global form registered in the name of Cede & Co., the nominee or The Depository Trust Company, in immediately available funds, directly to The Depository Trust Company.

Transfer and Exchange

A holder may transfer or exchange Notes in accordance with the Indenture. The registrar and the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents in connection with a transfer of Notes. No service charge will be imposed by the Issuers, the Trustee or the registrar for any registration of transfer or exchange of Notes, but the Issuers may require a holder to pay a sum sufficient to cover any transfer tax or other governmental taxes and fees required by law or permitted by the Indenture. The Issuers are not required to transfer or exchange any Note selected for redemption. Also, the Issuers are not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed.

Optional Redemption

On and after October 15, 2014, the Issuers may redeem all or, from time to time, a part of the Notes upon not less than 30 nor more than 60 days’ notice, at the following redemption prices (expressed as a percentage of principal amount of the Notes), plus accrued and unpaid interest on the Notes, if any, to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the twelve-month period beginning on October 15 of the years indicated below:

Year	Percentage
2014		104.813	%
2015		102.406	%
2016 and thereafter		100.000	%

Prior to October 15, 2013, the Issuers may, at their option, on any one or more occasions redeem up to 35% of the aggregate principal amount of the Notes (including Additional Notes) issued under the Indenture

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with the Net Cash Proceeds of one or more Equity Offerings at a redemption price of 109.625% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided that

(1) at least 65% of the aggregate principal amount of the Notes (including Additional Notes) issued under the Indenture remains outstanding after each such redemption; and

(2) the redemption occurs within 120 days after the closing of the related Equity Offering.

In addition, the Notes may be redeemed, in whole or in part, at any time prior to October 15, 2014 at the option of the Issuers upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each holder of Notes at its registered address, at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest to, the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

“Applicable Premium” means, with respect to any Note on any applicable redemption date, the greater of:

(1) 1.0% of the principal amount of such Note; or

(2) the excess, if any, of:

(a) the present value at such redemption date of (i) the redemption price of such Note at October 15, 2014 (such redemption price being set forth in the table appearing in the first paragraph of this “Optional Redemption” section) plus (ii) all required interest payments (excluding accrued and unpaid interest to such redemption date) due on such Note through October 15, 2014 computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over

(b) the principal amount of such Note.

“Treasury Rate” means, as of any redemption date, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the redemption date to October 15, 2014; provided, however, that if the period from the redemption date to October 15, 2014 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the redemption date to October 15, 2014 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. The Company will (a) calculate the Treasury Rate as of the second Business Day preceding the applicable redemption date and (b) prior to such redemption date file with the Trustee an Officers’ Certificate setting forth the Applicable Premium and the Treasury Rate and showing the calculation of each in reasonable detail.

Selection and Notice

If the Issuers are redeeming less than all of the outstanding Notes, the Trustee will select the Notes for redemption in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed, then on a pro rata basis (or, in the case of Notes issued in global form as discussed under the caption “Book-Entry; Delivery and Form”, the Trustee will select the Notes for redemption based on DTC’s method that most nearly approximates a pro rata selection), by lot or by such other method as the Trustee in its sole discretion will deem to be fair and appropriate, although no Note of $2,000 in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note will state the portion of the principal amount thereof to be

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redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the partially redeemed Note. On and after the redemption date, interest will cease to accrue on Notes or the portion of them called for redemption unless we default in the payment thereof.

Mandatory Redemption; Offers to Purchase; Open Market Purchases

We are not required to make mandatory redemption payments or sinking fund payments with respect to the Notes. However, under certain circumstances, we may be required to offer to purchase Notes as described under the captions “— Change of Control” and “— Certain Covenants — Limitation on Sales of Assets and Subsidiary Stock”.

The Company and its Subsidiaries may acquire Notes by means other than a redemption or required repurchase, whether by tender offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisition does not otherwise violate the terms of the Indenture. However, other existing or future agreements of the Company or its Subsidiaries may limit the ability of the Company or its Subsidiaries to purchase Notes prior to maturity.

Subsidiary Guarantees

The Subsidiary Guarantors have, jointly and severally, fully and unconditionally guaranteed on a senior unsecured basis our obligations under the Notes and all obligations under the Indenture. The obligations of each of the Subsidiary Guarantors under the Subsidiary Guarantees rank equally in right of payment with all other Indebtedness of such Subsidiary Guarantor, except to the extent such other Indebtedness is expressly subordinated in right of payment to the obligations arising under its Subsidiary Guarantee.

Although the Indenture will limit the amount of Indebtedness that the Subsidiary Guarantors may Incur, such Indebtedness may be substantial and such limitation is subject to a number of significant qualifications. Moreover, the Indenture does not impose any limitation on the Incurrence by the Subsidiary Guarantors of liabilities that are not considered Indebtedness under the Indenture. See “— Certain Covenants — Limitation on Indebtedness and Preferred Stock”.

The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance or fraudulent transfer under applicable law, although no assurance can be given that a court would give the holder the benefit of such provision. See “Risk Factors — Risks Related to the Exchange Offer and New Notes — If the subsidiary guarantees are deemed fraudulent conveyances or preferential transfers, a court may subordinate or void them”. Any guarantees of the notes by us or our operating subsidiaries could be deemed fraudulent conveyances under certain circumstances, and a court may subordinate or void the guarantees. If a Subsidiary Guarantee were rendered voidable, it could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Subsidiary Guarantor, and, depending on the amount of such indebtedness, a Subsidiary Guarantor’s liability on its Subsidiary Guarantee could be reduced to zero. If the obligations of a Subsidiary Guarantor under its Subsidiary Guarantee were avoided, holders of Notes would have to look to the assets of any remaining Subsidiary Guarantors for payment. There can be no assurance in that event that such assets would suffice to pay the outstanding principal and interest on the Notes.

In the event a Subsidiary Guarantor is sold or disposed of (whether by merger, consolidation, the sale of all of its Capital Stock or the sale of all or substantially all of its assets (other than by lease) and whether or not the Subsidiary Guarantor is the surviving entity in such transaction) to a Person which is not the Company or a Subsidiary of the Company, such Subsidiary Guarantor will be released from its obligations under its Subsidiary Guarantee if the sale or other disposition does not violate the covenants described under “— Certain Covenants — Limitation on Sales of Assets and Subsidiary Stock”.

In addition, a Subsidiary Guarantor will be released from its obligations under its Subsidiary Guarantee, (a) if the Company designates such Subsidiary as an Unrestricted Subsidiary and such designation complies with the other applicable provisions of the Indenture or if such Subsidiary otherwise no longer qualifies as

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such or (b) in connection with any covenant defeasance, legal defeasance or satisfaction and discharge of the Notes as provided below under the captions “— Defeasance” and “— Satisfaction and Discharge”.

Change of Control

If a Change of Control occurs, unless the Issuers have previously or concurrently exercised their right to redeem all of the Notes as described under “— Optional Redemption”, each holder will have the right to require the Company to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess thereof) of such holder’s Notes at a purchase price in cash equal to 101% of the principal amount of the Notes plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

Within 30 days following any Change of Control, unless the Issuers have previously or concurrently exercised their right to redeem all of the Notes as described under “— Optional Redemption”, we will mail a notice (the “Change of Control Offer”) to each holder, with a copy to the Trustee, stating:

(1) that a Change of Control has occurred and that such holder has the right to require us to purchase such holder’s Notes at a purchase price in cash equal to 101% of the principal amount of such Notes plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on a record date to receive interest on the relevant interest payment date) (the “Change of Control Payment”);

(2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the “Change of Control Payment Date”);

(3) that any Note not properly tendered will remain outstanding and continue to accrue interest;

(4) that unless we default in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest on the Change of Control Payment Date;

(5) that holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender such Notes, with the form entitled “Option of Holder to Elect Purchase” on the reverse of such Notes in certificated form completed, to the paying agent specified in the notice at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;

(6) that holders will be entitled to withdraw their tendered Notes and their election to require us to purchase such Notes, provided that the paying agent receives, not later than the close of business on the third Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder of the Notes, the principal amount of Notes tendered for purchase, and a statement that such holder is withdrawing its tendered Notes and its election to have such Notes purchased;

(7) that if we are repurchasing a portion of the Note of any holder, the holder will be issued a new Note equal in principal amount to the unpurchased portion of the Note surrendered, provided that the unpurchased portion of the Note must be equal to a minimum principal amount of $2,000 and an integral multiple of $1,000 in excess thereof; and

(8) the procedures determined by us, consistent with the Indenture, that a holder must follow in order to have its Notes repurchased.

On the Change of Control Payment Date, the Company will, to the extent lawful:

(1) accept for payment all Notes or portions of Notes (in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess thereof) properly tendered pursuant to the Change of Control Offer and not properly withdrawn;

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(2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes accepted for payment; and

(3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company.

The paying agent will promptly mail or deliver to each holder of Notes accepted for payment the Change of Control Payment for such Notes, and the Trustee, upon delivery of a written request from the Company, will promptly authenticate and mail (or cause to be transferred by book entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess thereof.

If the Change of Control Payment Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest, will be paid to each Person in whose name a Note is registered at the close of business on such record date, and no further interest will be payable to holders who tender pursuant to the Change of Control Offer.

The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture will not contain provisions that permit the holders to require that the Company or any Subsidiary repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.

We will not be required to make a Change of Control Offer upon a Change of Control if any other Person makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by us and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

A Change of Control Offer may be made in advance of a Change of Control, and conditioned upon the occurrence of a Change of Control, if a definitive agreement is in place for the Change of Control at the time of making the Change of Control Offer.

We will comply, to the extent applicable, with the requirements of Rule 14e-1 of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations under in the Indenture by virtue of our compliance with such securities laws or regulations.

Our ability to repurchase Notes pursuant to a Change of Control Offer may be limited by a number of factors. The occurrence of certain of the events that constitute a Change of Control would constitute a default under the Senior Secured Credit Agreement. In addition, certain events that may constitute a change of control under the Senior Secured Credit Agreement and cause a default under that agreement will not constitute a Change of Control under the Indenture. Future Indebtedness of the Company and its Subsidiaries may also contain prohibitions of certain events that would constitute a Change of Control or require such Indebtedness to be repaid upon a Change of Control. Moreover, the exercise by the holders of their right to require us to repurchase the Notes could cause a default under other Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company and its Restricted Subsidiaries. Finally, the Company’s ability to pay cash to the holders upon a repurchase may be limited by the then existing financial resources of the Company and its Restricted Subsidiaries. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases.

Even if sufficient funds were otherwise available, the other Indebtedness of the Company or its Restricted Subsidiaries may prohibit the Company’s repurchase of Notes before their scheduled maturity. Consequently, if the Company and its Restricted Subsidiaries are not able to prepay the Indebtedness under the Senior Secured Credit Agreement and any such other Indebtedness containing similar restrictions or obtain requisite consents,

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the Company will be unable to fulfill its repurchase obligations if holders of Notes exercise their repurchase rights following a Change of Control, resulting in a default under the Indenture. A default under the Indenture may result in a cross-default under the Senior Secured Credit Agreement.

The Change of Control provisions described above may deter certain mergers, tender offers and other takeover attempts involving the Company. The Change of Control purchase feature is a result of negotiations between the initial purchasers and the Company. As of the Issue Date, the Company has no present intention to engage in a transaction involving a Change of Control, although it is possible that it could decide to do so in the future. Subject to the limitations discussed below, the Company or its Subsidiaries could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. Restrictions on the ability of the Company and its Restricted Subsidiaries to incur additional Indebtedness are contained in the covenants described under “— Certain Covenants — Limitation on Indebtedness and Preferred Stock” and “— Certain Covenants — Limitation on Liens”. Such restrictions in the Indenture can be waived only with the consent of the holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture will not contain any covenants or provisions that may afford holders of the Notes protection in the event of a highly leveraged transaction.

The definition of “Change of Control” includes a disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any Person. Although there is a limited body of case law interpreting the phrase “substantially all”, there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve a disposition of “all or substantially all” of the assets of a Person. As a result, it may be unclear as to whether a Change of Control has occurred and whether a holder of Notes may require the Company to make an offer to repurchase the Notes as described above.

The provisions under the Indenture relative to our obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified or terminated with the consent of the holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes), but only if done prior to the occurrence of such Change of Control.

Certain Covenants

Limitation on Indebtedness and Preferred Stock

The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness), and the Company will not permit any of its Restricted Subsidiaries to issue Preferred Stock; provided, however, that the Company and any of the Subsidiary Guarantors may Incur Indebtedness and issue Preferred Stock if on the date thereof:

(1) the Consolidated Coverage Ratio for the Company and its Restricted Subsidiaries is at least 2.25 to 1.00, determined on a pro forma basis (including a pro forma application of proceeds); and

(2) no Default would occur as a consequence of, and no Event of Default would be continuing following, Incurring the Indebtedness or its application.

The first paragraph of this covenant will not prohibit the Incurrence of the following:

(1) Indebtedness under one or more Credit Facilities (including the Senior Secured Credit Agreement) Incurred pursuant to this clause (1) by the Issuers or any Subsidiary Guarantor in an aggregate amount outstanding at any one time not to exceed the greater of (i) $300.0 million or (ii) 30.0% of the Company’s Adjusted Consolidated Net Tangible Assets determined as of the date of the Incurrence of such Indebtedness after giving effect to the application of the proceeds therefrom;

(2) guarantees of Indebtedness Incurred in accordance with the provisions of the Indenture; provided that in the event such Indebtedness that is being guaranteed is a Subordinated Obligation or a Guarantor

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Subordinated Obligation, then the related guarantee shall be subordinated in right of payment to the Notes or the Subsidiary Guarantees to at least the same extent as the Indebtedness being guaranteed, as the case may be;

(3) Indebtedness of the Company owing to and held by any Restricted Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or any Restricted Subsidiary; provided, however, that (a)(i) if the Company is the obligor on such Indebtedness and the obligee is not a Subsidiary Guarantor, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all obligations with respect to the Notes and (ii) if a Subsidiary Guarantor is the obligor of such Indebtedness and the obligee is neither the Company nor a Subsidiary Guarantor, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all obligations of such Subsidiary Guarantor with respect to its Subsidiary Guarantee and (b)(i) any subsequent issuance or transfer of Capital Stock or any other event which results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary of the Company and (ii) any sale or other transfer of any such Indebtedness to a Person other than the Company or a Restricted Subsidiary of the Company shall be deemed, in each case, to constitute an Incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause;

(4) Indebtedness represented by (a) the Notes issued on the Issue Date and all Subsidiary Guarantees, (b) any Indebtedness (other than the Indebtedness described in clauses (1), (3), 4(a) and (9) of this paragraph) outstanding on the Issue Date, (c) any Exchange Notes and related Subsidiary Guarantees issued pursuant to a Registration Rights Agreement and (d) any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (4) or clause (5) or Incurred pursuant to the first paragraph of this covenant;

(5) Permitted Acquisition Indebtedness;

(6) Indebtedness Incurred in respect of (a) self-insurance obligations or bid, plugging and abandonment, appeal, reimbursement, performance, surety and similar bonds provided by the Company or a Restricted Subsidiary in the ordinary course of business and any guarantees or letters of credit functioning as or supporting any of such obligations or bonds and (b) obligations represented by letters of credit for the account of the Company or a Restricted Subsidiary in order to provide security for workers’ compensation claims (in the case of both clauses (a) and (b) other than for an obligation for money borrowed);

(7) Indebtedness of the Company or any Subsidiary Guarantor represented by Capitalized Lease Obligations (whether or not incurred pursuant to Sale/Leaseback Transactions) or other Indebtedness incurred or assumed in connection with the acquisition, construction, improvement or development of real or personal, movable or immovable, property, in each case Incurred for the purpose of financing, refinancing, renewing, defeasing or refunding all or any part of the purchase price or cost of acquisition, construction, improvement or development of property used in the business of the Company or the Subsidiary Guarantors; provided that the aggregate principal amount incurred by the Company or any Subsidiary Guarantor pursuant to this clause (7) outstanding at any time shall not exceed the greater of (x) $25.0 million and (y) 2.5% of the Company’s Adjusted Consolidated Net Tangible Assets; and provided further that the principal amount of any Indebtedness permitted under this clause (7) did not in each case at the time of incurrence exceed the Fair Market Value, as determined in accordance with the definition of such term, of the acquired or constructed asset or improvement so financed;

(8) Indebtedness to the extent that the net proceeds thereof are promptly deposited to defease the Notes or to satisfy and discharge the Indenture;

(9) in addition to the items referred to in clauses (1) through (8) above, Indebtedness of the Company and its Restricted Subsidiaries in an aggregate outstanding principal amount which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this clause (9) and then outstanding, will not exceed the greater of (a) $35.0 million, and (b) 5.0% of the Company’s Adjusted Consolidated Net Tangible Assets.

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For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness Incurred pursuant to and in compliance with, this covenant:

(1) in the event an item of that Indebtedness meets the criteria of more than one of the types of Indebtedness described in the first and second paragraphs of this covenant, the Company, in its sole discretion, will classify such item of Indebtedness on the date of Incurrence and, subject to clause (2) below may later classify, reclassify or redivide all or a portion of such item of Indebtedness, in any manner that complies with this covenant;

(2) any Indebtedness outstanding on the date of the Indenture under the Senior Secured Credit Agreement shall be deemed Incurred on the Issue Date under clause (1) of the second paragraph of this covenant;

(3) guarantees of, or obligations in respect of letters of credit supporting, Indebtedness which is otherwise included in the determination of a particular amount of Indebtedness shall not be included;

(4) the principal amount of any Disqualified Stock of the Company or a Restricted Subsidiary, or Preferred Stock of a Restricted Subsidiary, will be equal to the greater of the maximum mandatory redemption or repurchase price (including, in either case, any redemption or repurchase premium) or the liquidation preference thereof;

(5) Indebtedness permitted by this covenant need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of this covenant permitting such Indebtedness; and

(6) the amount of Indebtedness issued at a price that is less than the principal amount thereof will be equal to the amount of the liability in respect thereof determined in accordance with GAAP.

Accrual of interest, accrual of dividends, the amortization of debt discount or the accretion of accreted value and unrealized losses or charges in respect of Hedging Obligations (including those resulting from the application of Statement of Financial Accounting Standard No. 133) will not be deemed to be an Incurrence of Indebtedness for purposes of this covenant.

The Company will not permit any of its Unrestricted Subsidiaries to Incur any Indebtedness other than Non-Recourse Debt. If at any time an Unrestricted Subsidiary becomes a Restricted Subsidiary, any Indebtedness of such Subsidiary shall be deemed to be Incurred by a Restricted Subsidiary as of such date (and, if such Indebtedness is not permitted to be Incurred as of such date under this “Limitation on Indebtedness and Preferred Stock” covenant, the Company shall be in Default of this covenant).

The Indenture will not treat (1) unsecured Indebtedness as subordinated or junior to secured Indebtedness merely because it is unsecured or (2) senior Indebtedness as subordinated or junior to any other senior Indebtedness merely because it has a junior priority with respect to the same collateral.

Limitation on Restricted Payments

The Company will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to:

(1) declare or pay any dividend or make any payment or distribution on or in respect of its Capital Stock (including any payment or distribution in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) except:

(a) dividends or distributions by the Company payable solely in Capital Stock of the Company (other than Disqualified Stock); and

(b) dividends or distributions payable to the Company or a Restricted Subsidiary and if such Restricted Subsidiary is not a Wholly Owned Subsidiary, to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation) so long as the Company or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution;

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(2) purchase, repurchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company or any direct or indirect parent of the Company held by Persons other than the Company or a Wholly Owned Subsidiary;

(3) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations or Guarantor Subordinated Obligations (other than (x) Indebtedness permitted under clause (3) of the second paragraph of the covenant described above under “— Limitation on Indebtedness and Preferred Stock” or (y) the purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations or Guarantor Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase, redemption, defeasance or other acquisition or retirement); or

(4) make any Restricted Investment in any Person;

(any such dividend, distribution, purchase, repurchase, redemption, defeasance, other acquisition or retirement or Restricted Investment referred to in clauses (1) through (4) is referred to herein as a “Restricted Payment”), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment:

(a) a Default has occurred and is continuing (or would result therefrom);

(b) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to the first paragraph of the covenant described under “— Limitation on Indebtedness and Preferred Stock” after giving effect, on a pro forma basis, to such Restricted Payment; or

(c) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made subsequent to the Issue Date (other than under clauses (1), (2), (4), (5), (6), (7), (8), (9), (10), and (11) of the next paragraph) would exceed the sum of (the “Basket Amount”):

(i) 50% of Consolidated Net Income accrued on a cumulative basis for the period (treated as one accounting period) from October 1, 2010 to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment for which financial statements are in existence (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit);

(ii) 100% of the aggregate Net Cash Proceeds and the Fair Market Value of any Capital Stock of Persons engaged primarily in the Oil and Gas Business or assets used in the Oil and Gas Business, in each case received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or from cash capital contributions subsequent to the Issue Date (other than Net Cash Proceeds received from an issuance or sale of such Capital Stock to (x) a Subsidiary of the Company or (y) an employee stock ownership plan, option plan or similar trust (to the extent such sale to an employee stock ownership plan, option plan or similar trust is financed by loans from or guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination));

(iii) the amount by which Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company’s balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company or its Restricted Subsidiaries convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the Fair Market Value of any other property (other than such Capital Stock), distributed by the Company upon such conversion or exchange), together with the net proceeds, if any, received by the Company or any of its Restricted Subsidiaries upon such conversion or exchange; and

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(iv) the amount equal to the aggregate net reduction in Restricted Investments made by the Company or any of its Restricted Subsidiaries in any other Person after the Issue Date resulting from:

(A) repurchases, repayments or redemptions of such Restricted Investments by such Person, proceeds realized upon the sale of such Restricted Investments (other than to a Subsidiary of the Company), or repayments of loans or advances or other transfers of assets (including by way of dividend or distribution) by such Person to the Company or any Restricted Subsidiary; and

(B) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of “Investment”) not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount in each case under this clause (iv) was included in the calculation of the amount of Restricted Payments; provided, however, that no amount will be included under this clause (iv) to the extent it is already included in Consolidated Net Income.

The provisions of the preceding paragraph will not prohibit:

(1) any Restricted Payment made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan, option plan or similar trust to the extent such sale to an employee stock ownership plan, option plan or similar trust is financed by loans from or guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination) or a substantially concurrent cash capital contribution received by the Company from the owners of its Capital Stock; provided that the Net Cash Proceeds from such sale of Capital Stock or capital contribution will be excluded from clause (c)(ii) of the preceding paragraph;

(2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations of an Issuer or Guarantor Subordinated Obligations of any Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of Refinancing Indebtedness with respect to such Subordinated Obligations or Guarantor Subordinated Obligations permitted to be Incurred pursuant to the covenant described above under “— Limitation on Indebtedness and Preferred Stock”;

(3) dividends paid or distributions made within 60 days after the date of declaration if at such date of declaration such dividend or distribution would have complied with this covenant; provided, however, that such dividends and distributions will be included in subsequent calculations of the Basket Amount; and provided further, however, that for purposes of clarification, this clause (3) shall not include cash payments in lieu of the issuance of fractional shares included in clause (8) below;

(4) the repurchase or other acquisition of Capital Stock (including options, warrants, equity appreciation rights or other rights to purchase or acquire Capital Stock) of the Company held by any existing or former employees, officers or directors of the Company or the General Partner or any Restricted Subsidiary of the Company or their assigns, estates or heirs, in each case pursuant to the repurchase or other acquisition provisions under employee stock option or stock purchase plans or agreements or other agreements to compensate employees, officers or directors, in each case approved by the Company’s Board of Directors; provided that such repurchases or other acquisitions pursuant to this clause (4) will not exceed $2.0 million in the aggregate during any calendar year; and provided that the proceeds received from any such transaction will be excluded from clause (c)(ii) of the preceding paragraph;

(5) purchases, repurchases, redemptions or other acquisitions or retirements for value of Capital Stock deemed to occur upon the exercise of stock options, warrants, rights to acquire Capital Stock or other convertible securities if such Capital Stock represents a portion of the exercise or exchange price

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thereof, and any purchases, repurchases, redemptions or other acquisitions or retirements for value of Capital Stock made in lieu of withholding taxes in connection with any exercise or exchange of warrants, options or rights to acquire Capital Stock;

(6) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of any Subordinated Obligation (i) at a purchase price not greater than 101% of the principal amount of such Subordinated Obligation in the event of a Change of Control in accordance with provisions similar to the covenant described under “— Change of Control” or (ii) at a purchase price not greater than 100% of the principal amount thereof in accordance with provisions similar to the covenant described under “— Limitation on Sales of Assets and Subsidiary Stock”; provided that, prior to or simultaneously with such purchase, repurchase, redemption, defeasance or other acquisition or retirement, the Company has made the Change of Control Offer or Asset Disposition Offer, as applicable, as provided in such covenant with respect to the Notes and has completed the repurchase of all Notes accepted for payment in connection with such Change of Control Offer or Asset Disposition Offer;

(7) so long as no Default has occurred and is continuing, payments or distributions to dissenting equityholders pursuant to applicable law or in connection with the settlement or other satisfaction of legal claims made pursuant to or in connection with a consolidation, merger or transfer of assets;

(8) cash payments in lieu of the issuance of fractional shares;

(9) the declaration and payment of scheduled or accrued dividends to holders of any class of or series of Disqualified Stock of the Company issued after the Issue Date in accordance with the covenant captioned “— Limitation on Indebtedness and Preferred Stock”, to the extent such dividends are included in Consolidated Interest Expense;

(10) so long as the Company is treated for U.S. federal tax purposes as a disregarded entity or partnership, Permitted Tax Distributions;

(11) dividends paid or distributions made by the Company, or purchases, repurchases, redemptions or other acquisitions or retirements for value of Capital Stock of the Company, within 60 days after the Issue Date from proceeds of the issuance of the Notes in an aggregate amount not to exceed $50.0 million; and

(12) so long as no Default has occurred and is continuing, Restricted Payments in an amount not to exceed $25.0 million in the aggregate since the Issue Date.

The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of such Restricted Payment of the securities or other assets proposed to be paid, transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment. The Fair Market Value of any cash Restricted Payment shall be its face amount, and the Fair Market Value of any non-cash Restricted Payment shall be determined in accordance with the definition of that term. Not later than the date of making any Restricted Payment pursuant to clause (c) of the second preceding paragraph or clause (12) of the preceding paragraph, the Company shall deliver to the Trustee an Officers’ Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this covenant were computed and the Basket Amount after giving effect to such Restricted Payment.

In the event that a Restricted Payment meets the criteria of more than one of the exceptions described in clauses (1) through (12) above or is entitled to be made pursuant to the first paragraph above, the Company shall, in its sole discretion, classify such Restricted Payment and may later re-classify all or a portion of such Restricted Payment.

The Company will not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the last sentence of the definition of “Unrestricted Subsidiary”. For purpose of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated will be deemed to be Restricted Payments in an amount determined as set forth in the last sentence of the definition of “Investment”. Such designation will be permitted only if a Restricted Payment in such amount would be

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permitted at such time, whether pursuant to the first paragraph of this covenant or under clause (12) of the second paragraph of this covenant, or pursuant to the definition of “Permitted Investments”, and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not guarantee the Notes and will not be subject to any of the restrictive covenants set forth in the Indenture.

Limitation on Liens

The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer to exist any Lien (other than Permitted Liens) upon any of its property or assets (including Capital Stock of Restricted Subsidiaries), including any income or profits therefrom, whether owned on the date of the Indenture or acquired after that date, which Lien is securing any Indebtedness, unless contemporaneously with the Incurrence of such Lien effective provision is made to secure the Indebtedness due under the Notes (in the case of the Company) or any Subsidiary Guarantee of such other Restricted Subsidiary, equally and ratably with (or senior in priority to in the case of Liens with respect to Subordinated Obligations or Guarantor Subordinated

Obligations, as the case may be) the Indebtedness secured by such Lien for so long as such Indebtedness is so secured.

Limitation on Restrictions on Distributions from Restricted Subsidiaries

The Company will not, and will not permit any Restricted Subsidiary (other than the Co-Issuer) to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any such Restricted Subsidiary to:

(1) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company or any other Restricted Subsidiary (it being understood that the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on Common Stock shall not be deemed a restriction on the ability to make distributions on Capital Stock);

(2) make any loans or advances to the Company or any other Restricted Subsidiary (it being understood that the subordination of loans or advances made to the Company or any Restricted Subsidiary to other Indebtedness Incurred by the Company or any Restricted Subsidiary shall not be deemed a restriction on the ability to make loans or advances); or

(3) sell, lease or transfer any of its property or assets to the Company or any other Restricted Subsidiary.

The preceding provisions will not prohibit:

(i) any encumbrance or restriction pursuant to or by reason of an agreement in effect at or entered into on the Issue Date, including the Indenture and the Senior Secured Credit Agreement, each as in effect on such date;

(ii) any encumbrance or restriction with respect to a Person pursuant to or by reason of an agreement relating to any Capital Stock or Indebtedness Incurred by a Person on or before the date on which such Person was acquired by the Company or another Restricted Subsidiary (other than Capital Stock or Indebtedness Incurred as consideration in, or to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions pursuant to which such Person was acquired by the Company or a Restricted Subsidiary or in contemplation of the transaction) and outstanding on such date; provided that any such encumbrance or restriction shall not extend to any assets or property of the Company or any other Restricted Subsidiary other than the assets and property so acquired;

(iii) any encumbrance or restriction contained in contracts entered into in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of, or from the ability of the Company and the Restricted Subsidiaries to realize the value of,

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property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary;

(iv) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refunding, replacement or refinancing of Indebtedness Incurred pursuant to an agreement referred to in clauses (i) and (ii) or clause (ix) of this paragraph or this clause (iv) or contained in any amendment, restatement, modification, renewal, supplemental, refunding, replacement or refinancing of an agreement referred to in clauses (i) and (ii) or clause (ix) of this paragraph or this clause (iv); provided that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such agreement taken as a whole are no less favorable in any material respect to the holders of the Notes than the encumbrances and restrictions contained in the agreements governing the Indebtedness being refunded, replaced or refinanced;

(v) in the case of clause (3) of the first paragraph of this covenant, any encumbrance or restriction:

(a) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease (including leases governing leasehold interests or farm-in agreements or farm-out agreements relating to leasehold interests in Oil and Gas Properties), license or similar contract, or the assignment or transfer of any such lease (including leases governing leasehold interests or farm-in agreements or farm-out agreements relating to leasehold interests in Oil and Gas Properties), license (including licenses of intellectual property) or other contract;

(b) contained in mortgages, pledges or other security agreements permitted under the Indenture securing Indebtedness of the Company or a Restricted Subsidiary to the extent such encumbrances or restrictions restrict the transfer of the property subject to such mortgages, pledges or other security agreements;

(c) contained in any agreement creating Hedging Obligations permitted from time to time under the Indenture;

(d) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary;

(e) on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business; or

(f) with respect to the disposition or distribution of assets or property in operating agreements, joint venture agreements, development agreements, area of mutual interest agreements and other agreements that are customary in the Oil and Gas Business and entered into in the ordinary course of business;

(vi) any encumbrance or restriction contained in (a) purchase money obligations for property acquired in the ordinary course of business and (b) Capitalized Lease Obligations, in each case that are permitted under the Indenture and that impose encumbrances or restrictions of the nature described in clause (3) of the first paragraph of this covenant on the property or assets so acquired, and any proceeds thereof;

(vii) any encumbrance or restriction with respect to a Restricted Subsidiary (or any of its property or assets) imposed pursuant to an agreement entered into for the direct or indirect sale or other disposition of all or a portion of the Capital Stock or property or assets of such Restricted Subsidiary pending the closing of such sale or other disposition;

(viii) any encumbrance or restriction arising or existing by reason of applicable law or any applicable rule, regulation or order;

(ix) any encumbrance or restriction contained in agreements governing Indebtedness of the Company or any of its Restricted Subsidiaries permitted to be Incurred pursuant to an agreement entered into subsequent to the Issue Date in accordance with the covenant described above under the caption “— Limitation on Indebtedness and Preferred Stock”; provided that the provisions relating to such

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encumbrance or restriction contained in such Indebtedness, taken as a whole, are not materially less favorable to the Company taken as a whole, as determined by the Board of Directors of the Company in good faith, than the provisions contained in the Senior Secured Credit Agreement and in the Indenture as in effect on the Issue Date; and

(x) any encumbrance or restriction on cash or other deposits or net worth imposed by customers under contracts or required by insurance, surety or bonding companies, in each case entered into or incurred in the ordinary course of business.

Limitation on Sales of Assets and Subsidiary Stock

The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Disposition unless:

(1) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Disposition at least equal to the Fair Market Value (such Fair Market Value to be determined on the date of contractually agreeing to such Asset Disposition) of the Capital Stock or other assets subject to such Asset Disposition;

(2) at least 75% of the consideration received by the Company or such Restricted Subsidiary, as the case may be, is in the form of cash or Cash Equivalents or Additional Assets, or any combination thereof; and

(3) except as provided in the next paragraph, an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied, within 360 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash, by the Company or such Restricted Subsidiary, as the case may be:

(a) to prepay, repay, redeem or purchase Indebtedness (other than intercompany Indebtedness, Subordinated Obligations, Capital Stock or Indebtedness owed to an Affiliate of the Company); provided, however, that, in connection with any prepayment, repayment, redemption or purchase of Indebtedness pursuant to this clause (a), the Company or such Restricted Subsidiary will cause the related commitment to be permanently reduced in an amount equal to the principal amount so prepaid, repaid, redeemed or purchased; or

(b) to invest in Additional Assets or to make capital expenditures in the Oil and Gas Business;

provided that pending the final application of any such Net Available Cash in accordance with clause (a) or clause (b) above, the Company and its Restricted Subsidiaries may temporarily reduce revolving credit Indebtedness or otherwise invest such Net Available Cash in any manner not prohibited by the Indenture.

Any Net Available Cash from Asset Dispositions that is not applied or invested as provided in the preceding paragraph will be deemed to constitute “Excess Proceeds”. Not later than the 360th day from the later of the date of such Asset Disposition or the receipt of such Net Available Cash, if the aggregate amount of Excess Proceeds exceeds $20.0 million, the Company will be required to make an offer (“Asset Disposition Offer”) to all holders of Notes and, to the extent required by the terms of other Pari Passu Indebtedness, to all holders of other Pari Passu Indebtedness outstanding with similar provisions requiring the Company to make an offer to purchase such Pari Passu Indebtedness with the proceeds from any Asset Disposition (“Pari Passu Notes”), to purchase the maximum principal amount of Notes and any such Pari Passu Notes to which the Asset Disposition Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount (or, in the event such Pari Passu Indebtedness was issued with original issue discount, 100% of the accreted value thereof) of the Notes and Pari Passu Notes plus accrued and unpaid interest, if any (or in respect of such Pari Passu Notes, such lesser price, if any, as may be provided for by its terms), to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the procedures set forth in the Indenture or the agreements governing the Pari Passu Notes, as applicable, in each case in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess thereof. If the aggregate

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principal amount of Notes surrendered by holders thereof and other Pari Passu Notes surrendered by holders or lenders, collectively, exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis (or, in the case of Notes issued in global form as discussed under the caption “Book-Entry; Delivery and Form”, the Trustee will select the Notes for purchase based on DTC’s method that most nearly approximates a pro rata selection) on the basis of the aggregate principal amount of tendered Notes and Pari Passu Notes. To the extent that the aggregate amount of Notes and Pari Passu Notes so validly tendered and not properly withdrawn pursuant to an Asset Disposition Offer is less than the Excess Proceeds, the Company and its Restricted Subsidiaries may use any remaining Excess Proceeds for general corporate purposes, subject to the other covenants contained in the Indenture. Upon completion of such Asset Disposition Offer, the amount of Excess Proceeds shall be reset at zero.

The Asset Disposition Offer will remain open for a period of 20 Business Days following its commencement, except to the extent that a longer period is required by applicable law (the “Asset Disposition Offer Period”). No later than two Business Days after the termination of the Asset Disposition Offer Period (the “Asset Disposition Purchase Date”), the Company will purchase the principal amount of Notes and Pari Passu Notes required to be purchased pursuant to this covenant (the “Asset Disposition Offer Amount”) or, if less than the Asset Disposition Offer Amount has been so validly tendered and not properly withdrawn, all Notes and Pari Passu Notes validly tendered and not properly withdrawn in response to the Asset Disposition Offer.

If the Asset Disposition Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest will be paid to each Person in whose name a Note is registered at the close of business on such record date, and no further interest will be payable to holders who tender Notes pursuant to the Asset Disposition Offer.

On or before the Asset Disposition Purchase Date, the Company will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Asset Disposition Offer Amount of Notes and Pari Passu Notes or portions of Notes and Pari Passu Notes so validly tendered and not properly withdrawn pursuant to the Asset Disposition Offer, or if less than the Asset Disposition Offer Amount has been validly tendered and not properly withdrawn, all Notes and Pari Passu Notes so validly tendered and not properly withdrawn, in each case in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess thereof. The Company will deliver to the Trustee an Officers’ Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this covenant and, in addition, the Company will deliver all certificates required, if any, by the agreements governing the Pari Passu Notes. On the Asset Disposition Purchase Date, the Company or the paying agent, as the case may be, will mail or deliver to each tendering holder of Notes or holder or lender of Pari Passu Notes, as the case may be, an amount equal to the purchase price of the Notes or Pari Passu Notes so validly tendered and not properly withdrawn by such holder or lender, as the case may be, and accepted by the Company for purchase, and the Company will promptly issue a new Note, and the Trustee, upon delivery of a written request from the Company, will authenticate and mail or deliver such new Note to such holder, in a principal amount equal to any unpurchased portion of the Note surrendered; provided that each such new Note will be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. In addition, the Company will take any and all other actions required by the agreements governing the Pari Passu Notes. Any Note not so accepted will be promptly mailed or delivered by the Issuer to the holder thereof. The Company will publicly announce the results of the Asset Disposition Offer on the Asset Disposition Purchase Date.

The Company will comply, to the extent applicable, with the requirements of Rule 14e-1 of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to an Asset Disposition Offer. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue of its compliance with such securities laws or regulations.

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For the purposes of clause (2) of the first paragraph of this covenant, the following will be deemed to be cash:

(1) the assumption by the transferee of Indebtedness of the Company or Indebtedness of a Restricted Subsidiary (other than intercompany Indebtedness, Subordinated Obligations, Capital Stock or Indebtedness owed to an Affiliate of the Company) and the release of such Issuer or Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition; and

(2) securities, notes or other obligations received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 30 days after receipt thereof.

The Company will not, and will not permit any Restricted Subsidiary to, engage in any Asset Swaps, unless in the event such Asset Swap involves the transfer by the Company or any Restricted Subsidiary of assets having an aggregate Fair Market Value in excess of $20.0 million, the terms of such Asset Swap have been approved by a majority of the members of the Board of Directors of the Company.

Limitation on Affiliate Transactions

The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into, make, amend or conduct any transaction (including making a payment to, the purchase, sale, lease or exchange of any property or the rendering of any service), contract, agreement or understanding with or for the benefit of any Affiliate of the Company (an “Affiliate Transaction”) unless:

(1) the terms of such Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could reasonably be expected to be obtained in a comparable transaction at the time of such transaction in arm’s-length dealings with a Person who is not such an Affiliate;

(2) if such Affiliate Transaction involves an aggregate consideration in excess of $20.0 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Company having no personal stake in such transaction, if any (and such majority determines that such Affiliate Transaction satisfies the criteria in clause (1) above); and

(3) if such Affiliate Transaction involves an aggregate consideration in excess of $50.0 million, the Board of Directors of the Company has received a written opinion from an independent investment banking, accounting, engineering or appraisal firm of nationally recognized standing that such Affiliate Transaction is fair, from a financial standpoint, to the Company or such Restricted Subsidiary or, in the case of non-financial transactions, is not less favorable to the Company or such Restricted Subsidiary than those that could reasonably be expected to be obtained in a comparable transaction at such time on an arm’s-length basis from a Person that is not an Affiliate.

The preceding paragraph will not apply to:

(1) any Restricted Payment permitted to be made pursuant to the covenant described above under ‘‘— Limitation on Restricted Payments”;

(2) any issuance of Capital Stock (other than Disqualified Stock), or other payments, awards or grants in cash, Capital Stock (other than Disqualified Stock) or otherwise pursuant to, or the funding of, any employment, consulting, service or severance agreements or other compensation arrangements, options to purchase Capital Stock (other than Disqualified Stock) of the Company, restricted stock plans, long-term incentive plans, stock appreciation rights plans, participation plans or similar employee benefits plans or insurance and indemnification arrangements provided to or for the benefit of directors, officers and employees, in each case in the ordinary course of business and approved by the Board of Directors of the Company;

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(3) any merger or other transaction with an Affiliate solely for the purpose of reincorporating or reorganizing the Company or any of its Restricted Subsidiaries in another jurisdiction or creating a holding company for the Company;

(4) advances to or reimbursements of employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business of the Company or any of its Restricted Subsidiaries;

(5) any transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, and guarantees issued by the Company or a Restricted Subsidiary for the benefit of the Company or a Restricted Subsidiary, as the case may be, in accordance with “— Limitation on Indebtedness and Preferred Stock”;

(6) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the Company to, or the receipt by the Company of any capital contribution from, the holders of its Capital Stock;

(7) indemnities of officers, directors and employees of the Company or any of its Restricted Subsidiaries permitted by charter, bylaw or statutory provisions;

(8) the payment of reasonable compensation and fees to officers or directors of the Company or any Restricted Subsidiary;

(9) any transaction with a joint venture or similar entity (other than an Unrestricted Subsidiary) which would constitute an Affiliate Transaction solely because the Company or a Restricted Subsidiary owns, directly or indirectly, an equity interest in or otherwise controls such joint venture or similar entity; and

(10) the performance of obligations of the Company or any of its Restricted Subsidiaries under the terms of any agreement to which the Company or any of its Restricted Subsidiaries is a party as of or on the Issue Date that is disclosed in this prospectus under “Certain Relationships and Related Party Transactions”, as these agreements may be amended, modified, supplemented, extended or renewed from time to time; provided, however, that any future amendment, modification, supplement, extension or renewal entered into after the Issue Date will be permitted only to the extent that its terms are not materially more disadvantageous, taken as a whole, to the holders of the Notes than the terms of the agreements in effect on the Issue Date.

Provision of Financial Information

The Indenture provides that, whether or not the Company is subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, the Company will make available to the Trustee and the holders of the Notes without cost, by posting the same on its website for public availability, the annual reports and the information, documents and other reports that are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation that would be due after the Issue Date, within the time periods specified therein with respect to a non-accelerated filer; provided, however, that in lieu of a Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, the Company may instead provide, no later than 15 days after the applicable deadline under SEC rules for such report, unaudited quarterly financial statements together with a Management’s Discussion and Analysis of Financial Condition and Results of Operations, in each case consistent with those that would be included in a Quarterly Report on Form 10-Q (the “Initial Report”), and no information required to be reported in a Current Report on Form 8-K shall be required to be reported with respect to any event occurring prior to the date of such Initial Report provided that information required in any such Current Report on Form 8-K is included in such Initial Report. In addition, following the consummation of the Exchange Offer contemplated by the Registration Rights Agreement, the Company will file a copy of each of the reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC will not accept such a filing).

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This covenant will not impose any duty on the Company under the Sarbanes-Oxley Act of 2002 and the related SEC rules that would not otherwise be applicable.

If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the financial information required will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in any accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.

For so long as any Notes remain outstanding and constitute “restricted securities” under Rule 144, the Company will furnish to the holders of the Notes, and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

Merger and Consolidation

Neither the Company nor the Co-Issuer will consolidate with or merge with or into or wind up into (whether or not it is the surviving Person), or sell, convey, transfer, lease or otherwise dispose of all or substantially all its assets in one or more related transactions to, any Person, unless:

(1) the resulting, surviving or transferee Person (the “Successor Company”) will be a corporation (in the case of either the Company or the Co-Issuer), or a partnership, trust or limited liability company (but only in the case of the Company), organized and existing under the laws of the United States of America, any State of the United States or the District of Columbia and the Successor Company (if not the Company or the Co-Issuer, as the case may be) will expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Company or the Co-Issuer, as the case may be, under the Indenture, the Notes and the applicable Registration Rights Agreement;

(2) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Subsidiary of the Successor Company as a result of such transaction as having been Incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing;

(3) immediately after giving effect to such transaction, the Successor Company would be able to Incur at least an additional $1.00 of Indebtedness pursuant to the first paragraph of the covenant described under “— Limitation on Indebtedness and Preferred Stock”;

(4) if an Issuer is not the Successor Company in any of the transactions referred to above that involve such Issuer, each Subsidiary Guarantor (unless it is the other party to the transactions, in which case clause (1) shall apply) shall have by supplemental indenture confirmed that its Subsidiary Guarantee shall apply to the Successor Company’s obligations in respect of the Indenture and the Notes and that its Subsidiary Guarantee shall continue to be in effect; and

(5) the Company or the Co-Issuer, as the case may be, shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such transaction and such supplemental indenture (if any) comply with the Indenture.

For purposes of this covenant, the sale, conveyance, transfer, lease or other disposition of all or substantially all of the assets of one or more Subsidiaries of the Company, which assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially all of the assets of the Company on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the assets of the Company.

The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company or the Co-Issuer, as the case may be, under the Indenture; and its predecessor, except in the case of a lease of all or substantially all its assets, will be released from all obligations under the Indenture Documents.

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Although there is a limited body of case law interpreting the phrase “substantially all”, there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve “all or substantially all” of the assets of a Person.

Notwithstanding the preceding clause (3), (x) any Restricted Subsidiary (other than the Co-Issuer) may consolidate with, merge into or transfer all or part of its assets to the Company, and the Company may consolidate with, merge into or transfer all or part of its assets to a Subsidiary Guarantor and (y) the Company may merge with an Affiliate formed solely for the purpose of reorganizing the Company in another jurisdiction.

In addition, the Company will not permit any Subsidiary Guarantor to consolidate with or merge with or into, and will not permit the sale, conveyance, transfer, lease or other disposition of all or substantially all of the assets of any Subsidiary Guarantor to, any Person (other than the Company or another Subsidiary Guarantor) unless:

(1) either (a)

(i) the resulting, surviving or transferee Person will be a corporation, partnership, trust or limited liability company organized and existing under the laws of the United States of America, any State of the United States or the District of Columbia and such Person (if not such Subsidiary Guarantor) will expressly assume by supplemental indenture, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Subsidiary Guarantor under the Indenture, the Subsidiary Guarantee and the applicable Registration Rights Agreement and

(ii) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the resulting, surviving or transferee Person or any Restricted Subsidiary as a result of such transaction as having been Incurred by such Person or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; or

(b) the transaction results in the release of the Subsidiary Guarantor from its obligations under its Subsidiary Guarantee in compliance with the conditions described in the penultimate paragraph of “— Subsidiary Guarantees”; and

(2) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such transaction and such supplemental indenture (if any) comply with the Indenture.

Future Subsidiary Guarantors

The Company will cause (a) each Domestic Subsidiary of the Company formed or acquired after the Issue Date and (b) any other Restricted Subsidiary (except the Co-Issuer) that is not already a Subsidiary Guarantor that guarantees any Indebtedness of the Company or a Subsidiary Guarantor, in each case to execute and deliver to the Trustee within 30 days a supplemental indenture (in the form specified in the Indenture) pursuant to which such Subsidiary will unconditionally guarantee, on a joint and several basis, the full and prompt payment of the principal of, premium, if any, and interest on the Notes on a senior basis; provided that (i) any Restricted Subsidiary that constitutes an Immaterial Subsidiary need not become a Subsidiary Guarantor until such time as it ceases to be an Immaterial Subsidiary and (ii) Brayton Resources, L.P., Brayton Resources II, L.P. and Orion Operating Company, LP shall not be required to become Subsidiary Guarantors for so long as they remain Immaterial Subsidiaries and do not guarantee Indebtedness of the Company or any Subsidiary Guarantor other than the Senior Secured Credit Agreement.

Payments for Consent

Neither the Company nor any of its Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fees or otherwise, to any holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the

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Notes unless such consideration is offered to be paid or is paid to all holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or amendment.

Business Activities

The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in any business other than the Oil and Gas Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole.

The Co-Issuer may not engage in any business not related directly or indirectly to obtaining money or arranging financing for the Company or its Restricted Subsidiaries. The Co-Issuer may not have any Subsidiary, and no Person other than the Company or any of its other Restricted Subsidiaries may own any Capital Stock of the Co-Issuer.

Events of Default

Each of the following is an Event of Default with respect to the Notes:

(1) default in any payment of interest on any Note when due, continued for 30 days;

(2) default in the payment of principal of or premium, if any, on any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration of acceleration or otherwise;

(3) failure by either Issuer or any Subsidiary Guarantor to comply with its obligations under ‘‘— Certain Covenants — Merger and Consolidation”;

(4) failure by either Issuer or any Subsidiary Guarantor to comply for 30 days after notice as provided below with any of its obligations under the covenant described under “— Change of Control” above or under the covenants described under “— Certain Covenants” above (in each case, other than a failure to purchase Notes which will constitute an Event of Default under clause (2) above and other than a failure to comply with “— Certain Covenants — Merger and Consolidation” which is covered by clause (3));

(5) failure by either Issuer or any Subsidiary Guarantor to comply for 60 days after notice as provided below with its other agreements contained in the Indenture;

(6) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), other than Indebtedness owed to the Company or a Restricted Subsidiary, whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default:

(a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (and any extensions of any grace period) (“payment default”); or

(b) results in the acceleration of such Indebtedness prior to its Stated Maturity (the “cross acceleration provision”);

and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $20.0 million or more;

(7) certain events of bankruptcy, insolvency or reorganization of the Company, the Co-Issuer or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary (the “bankruptcy provisions”);

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(8) failure by the Company, the Co-Issuer or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $20.0 million (to the extent not covered by insurance by a reputable and creditworthy insurer as to which the insurer has not disclaimed coverage), which judgments are not paid or discharged, and there shall be any period of 60 consecutive days following entry of such final judgment or decree during which a stay of enforcement of such final judgment or decree, by reason of pending appeal or otherwise, shall not be in effect (the “judgment default provision”); or

(9) any Subsidiary Guarantee of a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries) would constitute a Significant Subsidiary, ceases to be in full force and effect (except as contemplated by the terms of the Indenture) or is declared null and void in a judicial proceeding or the Company or any Subsidiary Guarantor that is a Significant Subsidiary or group of Subsidiary Guarantors that, taken together (as of the latest audited consolidated financial statements of the Company and its Restricted Subsidiaries) would constitute a Significant Subsidiary, denies or disaffirms its obligations under the Indenture or its Subsidiary Guarantee.

However, a default under clauses (4) and (5) of this paragraph will not constitute an Event of Default until the Trustee or the holders of at least 25% in principal amount of the outstanding Notes notify the Issuers in writing and, in the case of a notice given by the holders, the Trustee of the default and the Issuers do not cure such default within the time specified in clauses (4) and (5) of this paragraph after receipt of such notice.

If an Event of Default (other than an Event of Default described in clause (7) above) occurs and is continuing, the Trustee by notice to Issuers, or the holders of at least 25% in principal amount of the outstanding Notes by notice to the Issuers and the Trustee, may, and the Trustee at the request of such holders shall, declare the principal of, premium, if any, accrued and unpaid interest, if any, on all the Notes to be due and payable. If an Event of Default described in clause (7) above occurs and is continuing, the principal of, and premium, if any, and accrued and unpaid interest, if any, on all the Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders. The holders of a majority in principal amount of the outstanding Notes may waive all past defaults (except with respect to nonpayment of principal, premium or interest) and rescind any such acceleration with respect to the Notes and its consequences if (1) rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (2) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived.

Notwithstanding the foregoing, if an Event of Default specified in clause (6) above shall have occurred and be continuing, such Event of Default and any consequential acceleration (to the extent not in violation of any applicable law or in conflict with any judgment or decree of a court of competent jurisdiction) shall be automatically rescinded if (i) the Indebtedness that is the subject of such Event of Default has been repaid or (ii) if the default relating to such Indebtedness is waived by the holders of such Indebtedness or cured and if such Indebtedness has been accelerated, then the holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness, in each case within 20 days after the declaration of acceleration with respect thereto, and (iii) any other existing Events of Default, except nonpayment of principal, premium or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived.

Subject to the provisions of the Indenture relating to the duties of the Trustee if an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders unless such holders have offered to the Trustee indemnity or security satisfactory to the Trustee against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no holder may pursue any remedy with respect to the Indenture or the Notes unless:

(1) such holder has previously given the Trustee notice that an Event of Default is continuing;

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(2) holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy;

(3) such holders have offered the Trustee security or indemnity satisfactory to the Trustee against any loss, liability or expense;

(4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and

(5) the holders of a majority in principal amount of the outstanding Notes have not waived such Event of Default or otherwise given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request within such 60-day period.

Subject to the provisions of the Indenture, the holders of a majority in principal amount of the outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. If an Event of Default has occurred and is continuing, the Trustee will be required in the exercise of its powers to use the degree of care that a prudent person would use under the circumstances in the conduct of his own affairs. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.

If a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold such notice if and so long as a committee of trust officers of the Trustee in good faith determines that withholding notice is in the interests of the holders. In addition, the Issuers are required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Issuers also are required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any Defaults, their status and what action the Issuers are taking or proposing to take in respect thereof.

Amendments and Waivers

The Indenture and the Notes may be amended with the consent of the holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes) and, subject to certain exceptions, any past default or compliance with any provisions of any Indenture Document may be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). However, without the consent of each holder of an outstanding Note affected thereby, no amendment or waiver may:

(1) reduce the principal amount of Notes whose holders must consent to an amendment or waiver;

(2) reduce the stated rate of or extend the stated time for payment of interest on any Note;

(3) reduce the principal of or extend the Stated Maturity of any Note;

(4) reduce the premium payable upon the redemption of any Note as described above under “— Optional Redemption”, change the time at which any Note may be redeemed as described above under ‘‘— Optional Redemption” or make any change relative to our obligation to make an offer to repurchase the Notes as a result of a Change of Control as described above under “— Change of Control” after (but not before) the occurrence of such Change of Control;

(5) make any Note payable in money other than U.S. dollars;

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(6) impair the right of any holder to receive payment of the principal of, premium, if any, and interest on such holder’s Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder’s Notes;

(7) make any change in the amendment provisions which require each holder’s consent or in the waiver provisions;

(8) release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee otherwise than in accordance with the applicable provisions of the Indenture; or

(9) subordinate the Notes or any Subsidiary Guarantee in right of payment to any other Indebtedness of either Issuer or any Subsidiary Guarantor.

Notwithstanding the preceding, without the consent of any holder, the Issuers, the Subsidiary Guarantors and the Trustee may amend the Indenture and the Notes to:

(1) cure any ambiguity, omission, defect, mistake or inconsistency;

(2) provide for the assumption by a successor of the obligations of the Company, the Co-Issuer or any Subsidiary Guarantor under the Indenture;

(3) provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code);

(4) add Subsidiary Guarantors (or any other guarantors) with respect to the Notes or release a Subsidiary Guarantor from its Subsidiary Guarantee and terminate such Subsidiary Guarantee; provided that the release and termination is in accordance with the applicable provisions of the Indenture;

(5) secure the Notes or Guarantees;

(6) add to the covenants of the Company, the Co-Issuer or a Subsidiary Guarantor for the benefit of the holders or surrender any right or power conferred upon the Company, the Co-Issuer or a Subsidiary Guarantor;

(7) make any change that does not adversely affect the legal rights of any holder; provided, however, that any change to conform the Indenture to this “Description of New Notes” will not be deemed to adversely affect such legal rights;

(8) comply with any requirement of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act; or

(9) provide for the succession of a successor Trustee, provided that the successor Trustee is otherwise qualified and eligible to act as such under the Indenture.

The consent of the holders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture requiring the consent of the holders becomes effective, the Company will mail to the holders a notice briefly describing such amendment. However, the failure to give such notice to all the holders, or any defect in the notice will not impair or affect the validity of the amendment.

Defeasance

The Issuers at any time may terminate all their obligations under the Notes and the Indenture (“legal defeasance”), except for certain obligations specified in the Indenture, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes.

The Issuers at any time may terminate their obligations described under “— Change of Control” and under the covenants described under “— Certain Covenants” (other than clauses (1), (2), (4) and (5) of “— Certain Covenants — Merger and Consolidation”), the operation of the cross default upon a payment

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default, cross acceleration provisions, the bankruptcy provisions with respect to Significant Subsidiaries, the judgment default provision, the Subsidiary Guarantee provision described under ‘‘— Events of Default” above and the limitations contained in clause (3) under “— Certain Covenants — Merger and Consolidation” above (“covenant defeasance”).

If the Issuers exercise their legal defeasance or covenant defeasance option, the Subsidiary Guarantees in effect at such time will terminate.

The Issuers may exercise their legal defeasance option notwithstanding their prior exercise of their covenant defeasance option. If the Issuers exercise their legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect to the Notes. If the Issuers exercise their covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (4), (5), (6), (7) (with respect only to Significant Subsidiaries), (8) or (9) under “— Events of Default” above or because of the failure of the Company or the Co-Issuer to comply with clause (3) under “— Certain Covenants — Merger and Consolidation” above.

In order to exercise either defeasance option, an Issuer or a Subsidiary Guarantor must, among other things, irrevocably deposit in trust (the “defeasance trust”) with the Trustee money or U.S. Government Obligations for the payment of principal, premium, if any, and interest on the Notes to redemption or Stated Maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel (subject to customary exceptions and exclusions) to the effect that holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. In the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable federal income tax law.

Satisfaction and Discharge

The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder (except as to surviving rights of registration of transfer or exchange of the Notes and as otherwise expressly provided for in the Indenture), and all Subsidiary Guarantees will be released, when either:

(1) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by an Issuer and thereafter repaid to such Issuer or discharged from such trust) have been delivered to the Trustee for cancellation, or

(2) all Notes that have not been delivered to the Trustee for cancellation have become due and payable or will become due and payable within one year by reason of the giving of a notice of redemption or otherwise and an Issuer or any Subsidiary Guarantor has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust solely for such purpose, cash in U.S. dollars in such amount as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal and accrued interest to the date of Stated Maturity or redemption, and in each case certain other procedural requirements set forth in the Indenture are satisfied.

No Personal Liability of Directors, Officers, Employees and Stockholders

No director, officer, employee, incorporator, stockholder, member, partner or trustee of the Company, the Co-Issuer or any Subsidiary Guarantor, as such, shall have any liability for any obligations of the Company, the Co-Issuer or any Subsidiary Guarantor under the Notes, the Indenture or the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.

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The Trustee

Wells Fargo Bank, N.A. will be the Trustee under the Indenture and has been appointed by the Issuers as registrar and paying agent with regard to the Notes.

The Indenture will contain certain limitations on the rights of the Trustee, should it become a creditor of an Issuer or any Subsidiary Guarantor, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest (as defined in the Trust Indenture Act) while any Default exists it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as Trustee with such conflict or resign as Trustee.

Governing Law

The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York.

Book-Entry; Delivery and Form

Global Notes

The new Notes, like the old Notes, will be issued in the form of one or more fully registered notes in global form, without interest coupons. Each Global Note will be deposited with the Trustee, as custodian for The Depository Trust Company (“DTC”), and registered in the name of a nominee of DTC.

Ownership of beneficial interests in each global note will be limited to persons who have accounts with DTC (“DTC participants”) or persons who hold interests through DTC participants. We expect that under procedures established by DTC:

•  upon deposit of each global note with DTC’s custodian, DTC will credit portions of the principal amount of the global notes to the accounts of the DTC participants designated by the exchange agent; and

•  ownership of beneficial interests in each global note will be shown on, and transfer of ownership of those interests will be effected only through, records maintained by DTC (with respect to interests of DTC participants) and the records of DTC participants (with respect to other owners of beneficial interests in the global notes).

Beneficial interests in the global notes may not be exchanged for notes in physical, certificated form except in the limited circumstances described below.

Book-Entry Procedures for the Global Notes

All interests in the global notes will be subject to the operations and procedures of DTC, including its participants, Euroclear Bank S.A./N.V., as operator of the Euroclear System (“Euroclear”), and Clearstream Banking S.A. (“Clearstream”). We provide the following summaries of those operations and procedures solely for the convenience of investors. The operations and procedures of each settlement system are controlled by that settlement system and may be changed at any time.

•  Neither we nor the Trustee is responsible for those operations or procedures.

•  DTC has advised us that it is:

•  a limited purpose trust company organized under the laws of the State of New York;

•  a “banking organization” within the meaning of the New York State Banking Law;

•  a member of the Federal Reserve System;

•  a “clearing corporation” within the meaning of the Uniform Commercial Code; and

•  a “clearing agency” registered under Section 17A of the Exchange Act.

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DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between its participants through electronic book-entry changes to the accounts of its participants. DTC’s participants include securities brokers and dealers, including the initial purchasers, banks and trust companies, clearing corporations, and other organizations. Indirect access to DTC’s system is also available to others such as banks, brokers, dealers, and trust companies. These indirect participants clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly. Investors who are not DTC participants may beneficially own securities held by or on behalf of DTC only through DTC participants or indirect participants in DTC.

So long as DTC’s nominee is the registered owner of a global note, that nominee will be considered the sole owner or holder of the notes represented by that global note for all purposes under the indenture. Except as provided below, owners of beneficial interests in a global note:

•  will not be entitled to have notes represented by the global note registered in their names;

•  will not receive or be entitled to receive physical, certificated notes; and

•  will not be considered the owners or holders of the notes under the indenture for any purpose, including with respect to the giving of any direction, instruction, or approval to the Trustee.

As a result, each investor who owns a beneficial interest in a global note must rely on the procedures of DTC to exercise any rights of a holder of notes under the Indenture (and, if the investor is not a participant or an indirect participant in DTC, on the procedures of the DTC participant through which the investor owns its interest).

Payments of principal, premium (if any), and interest with respect to the new notes represented by a global note will be made by the Trustee to DTC’s nominee, as the registered holder of the global note. Neither we nor the Trustee will have any responsibility or liability for the payment of amounts to owners of beneficial interests in a global note, for any aspect of the records relating to or payments made on account of those interests by DTC, or for maintaining, supervising, or reviewing any records of DTC relating to those interests.

Payments by participants and indirect participants in DTC to the owners of beneficial interests in a global note will be governed by standing instructions and customary industry practice and will be the responsibility of those participants or indirect participants and DTC.

Transfers between participants in DTC will be effected under DTC’s procedures and will be settled in same-day funds. Transfers between participants in Euroclear or Clearstream will be effected in the ordinary way under the rules and operating procedures of those systems.

Cross market transfers between DTC participants, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected within DTC through the DTC participants that are acting as depositaries for Euroclear and Clearstream. To deliver or receive an interest in a global note held in a Euroclear or Clearstream account, an investor must send transfer instructions to Euroclear or Clearstream, as the case may be, under the rules and procedures of that system and within the established deadlines of that system. If the transaction meets its settlement requirements, Euroclear or Clearstream, as the case may be, will send instructions to its DTC depositary to take action to effect final settlement by delivering or receiving interests in the relevant global notes in DTC, and making or receiving payment under normal procedures for same-day funds settlement applicable to DTC. Euroclear and Clearstream participants may not deliver instructions directly to the DTC depositaries that are acting for Euroclear or Clearstream.

Because of time zone differences, the securities account of a Euroclear or Clearstream participant that purchases an interest in a global note from a DTC participant will be credited on the business day for Euroclear or Clearstream immediately following the DTC settlement date. Cash received in Euroclear or Clearstream from the sale of an interest in a global note to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Euroclear or Clearstream cash account as of the business day for Euroclear or Clearstream following the DTC settlement date.

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DTC, Euroclear, and Clearstream have agreed to the above procedures to facilitate transfers of interests in the global notes among participants in those settlement systems. However, the settlement systems are not obligated to perform these procedures and may discontinue or change these procedures at any time. Neither we nor the Trustee will have any responsibility for the performance by DTC, Euroclear, or Clearstream, or their participants or indirect participants, of their obligations under the rules and procedures governing their operations.

Certificated Notes

New Notes in physical, certificated form will be issued and delivered to each person that DTC identifies as a beneficial owner of the related notes only if:

•  DTC notifies us at any time that it is unwilling or unable to continue as depositary for the global notes and a successor depositary is not appointed within 90 days;

•  DTC ceases to be registered as a clearing agency under the Exchange Act and a successor depositary is not appointed within 90 days; or

•  we, at our option, notify the Trustee that we elect to cause the issuance of certificated Notes.

Certain Definitions

Set forth below are certain defined terms used in the Indenture. References to Statements of Financial Accounting Standards of the Financial Accounting Standards Board do not reflect the new nomenclature resulting from the FASB’s codification of such Statements in its ASC 105, Generally Accepted Accounting Principles, issued in June 2009, but are deemed to include the codified Statements under their current nomenclature.

“Acquired Indebtedness” means Indebtedness (i) of a Person or any of its Subsidiaries existing at the time such Person becomes or is merged with and into a Restricted Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case whether or not Incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to have been Incurred, with respect to clause (i) of the preceding sentence, on the date such Person becomes or is merged with and into a Restricted Subsidiary and, with respect to clause (ii) of the preceding sentence, on the date of consummation of such acquisition of assets.

“Additional Assets” means:

(1) any properties or assets (other than current assets) to be used by the Company or a Restricted Subsidiary in the Oil and Gas Business; or

(2) the Capital Stock of a Person that is or becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or a Restricted Subsidiary; provided, however, that such Restricted Subsidiary is primarily engaged in the Oil and Gas Business.

“Adjusted Consolidated Net Tangible Assets” of the Company means (without duplication), as of the date of determination, the remainder of:

(a) the sum of:

(i) discounted future net revenues from proved oil and gas reserves of the Company and its Restricted Subsidiaries calculated in accordance with SEC guidelines before any state or federal income taxes, as estimated by the Company in a reserve report prepared as of the end of the Company’s most recently completed fiscal year for which audited financial statements are available, which reserve report is prepared, reviewed or audited by independent petroleum engineers, as increased by, as of the date of determination, the estimated discounted future net revenues from

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(A) estimated proved oil and gas reserves acquired since such year end, which reserves were not reflected in such year end reserve report, and

(B) estimated oil and gas reserves attributable to extensions, discoveries and other additions and upward revisions of estimates of proved oil and gas reserves since such year end due to exploration, development or exploitation, production or other activities, which would, in accordance with standard industry practice, cause such revisions (including the impact to proved reserves and future net revenues from estimated development costs incurred and the accretion of discount since such year end),

and decreased by, as of the date of determination, the estimated discounted future net revenues from

(C) estimated proved oil and gas reserves produced or disposed of since such year end, and

(D) estimated oil and gas reserves attributable to downward revisions of estimates of proved oil and gas reserves since such year end due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions, in each case calculated on a pre-tax basis and substantially in accordance with SEC guidelines,

in the case of clauses (A) through (D) utilizing prices and costs calculated in accordance with SEC guidelines as if the end of the most recent fiscal quarter preceding the date of determination for which such information is available to the Company were year end; provided, however, that in the case of each of the determinations made pursuant to clauses (A) through (D), such increases and decreases shall be as estimated by the Company’s petroleum engineers;

(ii) the capitalized costs that are attributable to Oil and Gas Properties of the Company and its Restricted Subsidiaries to which no proved oil and gas reserves are attributable, based on the Company’s books and records as of a date no earlier than the date of the Company’s latest available annual or quarterly financial statements;

(iii) the Net Working Capital of the Company and its Restricted Subsidiaries on a date no earlier than the date of the Company’s latest annual or quarterly financial statements; and

(iv) the greater of

(A) the net book value of other tangible assets of the Company and its Restricted Subsidiaries, as of a date no earlier than the date of the Company’s latest annual or quarterly financial statements, and

(B) the appraised value, as estimated by independent appraisers, of other tangible assets of the Company and its Restricted Subsidiaries, as of a date no earlier than the date of the Company’s latest audited financial statements; provided, that, if no such appraisal has been performed the Company shall not be required to obtain such an appraisal and only clause (iv)(A) of this definition shall apply;

minus

(b) the sum of:

(i) Minority Interests;

(ii) any net gas balancing liabilities of the Company and its Restricted Subsidiaries reflected in the Company’s latest annual or quarterly balance sheet (to the extent not deducted in calculating Net Working Capital of the Company in accordance with clause (a)(iii) above of this definition);

(iii) to the extent included in (a)(i) above, the discounted future net revenues, calculated in accordance with SEC guidelines (but utilizing prices and costs calculated in accordance with SEC guidelines as if the end of the most recent fiscal quarter preceding the date of determination for

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which such information is available to the Company were year end), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of the Company and its Restricted Subsidiaries with respect to Volumetric Production Payments (determined, if applicable, using the schedules specified with respect thereto); and

(iv) the discounted future net revenues, calculated in accordance with SEC guidelines, attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production and price assumptions included in determining the discounted future net revenues specified in (a)(i) above, would be necessary to fully satisfy the payment obligations of the Company and its Subsidiaries with respect to Dollar-Denominated Production Payments (determined, if applicable, using the schedules specified with respect thereto).

If the Company changes its method of accounting from the successful efforts method of accounting to the full cost or a similar method, “Adjusted Consolidated Net Tangible Assets” will continue to be calculated as if the Company were still using the successful efforts method of accounting.

“Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Asset Disposition” means any direct or indirect sale, lease (including by means of Production Payments and Reserve Sales and a Sale/Leaseback Transaction but excluding an operating lease entered into in the ordinary course of the Oil and Gas Business), transfer, issuance or other disposition, or a series of related sales, leases, transfers, issuances or dispositions that are part of a common plan, of (A) any Capital Stock of a Restricted Subsidiary (other than directors’ qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary) or (B) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary (each referred to for the purposes of this definition as a “disposition”), in each case by the Company or any of its Restricted Subsidiaries, including any disposition by means of a merger, consolidation or similar transaction.

Notwithstanding the preceding, the following items shall not be deemed to be Asset Dispositions:

(1) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary;

(2) a disposition of cash, Cash Equivalents or other financial assets in the ordinary course of business;

(3) a disposition of Hydrocarbons in the ordinary course of business;

(4) a disposition of damaged, unserviceable, obsolete or worn out equipment or equipment that is no longer necessary for the proper conduct of the business of the Company and its Restricted Subsidiaries and that is disposed of in each case in the ordinary course of business;

(5) transactions in accordance with the covenant described under “— Certain Covenants — Merger and Consolidation”;

(6) an issuance of Capital Stock by a Restricted Subsidiary to the Company or to a Restricted Subsidiary;

(7) the making of a Permitted Investment or a Restricted Payment (or a disposition that would constitute a Restricted Payment but for the exclusions from the definition thereof) permitted by the covenant described under “— Certain Covenants — Limitation on Restricted Payments”;

(8) an Asset Swap;

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(9) dispositions of assets with a Fair Market Value of less than $10.0 million in any single transaction or series of related transactions;

(10) Permitted Liens;

(11) dispositions of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or similar arrangements;

(12) the licensing or sublicensing of intellectual property (including the licensing of seismic data or rights to access and use seismic data libraries);

(13) any Production Payments and Reserve Sales pursuant to incentive compensation programs on terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists and other providers of technical or management services to the Company or a Restricted Subsidiary;

(14) surrender or waiver of contract rights, oil and gas leases, or the settlement, release or surrender of contract, tort or other claims of any kind; and

(15) the abandonment, assignment, farmout, lease, sublease, forfeiture or other disposition of developed or undeveloped Oil and Gas Properties in the ordinary course of business.

“Asset Swap” means any substantially contemporaneous (and in any event occurring within 180 days of each other) purchase and sale or exchange of any Oil and Gas Assets between the Company or any of its Restricted

Subsidiaries and another Person; provided, that any cash received must be applied in accordance with “— Certain Covenants— Limitation on Sales of Assets and Subsidiary Stock” as if the Asset Swap were an Asset Disposition.

“Attributable Debt” in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, however, that if such sale and leaseback transaction results in a Capitalized Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of “Capitalized Lease Obligation”.

“Average Life” means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (2) the sum of all such payments.

“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

“Board of Directors” means, as to any Person that is a corporation, the board of directors of such Person or any duly authorized committee thereof or as to any Person that is not a corporation, the board of managers or such other individual or group serving a similar function. For so long as the Company is a limited partnership, the board of directors of the General Partner shall be deemed to be the Board of Directors of the Company.

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“Business Day” means each day that is not a Saturday, Sunday or other day on which commercial banking institutions in New York, New York are authorized or required by law to close.

“Capital Stock” of any Person means any and all shares, units, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) the equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into, or exchangeable for, such equity.

“Capitalized Lease Obligation” means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation will be the capitalized amount of such obligation at the time any determination thereof is to be made as determined in accordance with GAAP, and the Stated Maturity thereof will be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty.

“Cash Equivalents” means:

(1) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality of the United States (provided that the full faith and credit of the United States is pledged in support thereof), having maturities of not more than one year from the date of acquisition;

(2) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s;

(3) certificates of deposit, time deposits, eurodollar time deposits, overnight bank deposits or bankers’ acceptances having maturities of not more than one year from the date of acquisition thereof issued by any commercial bank the short-term deposit of which is rated at the time of acquisition thereof at least “A-2” or the equivalent thereof by S&P, or “P-2” or the equivalent thereof by Moody’s, and having combined capital and surplus in excess of $500.0 million;

(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (1), (2) and (3) entered into with any bank meeting the qualifications specified in clause (3) above;

(5) commercial paper rated at the time of acquisition thereof at least “A-2” by S&P or “P-2” by Moody’s, and in either case maturing within nine months after the date of acquisition thereof; and

(6) interests in any investment company or money market fund which invests 95% or more of its assets in instruments of the type specified in clauses (1) through (5) above.

“Change of Control” means:

(1) any “person” or “group” of related persons (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the General Partner (or, following the conversion of the Company into another form as described below, more than 50% of the total voting power of the Voting Stock of the successor entity to the Company);

(2) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors;

(3) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than to the Company, a Restricted Subsidiary or a Permitted Holder; or

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(4) the adoption by the members of the General Partner or the partners of the Company (or, following the conversion of the Company into another form as described below, its equity holders) of a plan or proposal for the liquidation or dissolution of the Company.

Notwithstanding the preceding, a conversion (whether by merger, statutory conversion or otherwise) of the Company from a limited partnership to a limited liability company or corporation, or an exchange of all of the outstanding partnership interests in the Company for Capital Stock in a corporation or a limited liability company, shall not constitute a Change of Control, so long as following such conversion or exchange the “persons” (as that term is used in Section 13(d)(3) of the Exchange Act) who Beneficially Owned the Capital Stock of the General Partner and the Company immediately prior to such transactions continue to Beneficially Own in the aggregate sufficient Capital Stock of such successor entity to elect a majority of its directors, managers, trustees or other persons serving in a similar capacity for such successor entity.

“Code” means the Internal Revenue Code of 1986, as amended.

“Commodity Agreements” means, in respect of any Person, any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement in respect of Hydrocarbons used, produced, processed or sold by such Person that is customary in the Oil and Gas Business and designed to protect such Person against fluctuation in Hydrocarbon prices.

“Common Stock” means, with respect to any Person, any and all Capital Stock (however designated and whether voting or nonvoting) of such Person other than any Preferred Stock, whether or not outstanding on the Issue Date, and includes all series and classes of such Capital Stock.

“Consolidated Coverage Ratio” means, for any Person, as of any date of determination, the ratio of (x) the aggregate amount of Consolidated EBITDAX of such Person for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which financial statements are in existence to (y) Consolidated Interest Expense for such four fiscal quarters, provided, however, that:

(1) if the Company or any Restricted Subsidiary:

(a) has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to the Incurrence of such Indebtedness and the use of proceeds thereof as if such Indebtedness had been Incurred on the first day of such period and such proceeds had been applied as of such date (except that in making such computation, the amount of any revolving credit Indebtedness outstanding on the date of such calculation will be deemed to be (i) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period during which such Indebtedness was outstanding or (ii) if such revolving credit Indebtedness was Incurred after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of Incurrence of such revolving credit Indebtedness to the date of such calculation, in each case, provided that such average daily balance shall take into account any permanent repayment of such revolving credit Indebtedness as provided in clause (b)); or

(b) has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of the period, including with the proceeds of such new Indebtedness, that is no longer outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio involves a discharge of Indebtedness (in each case other than any revolving credit Indebtedness, unless such revolving credit Indebtedness has been permanently repaid and the related commitment terminated), Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such discharge of such Indebtedness as if such discharge had occurred on the first day of such period;

(2) if, since the beginning of such period, the Company or any Restricted Subsidiary has made any Asset Disposition or if the transaction giving rise to the need to calculate the Consolidated Coverage

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Ratio is such an Asset Disposition, the Consolidated EBITDAX for such period will be reduced by an amount equal to the Consolidated EBITDAX (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the Consolidated EBITDAX (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with or with the proceeds from such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale);

(3) if, since the beginning of such period, the Company or any Restricted Subsidiary (by merger or otherwise) has made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary or is merged with or into the Company or a Restricted Subsidiary) or an acquisition (or has received a contribution) of assets, including any acquisition or contribution of assets occurring in connection with a transaction causing a calculation to be made under the Indenture, which constitutes all or substantially all of a Company division, operating unit, segment, business, group of related assets or line of business, Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition or contribution had occurred on the first day of such period; and

(4) if, since the beginning of such period, any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto as if such Asset Disposition or Investment or acquisition of assets had occurred on the first day of such period.

For purposes of this definition, whenever pro forma effect is to be given to any calculation under this definition, the pro forma calculations will be determined on behalf of the Company in good faith by a responsible financial or accounting officer of the Company; provided that such officer may in his or her discretion include any reasonably identifiable and factually supportable pro forma changes to Consolidated EBITDAX, including any pro forma expenses and cost reductions, that have occurred or in the judgment of such officer are reasonably expected to occur within 12 months of the date of the applicable transaction (regardless of whether such expense or cost reduction or any other operating improvements could then be reflected properly in pro forma financial statements prepared in accordance with Regulation S-X under the Securities Act or any other regulation or policy of the SEC). If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness will be calculated as if the average rate in effect from the beginning of such period to the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness, but if the remaining term of such Interest Rate Agreement is less than 12 months, then such Interest Rate Agreement shall only be taken into account for that portion of the period equal to the remaining term thereof). If any Indebtedness that is being given pro forma effect bears an interest rate at the option of the Company or any Restricted Subsidiary, the interest rate shall be calculated by applying such optional rate chosen by the Company or such Restricted Subsidiary. Interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Company or the applicable Restricted Subsidiary may designate.

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“Consolidated EBITDAX” for any period means, without duplication, the Consolidated Net Income for such period, plus the following, without duplication and to the extent deducted (and not added back) in calculating such Consolidated Net Income:

(1) Consolidated Interest Expense;

(2) Consolidated Income Tax Expense;

(3) consolidated depletion and depreciation expense of the Company and its Restricted Subsidiaries;

(4) consolidated amortization expense or impairment charges of the Company and its Restricted Subsidiaries recorded in connection with the application of Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangibles” and Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets”;

(5) other non-cash charges of the Company and its Restricted Subsidiaries (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation); and

(6) the consolidated exploration and abandonment expense of the Company and its Restricted Subsidiaries,

if applicable for such period; and less, to the extent included in calculating such Consolidated Net Income and in excess of any costs or expenses attributable thereto that were deducted (and not added back) in calculating such Consolidated Net Income, the sum of (x) the amount of deferred revenues that is amortized during such period and is attributable to reserves that are subject to Volumetric Production Payments, (y) amounts recorded in accordance with GAAP as repayments of principal and interest pursuant to Dollar-Denominated Production Payments and (z) other non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced Consolidated EBITDAX in any prior period).

Notwithstanding the preceding sentence, clauses (2) through (6) relating to amounts of a Restricted Subsidiary will be added to Consolidated Net Income to compute Consolidated EBITDAX of the Company only to the extent (and in the same proportion) that the net income (loss) of such Restricted Subsidiary was included in calculating the Consolidated Net Income of the Company and, to the extent the amounts set forth in clauses (2) through (6) are in excess of those necessary to offset a net loss of such Restricted Subsidiary or if such Restricted Subsidiary has net income for such period included in Consolidated Net Income, only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or the holders of its Capital Stock.

“Consolidated Income Tax Expense” means, with respect to any period, the provision for federal, state, local and foreign taxes (including state franchise taxes) based on income of the Company and its Restricted Subsidiaries for such period as determined in accordance with GAAP, or (for any period in which the Company is a partnership) the Tax Amount for such period.

“Consolidated Interest Expense” means, for any period, the total consolidated interest expense (excluding interest income) of the Company and its Restricted Subsidiaries, whether paid or accrued, plus, to the extent not included in such interest expense and without duplication:

(1) interest expense attributable to Capitalized Lease Obligations or Attributable Debt and the interest component of any deferred payment obligations;

(2) amortization of debt discount and debt issuance cost (provided that any amortization of bond premium will be credited to reduce Consolidated Interest Expense unless, pursuant to GAAP, such amortization of bond premium has otherwise reduced Consolidated Interest Expense);

(3) non-cash interest expense;

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(4) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing;

(5) the interest expense on Indebtedness of another Person that is guaranteed by the Company or one of its Restricted Subsidiaries or secured by a Lien on assets of the Company or one of its Restricted Subsidiaries;

(6) cash costs associated with Interest Rate Agreements (including amortization of fees); provided, however, that if Interest Rate Agreements result in net cash benefits rather than costs, such benefits shall be credited to reduce Consolidated Interest Expense unless, pursuant to GAAP, such net benefits are otherwise reflected in Consolidated Net Income;

(7) the consolidated interest expense of the Company and its Restricted Subsidiaries that was capitalized during such period; and

(8) all dividends paid or payable in cash, Cash Equivalents or Indebtedness, or accrued during such period, in each case on any series of Disqualified Stock of the Company or on Preferred Stock of its Restricted Subsidiaries payable to a party other than the Company or a Wholly Owned Subsidiary.

For the purpose of calculating the Consolidated Coverage Ratio in connection with the Incurrence of any Indebtedness described in the final paragraph of the definition of “Indebtedness”, the calculation of Consolidated Interest Expense shall include all interest expense (including any amounts described in clauses (1) through (8) above) relating to any Indebtedness of the Company or any Restricted Subsidiary described in the final paragraph of the definition of “Indebtedness”.

“Consolidated Net Income” means, for any period, the aggregate net income (loss) of the Company and its Subsidiaries determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends of such Person, less (for any period the Company is a partnership) the Tax Amount for such period; provided, however, that there will not be included (to the extent otherwise included therein) in such Consolidated Net Income:

(1) any net income (loss) of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that:

(a) subject to the limitations contained in clauses (3) and (4) below, the Company’s equity in the net income of any such Person for such period will be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (2) below); and

(b) the Company’s equity in a net loss of any such Person for such period will be included in determining such Consolidated Net Income to the extent such loss has been funded with cash from the Company or a Restricted Subsidiary during such period;

(2) any net income (but not loss) of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that:

(a) subject to the limitations contained in clauses (3) and (4) below, the Company’s equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause); and

(b) the Company’s equity in a net loss of any such Restricted Subsidiary for such period will be included in determining such Consolidated Net Income;

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(3) any gain (loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (loss) realized upon the sale or other disposition of any Capital Stock of any Person;

(4) any extraordinary or nonrecurring gains or losses, together with any related provision for taxes (and, without duplication, any related Permitted Tax Distributions) on such gains or losses and all related fees and expenses;

(5) the cumulative effect of a change in accounting principles;

(6) any asset impairment writedowns on Oil and Gas Properties under GAAP or SEC guidelines;

(7) any unrealized non-cash gains or losses or charges in respect of Hedging Obligations (including those resulting from the application of Statement of Financial Accounting Standard No. 133);

(8) income or loss attributable to discontinued operations (including operations disposed of during such period whether or not such operations were classified as discontinued);

(9) all deferred financing costs written off, and premiums paid, in connection with any early extinguishment of Indebtedness; and

(10) any non-cash compensation charge arising from any grant of stock, stock options or other equity based awards; provided that the proceeds resulting from any such grant will be excluded from clause (4)(c)(ii) of the first paragraph of the covenant described under “— Certain Covenants — Limitation on Restricted Payments”.

“Continuing Directors” means, as of any date of determination, any member of the Board of Directors of the Company who: (1) was a member of such Board of Directors on the date of the Indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.

“Credit Facility” means, with respect to the Company or any Subsidiary Guarantor, one or more debt facilities (including, without limitation, the Senior Secured Credit Agreement), or commercial paper facilities providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit from banks or other institutional lenders, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time (and whether or not with the original administrative agent and lenders or another administrative agent or agents or other lenders and whether provided under the original Senior Secured Credit Agreement or any other credit or other agreement or indenture).

“Currency Agreement” means in respect of a Person any foreign exchange contract, currency swap agreement, futures contract, option contract or other similar agreement as to which such Person is a party or a beneficiary.

“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.

“Disqualified Stock” means, with respect to any Person, any Capital Stock of such Person which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) at the option of the holder of the Capital Stock or upon the happening of any event:

(1) matures or is mandatorily redeemable (other than redeemable only for Capital Stock of such Person which is not itself Disqualified Stock) pursuant to a sinking fund obligation or otherwise;

(2) is convertible or exchangeable for Disqualified Stock or other Indebtedness (excluding Capital Stock which is convertible or exchangeable solely at the option of the Company or a Restricted Subsidiary); or

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(3) is required to be repurchased by such Person at the option of the holder of the Capital Stock in whole or in part,

in each case on or prior to the date that is 91 days after the earlier of the date (a) of the Stated Maturity of the Notes or (b) on which there are no Notes outstanding; provided that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so required to be repurchased at the option of the holder thereof prior to such date will be deemed to be Disqualified Stock; provided further, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company or any of its Restricted Subsidiaries to repurchase such Capital Stock upon the occurrence of a change of control or asset sale (each defined in a substantially identical manner to the corresponding definitions in the Indenture) shall not constitute Disqualified Stock if the terms of such Capital Stock (and all such securities into which it is convertible or for which it is exchangeable) provide that (i) the Company and its Restricted Subsidiaries may not repurchase or redeem any such Capital Stock (and all such securities into which it is convertible or for which it is ratable or exchangeable) pursuant to such provision prior to compliance by the Company and its Restricted Subsidiaries with the provisions of the Indenture described under the captions “— Change of Control” and “— Certain Covenants — Limitation on Sales of Assets and Subsidiary Stock” and (ii) such repurchase or redemption will be permitted solely to the extent also permitted in accordance with the provisions of the Indenture described under the caption “— Certain Covenants — Limitation on Restricted Payments”.

“Dollar-Denominated Production Payments” means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith.

“Domestic Subsidiary” means any Restricted Subsidiary that is not a Foreign Subsidiary.

“Equity Offering” means a public or private offering for cash by the Company of its Capital Stock (other than Disqualified Stock).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

“Exchange Notes” means Notes issued in exchange for old Notes or Additional Notes pursuant to a Registration Rights Agreement.

“Fair Market Value” means, with respect to any asset or property, the sale value that would be obtained in an arm’s-length free market transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. Fair Market Value of an asset or property in excess of $20.0 million shall be determined by the Board of Directors of the Company acting in good faith, whose determination shall be conclusive and evidenced by a resolution of such Board of Directors, and any lesser Fair Market Value may be determined by an officer of the Company acting in good faith.

“Foreign Subsidiary” means any Restricted Subsidiary that is not organized under the laws of the United States of America or any state thereof or the District of Columbia and that conducts substantially all of its operations outside the United States of America.

“GAAP” means generally accepted accounting principles in the United States of America as in effect on the Issue Date. All ratios and computations based on GAAP contained in the Indenture will be computed in conformity with GAAP.

“General Partner” means Alta Mesa Holdings GP, LLC, a Texas limited liability company, and its successors as general partner of the Company.

The term “guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person:

(1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by

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agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise); or

(2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);

provided, however, that the term “guarantee” will not include endorsements for collection or deposit in the ordinary course of business or any obligation to the extent it is payable only in Capital Stock of the guarantor that is not Disqualified Stock. The term “guarantee” used as a verb has a corresponding meaning.

“Guarantor Subordinated Obligation” means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinated in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement.

“Hedging Obligations” of any Person means the obligations of such Person pursuant to any Interest Rate Agreement, Currency Agreement or Commodity Agreement.

The term “holder” means a Person in whose name a Note is registered on the registrar’s books.

“Hydrocarbons” means oil, natural gas, casing head gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all constituents, elements or compounds thereof and products refined or processed therefrom.

“Immaterial Subsidiary” means, as of any date, any Restricted Subsidiary with no Indebtedness in excess of $500,000 (excluding guarantees of Indebtedness under the Senior Secured Credit Agreement by Brayton Resources, L.P., Brayton Resources II, L.P. and Orion Operating Company, LP), and whose total assets, as of the end of the most recent month for which financial statements are available, taken together with those of all other Immaterial Subsidiaries, are less than 1.0% of the Company’s Adjusted Consolidated Net Tangible Assets and whose total revenues, taken together with those of all other Immaterial Subsidiaries, for the most recent 12-month period for which financial statements are available do not exceed 1.0% of the Company’s total consolidated revenues for such period.

“Incur” means issue, create, assume, guarantee, incur or otherwise become directly or indirectly liable for, contingently or otherwise; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) will be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; and the terms “Incurred” and “Incurrence” have meanings correlative to the foregoing.

“Indebtedness” means, with respect to any Person on any date of determination (without duplication, whether or not contingent):

(1) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money;

(2) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

(3) the principal component of all obligations of such Person in respect of letters of credit, bankers’ acceptances or other similar instruments (including reimbursement obligations with respect thereto except to the extent such reimbursement obligation relates to a trade payable and except to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such obligation is satisfied within five Business Days of payment on the letter of credit);

(4) the principal component of all obligations of such Person to pay the deferred and unpaid purchase price of property, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto to the extent such obligations would appear as liabilities upon the consolidated balance sheet of such Person in accordance with GAAP, as obligor on conditional sales of property or under any title retention agreement;

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(5) Capitalized Lease Obligations or Attributable Debt of such Person;

(6) the principal component or liquidation preference of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends);

(7) the principal component of all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of such Indebtedness will be the lesser of (a) the Fair Market Value of such asset at such date of determination and (b) the amount of such Indebtedness of such other Persons;

(8) the principal component of Indebtedness of other Persons to the extent guaranteed by such Person; and

(9) to the extent not otherwise included in this definition, net obligations of such Person under Commodity Agreements, Currency Agreements and Interest Rate Agreements (the amount of any such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such obligation that would be payable by such Person at such time);

provided, however, that any indebtedness which has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Cash Equivalents (in an amount sufficient to satisfy all such indebtedness obligations at maturity or redemption, as applicable, and all payments of interest and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such indebtedness, and subject to no other Liens, shall not constitute “Indebtedness”.

The amount of Indebtedness of any Person at any date will be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date.

Notwithstanding the preceding, “Indebtedness” shall not include:

(1) Production Payments and Reserve Sales;

(2) any obligation of a Person in respect of a farm-in agreement or similar arrangement whereby such Person agrees to pay all or a share of the drilling, completion or other expenses of an exploratory or development well (which agreement may be subject to a maximum payment obligation, after which expenses are shared in accordance with the working or participation interest therein or in accordance with the agreement of the parties) or perform the drilling, completion or other operation on such well in exchange for an ownership interest in an Oil and Gas Property;

(3) any obligations under Currency Agreements, Commodity Agreements and Interest Rate Agreements; provided that such Agreements are entered into for bona fide hedging purposes of the Company or its Restricted Subsidiaries (as determined in good faith by the Board of Directors or senior management of the Company, whether or not accounted for as a hedge in accordance with GAAP) and, in the case of Currency Agreements or Commodity Agreements, such Currency Agreements or Commodity Agreements are related to business transactions of the Company or its Restricted Subsidiaries entered into in the ordinary course of business and, in the case of Interest Rate Agreements, such Interest Rate Agreements substantially correspond in terms of notional amount, duration and interest rates, as applicable, to Indebtedness of the Company or its Restricted Subsidiaries Incurred without violation of the Indenture;

(4) any obligation arising from customary agreements of the Company or a Restricted Subsidiary providing for indemnification, guarantees, adjustment of purchase price, holdbacks, contingency payment obligations or similar obligations, in each case, Incurred or assumed in connection with the acquisition or disposition of any business, assets or Capital Stock of a Restricted Subsidiary, provided that such Indebtedness is not reflected on the face of the balance sheet of the Company or any Restricted Subsidiary;

(5) any obligation arising from the honoring by a bank or other financial institution of a check, draft or similar instrument (including daylight overdrafts) drawn against insufficient funds in the ordinary

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course of business, provided that such Indebtedness is extinguished within five Business Days of Incurrence;

(6) in-kind obligations relating to net oil or natural gas balancing positions arising in the ordinary course of business; and

(7) accrued expenses and trade payables and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted.

In addition, “Indebtedness” of any Person shall include Indebtedness described in the first paragraph of this definition of “Indebtedness” whether or not it would appear as a liability on the balance sheet of such Person if:

(1) such Indebtedness is the obligation of a joint venture or partnership that is not a Restricted Subsidiary (a “Joint Venture”);

(2) such Person or a Restricted Subsidiary of such Person is a general partner of the Joint Venture or otherwise liable for all or a portion of the Joint Venture’s liabilities (a “general partner”); and

(3) there is recourse, by contract or operation of law, with respect to the payment of such Indebtedness to property or assets of such Person or a Restricted Subsidiary of such Person;

and then such Indebtedness shall be included in an amount not to exceed:

(a) the lesser of (i) the net assets of the general partner and (ii) the amount of such obligations to the extent that there is recourse, by contract or operation of law, to the property or assets of such Person or a Restricted Subsidiary of such Person; or

(b) if less than the amount determined pursuant to clause (a) immediately above, the actual amount of such Indebtedness that is with recourse to such Person or a Restricted Subsidiary of such Person, if the Indebtedness is evidenced by a writing and is for a determinable amount.

“Interest Rate Agreement” means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary.

“Investment” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of any direct or indirect advance, loan or other extensions of credit (including by way of guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit other than a time deposit and advances or extensions of credit to customers in the ordinary course of business) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments (excluding any interest in an oil or natural gas leasehold to the extent constituting a security under applicable law) issued by, such other Person and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that none of the following will be deemed to be an Investment:

(1) Hedging Obligations entered into in the ordinary course of business and in compliance with the Indenture; and

(2) endorsements of negotiable instruments and documents in the ordinary course of business.

The amount of any Investment shall not be adjusted for increases or decreases in value, write-ups, write-downs or write-offs with respect to such Investment.

For purposes of the definition of “Unrestricted Subsidiary” and the covenant described under “— Certain Covenants — Limitation on Restricted Payments”,

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(1) “Investment” will include the portion (proportionate to the Company’s equity interest in a Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the Fair Market Value of the net assets of such Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary in an amount (if positive) equal to

(a) the Company’s “Investment” in such Subsidiary at the time of such redesignation less (b) the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time that such Subsidiary is so redesignated a Restricted Subsidiary; and

(2) any property transferred to or from an Unrestricted Subsidiary will be valued at its Fair Market Value at the time of such transfer.

“Issue Date” means the first date on which the Notes are issued under the Indenture, October 13, 2010.

“Lien” means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge, hypothecation, charge, security interest, preference, priority or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a precautionary financing statement not intended as a security agreement.

“Minority Interest” means the percentage interest represented by any class of Capital Stock of a Restricted Subsidiary that are not owned by the Company or a Restricted Subsidiary.

“Moody’s” means Moody’s Investors Service, Inc., or any successor to the rating agency business thereof.

“Net Available Cash” from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and net proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the assets that are the subject of such Asset Disposition or received in any other non-cash form) therefrom, in each case net of:

(1) all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses Incurred, and all federal, state, provincial, foreign and local taxes (or Permitted Tax Distributions in respect thereof) required to be paid or accrued as a liability under GAAP (after taking into account any available tax credits or deductions and any tax sharing agreements), as a consequence of such Asset Disposition;

(2) all payments made on any Hedging Obligation or other Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition;

(3) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures or to holders of royalty or similar interests as a result of such Asset Disposition;

(4) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition; and

(5) all relocation expenses incurred as a result thereof and all related severance and associated costs, expenses and charges of personnel related to assets and related operations disposed of;

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provided, however, that if any consideration for an Asset Disposition (that would otherwise constitute Net Available Cash) is required to be held in escrow pending determination of whether or not a purchase price adjustment will be made, such consideration (or any portion thereof) shall become Net Available Cash only at such time as it is released to the Company or any of its Restricted Subsidiaries from escrow.

“Net Cash Proceeds”, with respect to any issuance or sale of Capital Stock or any contribution to equity capital, means the cash proceeds of such issuance, sale or contribution net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, listing fees, discounts or commissions and brokerage, consultant and other fees and charges actually Incurred in connection with such issuance, sale or contribution and net of taxes paid or payable as a result of such issuance or sale (after taking into account any available tax credit or deductions and any tax sharing arrangements).

“Net Working Capital” means (a) the sum of all current assets of the Company and its Restricted Subsidiaries, except current assets from commodity price risk management activities arising in the ordinary course of the Oil and Gas Business, (other than accounts receivable with respect to any non-contingent periodic settlement payments due thereunder), less (b) all current liabilities of the Company and its Restricted Subsidiaries, except current liabilities (i) associated with asset retirement obligations relating to Oil and Gas Properties, (ii) included in Indebtedness and (iii) any current liabilities of the Company and its Restricted Subsidiaries from commodity price risk management activities arising in the ordinary course of the Oil and Gas Business, (other than accounts payable with respect to any non-contingent periodic settlement payments due thereunder), in each case as set forth in the consolidated financial statements of the Company prepared in accordance with GAAP.

“Non-Recourse Debt” means Indebtedness of a Person:

(1) as to which neither the Company nor any Restricted Subsidiary (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise) or (c) constitutes the lender;

(2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default under such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity; and

(3) the explicit terms of which provide there is no recourse against any of the assets of the Company or its Restricted Subsidiaries.

“Officer” means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, Chief Accounting Officer, any Vice President, the Treasurer or the Secretary of an Issuer. Officer of any Subsidiary Guarantor has a correlative meaning, and in the case of the Company (so long as it is a limited partnership), Officer means an Officer of its General Partner.

“Officers’ Certificate” means a certificate signed by two Officers of the Company, at least one of whom shall be the Chief Executive Officer, the Chief Financial Officer or the Chief Accounting Officer of the Company.

“Oil and Gas Business” means the business of exploiting, exploring for, developing, acquiring, operating, producing, processing, gathering, marketing, storing, selling, hedging, treating, swapping and transporting (but not refining) Hydrocarbons.

“Oil and Gas Properties” means any and all rights, titles, interests and estates in and to (1) oil or gas leases or (2) other liquid or gaseous Hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, in each case including any reserved or residual interests of whatever nature.

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“Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to an Issuer, a Subsidiary Guarantor or the Trustee.

“Pari Passu Indebtedness” means any Indebtedness of either Issuer or any Subsidiary Guarantor that ranks equally in right of payment to the Notes or the Subsidiary Guarantees, as the case may be.

“Permitted Acquisition Indebtedness” means Indebtedness (including Disqualified Stock) of the Company or any of the Restricted Subsidiaries to the extent such Indebtedness was Indebtedness:

(1) of an acquired Person prior to the date on which such Person became a Restricted Subsidiary as a result of having been acquired and not incurred in contemplation of such acquisition; or

(2) of a Person that was merged or consolidated with or into the Company or a Restricted Subsidiary that was not incurred in contemplation of such merger or consolidation,

provided that on the date such Person became a Restricted Subsidiary or the date such Person was merged or consolidated with or into the Company or a Restricted Subsidiary, as applicable, after giving pro forma effect thereto, the Restricted Subsidiary or the Company, as applicable, would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Coverage Ratio test described under “— Certain Covenants — Limitation on Indebtedness and Preferred Stock”.

“Permitted Business Investment” means any Investment made in the ordinary course of, and of a nature that is or shall have become customary in, the Oil and Gas Business including through agreements, transactions, interests or arrangements which permit one to share risks or costs, comply with regulatory requirements regarding local ownership or satisfy other objectives customarily achieved through the conduct of the Oil and Gas Business jointly with third parties including:

(1) ownership interests in oil, natural gas, other Hydrocarbon and mineral properties, processing facilities, gathering systems, storage facilities or related systems or ancillary real property interests;

(2) Investments in the form of or pursuant to operating agreements, working interests, royalty interests, mineral leases, processing agreements, farm-in agreements, farm-out agreements, contracts for the sale, transportation or exchange of oil, natural gas, other Hydrocarbons and minerals, production sharing agreements, participation agreements, development agreements, area of mutual interest agreements, unitization agreements, pooling agreements, joint bidding agreements, service contracts, joint venture agreements, partnership agreements (whether general or limited), subscription agreements, stock purchase agreements, stockholder agreements and other similar agreements (including for limited liability companies) with third parties.

“Permitted Holder” means any of the following (A) (i) Michael E. Ellis, Mickey Ellis and their children, estates, heirs or lineal descendants, (ii) any trust having as its sole beneficiaries one or more of the persons listed in clause (A)(i) above, (iii) any Person a majority of the Voting Stock of which is owned or controlled one or more of the Persons referred to in clauses (A)(i) or (ii); (B) DCPF IV and any of its affiliates (other than any operating company in which it has a portfolio investment) and (C) any group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision) of which any of the forgoing are members.

“Permitted Investment” means an Investment by the Company or any Restricted Subsidiary in:

(1) the Company or a Restricted Subsidiary;

(2) another Person whose primary business is the Oil and Gas Business if as a result of such Investment such other Person becomes a Restricted Subsidiary or is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is the Oil and Gas Business;

(3) cash and Cash Equivalents;

(4) receivables owing to the Company or any Restricted Subsidiary created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms;

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provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances;

(5) payroll, commission, travel, relocation, expense and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business;

(6) loans or advances to employees (other than executive officers or directors) made in the ordinary course of business of the Company or such Restricted Subsidiary;

(7) Capital Stock or other securities received in settlement of debts (x) created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments or (y) pursuant to any plan of reorganization or similar arrangement in a bankruptcy or insolvency proceeding;

(8) any Person as a result of the receipt of non-cash consideration from an Asset Disposition that was made pursuant to and in compliance with the covenant described under “Certain Covenants — Limitation on Sales of Assets and Subsidiary Stock”;

(9) Investments in existence on the Issue Date;

(10) Commodity Agreements, Currency Agreements, Interest Rate Agreements described in clause (3) of the penultimate paragraph of the definition of “Indebtedness”, and related Hedging Obligations;

(11) guarantees issued in accordance with the covenant described under “— Certain Covenants — Limitation on Indebtedness and Preferred Stock”;

(12) Permitted Business Investments;

(13) any Person to the extent such Investments consist of prepaid expenses, negotiable instruments held for collection and lease, utility and workers’ compensation, performance and other similar deposits made in the ordinary course of business by the Company or any Restricted Subsidiary;

(14) guarantees of performance or other obligations (other than Indebtedness) arising in the ordinary course of the Oil and Gas Business, including obligations under oil and natural gas exploration, development, joint operating, and related agreements and licenses, concessions or operating leases related to the Oil and Gas Business;

(15) Investments in the Notes;

(16) Investments made after the Issue Date in Unrestricted Subsidiaries in an aggregate amount outstanding at any time not to exceed $10.0 million; and

(17) Investments by the Company or any of its Restricted Subsidiaries, together with all other Investments pursuant to this clause (17), in an aggregate amount outstanding at the time of such Investment not to exceed the greater of (i) $25.0 million and (ii) 2.5% of the Company’s Adjusted Consolidated Net Tangible Assets.

“Permitted Liens” means, with respect to any Person:

(1) Liens securing Indebtedness under a Credit Facility permitted to be Incurred under clause (1) of the second paragraph of the covenant set forth under “— Limitation on Indebtedness and Preferred Stock”;

(2) pledges or deposits by such Person under workers’ compensation laws, unemployment insurance laws, social security or old age pension laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits (which may be secured by a Lien) to secure public or statutory obligations of such Person including letters of credit and bank guarantees required or requested by the United States, any State thereof or any foreign government or any subdivision, department, agency, organization or instrumentality of any of the foregoing in connection with any contract or statute (including lessee or

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operator obligations under statutes, governmental regulations, contracts or instruments related to the ownership, exploration and production of oil, natural gas, other hydrocarbons and minerals on state, federal or foreign lands or waters), or deposits of cash or United States government bonds to secure indemnity performance, surety or appeal bonds or other similar bonds to which such Person is a party, or deposits as security for contested taxes or import or customs duties or for the payment of rent, in each case Incurred in the ordinary course of business;

(3) statutory and contractual Liens of landlords and Liens imposed by law, including carriers’, warehousemen’s, mechanics’, materialmen’s and repairmen’s Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings if a reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made in respect thereof;

(4) Liens for taxes, assessments or other governmental charges or claims not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings; provided that appropriate reserves, if any, required pursuant to GAAP have been made in respect thereof;

(5) Liens in favor of issuers of surety or performance bonds or bankers’ acceptances issued pursuant to the request of and for the account of such Person in the ordinary course of its business;

(6) survey exceptions, encumbrances, ground leases, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning, building codes or other restrictions (including minor defects or irregularities in title and similar encumbrances) as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties or assets which do not in the aggregate materially adversely affect the value of the properties or assets of such Person and its Restricted Subsidiaries, taken as a whole, or materially impair their use in the operation of the business of such Person;

(7) Liens arising from the deposit of funds or securities in trust for the purpose of decreasing or defeasing Indebtedness so long as such deposit of funds or securities and such decreasing or defeasing of Indebtedness are permitted under the covenant described under “— Certain Covenants — Limitation on Restricted Payments”;

(8) Liens arising from leases, licenses, subleases and sublicenses of any property or assets (including real property and intellectual property rights) entered into in the ordinary course of the Oil and Gas Business;

(9) prejudgment Liens and judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired;

(10) Liens for the purpose of securing the payment of all or a part of the purchase price of, or Capitalized Lease Obligations, purchase money obligations or other payments Incurred to finance the acquisition, lease, improvement or construction of or repairs or additions to, assets or property acquired or constructed in the ordinary course of business; provided that:

(a) the aggregate principal amount of Indebtedness secured by such Liens is otherwise permitted to be Incurred under the Indenture and does not exceed the cost of the assets or property so acquired or constructed; and

(b) such Liens are created within 180 days of the later of the acquisition, lease, completion of improvements, construction, repairs or additions or commencement of full operation of the assets or property subject to such Lien and do not encumber any other assets or property of the Company or any Restricted Subsidiary other than such assets or property and assets affixed or appurtenant thereto;

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(11) Liens arising solely by virtue of any statutory or common law provisions relating to banker’s Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depositary institution; provided that:

(a) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the Federal Reserve Board; and

(b) such deposit account is not intended by the Company or any Restricted Subsidiary to provide collateral to the depository institution;

(12) Liens arising from deposits made in the ordinary course of business to secure any liability to insurance carriers;

(13) Liens existing on the Issue Date;

(14) Liens on any property or assets of a Person at the time such Person becomes a Subsidiary; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such other Person becoming a Subsidiary; provided further, however, that any such Lien may not extend to any other property or assets owned by the Company or any Restricted Subsidiary (other than any property or assets affixed or appurtenant thereto);

(15) Liens on any property or assets at the time the Company or any of its Subsidiaries acquired the property or assets, including any acquisition by means of a merger or consolidation with or into the Company or any of its Subsidiaries; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such acquisition; provided further, however, that such Liens may not extend to any other property or assets owned by the Company or any Restricted Subsidiary (other than any property or assets affixed or appurtenant thereto);

(16) Liens securing the Notes, the Subsidiary Guarantees and any other Obligations under the Indenture;

(17) Liens securing Refinancing Indebtedness Incurred to refinance Indebtedness described under clauses (10), (13), (14), (15) or this clause (17) that was previously so secured, provided that any such Lien is limited to all or part of the same property or assets that secured (or, under the written arrangements under which the original Lien arose, could secure) the Indebtedness being refinanced or is in respect of property or assets that is the security for a Permitted Lien hereunder;

(18) any interest or title of a lessor under any operating lease;

(19) Liens arising under farm-out agreements, farm-in agreements, division orders, contracts for the sale, purchase, exchange, transportation, gathering or processing of Hydrocarbons, unitizations and pooling designations, declarations, orders and agreements, development agreements, joint venture agreements, partnership agreements, operating agreements, royalties, working interests, net profits interests, joint interest billing arrangements, participation agreements, production sales contracts, area of mutual interest agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or geophysical permits or agreements, and other agreements that are customary in the Oil and Gas Business; provided, however, in all instances that such Liens are limited to the property or assets that are the subject of the relevant agreement, program, order or contract;

(20) Liens on pipelines or pipeline facilities that arise by operation of law;

(21) Liens in favor of the Company, the Co-Issuer or any Subsidiary Guarantor; and

(22) Liens securing Indebtedness in an aggregate principal amount outstanding at any one time, added together with all other Indebtedness secured by Liens Incurred pursuant to this clause (22), not to exceed the greater of (a) $10.0 million and (b) 1.0% of the Company’s Adjusted Consolidated Net Tangible Assets.

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In each case set forth above, notwithstanding any stated limitation on the property or assets that may be subject to such Lien, a Permitted Lien on a specified property or asset or group or type of properties or assets may include Liens on all improvements, additions and accessions thereto and all products and proceeds thereof (including dividends, distributions and increases in respect thereof).

“Permitted Tax Distributions” means for any calendar year or portion thereof of the Company during which it is a pass-through entity for U.S. federal income tax purposes, payments and distributions to the partners of the Company on each estimated payment date as well as each other applicable due date to enable the partners of the Company (or, if any of them are themselves a pass-through entity for US. Federal income tax purposes, their shareholders or partners) to make payments of U.S. federal and state income taxes (including estimates therefor) as a result of the operations of the Company and its Subsidiaries during the current and any previous calendar year, not to exceed an amount equal to the amount of each such partner’s (or, in the case of a pass-through entity, its shareholders’ or partners’) U.S. federal and state income tax liability resulting solely from the pass-through tax treatment of such partner’s interest in the Company and as calculated pursuant to the limited partnership agreement of the Company as in effect on the Issue Date and as it may be amended from time to time thereafter in a manner that is not, considered as a whole, materially adverse to the holders of the Notes.

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company, government or any agency or political subdivision thereof or any other entity.

“Preferred Stock”, as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person.

“Production Payments and Reserve Sales” means the grant or transfer by the Company or a Restricted Subsidiary to any Person of a royalty, overriding royalty, net profits interest, production payment (whether volumetric or dollar denominated), partnership or other interest in Oil and Gas Properties, reserves or the right to receive all or a portion of the production or the proceeds from the sale of production attributable to such properties where the holder of such interest has recourse solely to such production or proceeds of production, subject to the obligation of the grantor or transferor to operate and maintain, or cause the subject interests to be operated and maintained, in a reasonably prudent manner or other customary standard or subject to the obligation of the grantor or transferor to indemnify for environmental, title or other matters customary in the Oil and Gas Business, including any such grants or transfers pursuant to incentive compensation programs on terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists or other providers of technical or management services to the Company or a Restricted Subsidiary.

“Refinancing Indebtedness” means Indebtedness that is Incurred to refund, refinance, replace, exchange, renew, repay, extend, prepay, redeem or retire (including pursuant to any defeasance or discharge mechanism) (collectively, “refinance” and the terms “refinances” and “refinanced” shall have correlative meanings) any Indebtedness (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary, but excluding Indebtedness of a Restricted Subsidiary that refinances Indebtedness of the Company), including Indebtedness that refinances Refinancing Indebtedness, provided, however, that:

(1) (a) if the Stated Maturity of the Indebtedness being refinanced is earlier than the Stated Maturity of the Notes, the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced or (b) if the Stated Maturity of the Indebtedness being refinanced is later than the Stated Maturity of the Notes, the Refinancing Indebtedness has a Stated Maturity at least 91 days later than the Stated Maturity of the Notes;

(2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced;

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(3) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced (plus, without duplication, any additional Indebtedness Incurred to pay interest, premiums or defeasance costs required by the instruments governing such existing Indebtedness and fees and expenses Incurred in connection therewith); and

(4) if the Indebtedness being refinanced is subordinated in right of payment to the Notes or a Subsidiary Guarantee, such Refinancing Indebtedness is subordinated in right of payment to the Notes or the Subsidiary Guarantee on terms at least as favorable to the holders as those contained in the documentation governing the Indebtedness being refinanced.

“Registration Rights Agreement” means that certain registration rights agreement dated as of the Issue Date by and among the Issuers, the Subsidiary Guarantors and the initial purchasers set forth therein and, with respect to any Additional Notes, one or more substantially similar registration rights agreements among the Issuers and the other parties thereto, as any such agreement may be amended from time to time.

“Restricted Investment” means any Investment other than a Permitted Investment.

“Restricted Subsidiary” means any Subsidiary of the Company other than an Unrestricted Subsidiary.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor to the rating agency business thereof.

“Sale/Leaseback Transaction” means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person.

“SEC” means the United States Securities and Exchange Commission.

“Senior Secured Credit Agreement” means the Sixth Amended and Restated Credit Agreement dated as of May 13, 2010 among the Company, as borrower, Wells Fargo Bank, N.A., as administrative agent and the lenders parties thereto from time to time, including any guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, renewals, restatements, refundings or refinancings thereof with other revolving credit facilities with banks or other institutional lenders that replace, refund or refinance any part of the loans or commitments thereunder, including any such replacement, refunding or refinancing revolving credit facility that increases the amount borrowable thereunder or alters the maturity thereof.

“Significant Subsidiary” means any Restricted Subsidiary that would be a “Significant Subsidiary” of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC, as in effect on the Issue Date.

“Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision, but shall not include any contingent obligations to repay, redeem or repurchase any such principal prior to the date originally scheduled for the payment thereof.

“Subordinated Obligation” means any Indebtedness of either Issuer (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinated in right of payment to the Notes pursuant to a written agreement.

“Subsidiary” of any Person means (a) any corporation, association or other business entity (other than a partnership, joint venture, limited liability company or similar entity) of which more than 50% of the Voting Stock or (b) any partnership, joint venture, limited liability company or similar entity of which more than 50% of the capital accounts, distribution rights, total equity and voting interests or general or limited partnership interests, as applicable, is, in the case of clauses (a) and (b), at the time owned or controlled, directly or indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more

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Subsidiaries of such Person. Unless otherwise specified herein, each reference to a Subsidiary (other than in this definition) refers to a Subsidiary of the Company.

“Subsidiary Guarantee” means, individually, any guarantee of payment of the Notes by a Subsidiary Guarantor pursuant to the terms of the Indenture and any supplemental indenture thereto, and, collectively, all such guarantees.

“Subsidiary Guarantor” means any Subsidiary of the Company that is a guarantor of the Notes, including any Person that is required after the Issue Date to guarantee the Notes pursuant to the “Future Subsidiary Guarantors” covenant, in each case until a successor replaces such Person pursuant to the applicable provisions of the Indenture and, thereafter, means such successor; provided, however, that the Co-Issuer shall not be a Subsidiary Guarantor.

“Tax Amount” means, for any period, the combined federal, state and local income taxes, including estimated taxes, that would be payable by the Company if it were a Texas corporation filing separate tax returns with respect to its Taxable Income for such period; provided that in determining the Tax Amount, the effect thereon of any net operating loss carryforwards or other carryforwards or tax attributes, such as alternative minimum tax carryforwards, that would have arisen if the Company were a Texas corporation shall be taken into account; provided, further, that, if there is an adjustment in the amount of the Taxable Income for any period, an appropriate positive or negative adjustment shall be made in the Tax Amount, and if the Tax Amount is negative, then the Tax Amount for succeeding periods shall be reduced to take into account such negative amount until such negative amount is reduced to zero. Notwithstanding anything to the contrary, Tax Amount shall not include taxes resulting from the Company’s reorganization as, or change in the status to, a corporation for tax purposes.

“Taxable Income” means, for any period, the taxable income or loss of the Company for such period for U.S. federal income tax purposes.

“Unrestricted Subsidiary” means:

(1) any Subsidiary of the Company (other than the Co-Issuer) that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of the Company in the manner provided below; and

(2) any Subsidiary of an Unrestricted Subsidiary.

The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if:

(1) such Subsidiary or any of its Subsidiaries does not own any Capital Stock or Indebtedness of or have any Investment in, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary;

(2) all the Indebtedness of such Subsidiary and its Subsidiaries shall, at the date of designation, and will at all times thereafter, consist of Non-Recourse Debt;

(3) on the date of such designation, such designation and the Investment of the Company or a Restricted Subsidiary in such Subsidiary complies with “— Certain Covenants — Limitation on Restricted Payments”;

(4) such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Capital Stock of such Person or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results;

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(5) such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially all of the business of the Company and its Subsidiaries; and

(6) such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms less favorable to the Company or such Restricted Subsidiary than those that might have been obtained from Persons who are not Affiliates of the Company.

Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a resolution of the Board of Directors of the Company giving effect to such designation and an Officers’ Certificate certifying that such designation complies with the preceding conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be Incurred as of such date.

The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and the Company could Incur at least $1.00 of additional Indebtedness under the first paragraph of the covenant described under “— Certain Covenants — Limitation on Indebtedness and Preferred Stock” on a pro forma basis taking into account such designation.

“U.S. Government Obligations” means securities that are (a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation of the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligations or a specific payment of principal of or interest on any such U.S. Government Obligations held by such custodian for the account of the holder of such depositary receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced by such depositary receipt.

“Volumetric Production Payments” means production payment obligations recorded as deferred revenue in accordance with GAAP, together with all undertakings and obligations in connection therewith.

“Voting Stock” of a Person means all classes of Capital Stock of such Person then outstanding and normally entitled to vote in the election of members of such Person’s Board of Directors.

“Wholly Owned Subsidiary” means a Restricted Subsidiary, all of the Capital Stock of which (other than directors’ qualifying shares or other shares required by applicable law to be held by a Person other than the Company or another Wholly Owned Subsidiary) is owned by the Company or another Wholly Owned Subsidiary.

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PLAN OF DISTRIBUTION

Based on interpretations by the staff of the SEC in no-action letters issued to third parties, we believe you may transfer new notes issued under the exchange offer in exchange for the old notes if:

•  you acquire the new notes in the ordinary course of your business;

•  you have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of such new notes in violation of the provisions of the Securities Act; and

•  you are not our “affiliate” (within the meaning of Rule 405 under the Securities Act).

Each broker-dealer that receives new notes for its own account pursuant to the exchange offer in exchange for old notes that were acquired by such broker-dealer as a result of market-making or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired as a result of market-making activities or other trading activities.

If you wish to exchange new notes for your old notes in the exchange offer, you will be required to make representations to us as described in “Exchange Offer — Purpose and Effect of the Exchange Offer” and “Exchange Offer — Your Representations to Us” in this prospectus and in the letter of transmittal.

We will not receive any proceeds from any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in any of the following ways:

•  in the over-the-counter market;

•  in negotiated transactions;

•  through the writing of options on the new notes or a combination of such methods of resale;

•  at market prices prevailing at the time of resale;

•  at prices related to such prevailing market prices; or

•  at negotiated prices.

Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such new notes.

Any broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer in exchange for old notes that were acquired by such broker-dealer as a result of market-making or other trading activities may be deemed to be an “underwriter” within the meaning of the Securities Act and profit on any such resale of notes issued in the exchange and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

For a period of up to one year after the exchange offer registration statement is declared effective, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any such broker-dealers that requests such documents. Furthermore, we agreed to amend or supplement this prospectus during such period if so requested in order to expedite or facilitate the disposition of any new notes by broker-dealers.

We have agreed to pay all expenses incident to the exchange offer other than fees and expenses of counsel to the holders and brokerage commissions and transfer taxes payable in respect of any transfer involved in the issuance or delivery of any new note in a name other that that of the holder of the old note in respect of which such new note is being issued, if any, and will indemnify the holders of the old notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.

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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is a summary of the material federal income tax considerations relevant to the exchange of old notes for new notes, but does not purport to be a complete analysis of all potential tax effects. The discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, Internal Revenue Service rulings and pronouncements and judicial decisions now in effect, all of which may be subject to change at any time by legislative, judicial or administrative action. These changes may be applied retroactively in a manner that could adversely affect a holder of new notes. Some holders, including financial institutions, insurance companies, regulated investment companies, tax-exempt organizations, dealers in securities or currencies, persons whose functional currency is not the U.S. dollar, or persons who hold the notes as part of a hedge, conversion transaction, straddle or other risk reduction transaction may be subject to special rules not discussed below. We recommend that each holder consult his own tax advisor as to the particular tax consequences of exchanging such holder’s old notes for new notes, including the applicability and effect of any foreign, state, local or other tax laws or estate or gift tax considerations.

We believe that the exchange of old notes for new notes will not be an exchange or otherwise a taxable event to a holder for United States federal income tax purposes. Accordingly, a holder will not recognize gain or loss upon receipt of a new note in exchange for an old note in the exchange, and the holder’s basis and holding period in the new note will be the same as its basis and holding period in the corresponding old note immediately before the exchange.

LEGAL MATTERS

The validity of the new notes offered in this exchange offer will be passed upon for us by Haynes and Boone, LLP, Houston, Texas.

EXPERTS

Independent Registered Public Accounting Firms

The Alta Mesa financial statements as of December 31, 2009 and December 31, 2010 and for the three years ended December 31, 2010 included in this prospectus have been audited by UHY LLP, independent auditors, as stated in the report appearing herein. The Meridian financial statements as of December 31, 2008 and December 31, 2009 and for the three years ended December 31, 2009 included in this prospectus have been audited by BDO USA, LLP (formerly known as BDO Seidman, LLP), an independent registered public accounting firm, whose report included an explanatory paragraph expressing substantial doubt about Meridian’s ability to continue as a going concern.

Independent Petroleum Engineers

Estimates of proved reserves included in this prospectus as of December 31, 2010 using SEC guidelines, were prepared or derived from estimates prepared by T.J. Smith & Company, Inc., independent petroleum engineers, and W.D. Von Gonten & Co., independent petroleum engineers, and audited by Netherland, Sewell & Associates, Inc., independent petroleum engineers. These estimates are included in this prospectus in reliance on the authority of such firm as experts in these matters.

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GLOSSARY OF OIL AND NATURAL GAS TERMS

The terms and abbreviations defined in this section are used throughout this prospectus:

“3-D seismic” (Three-Dimensional Seismic Data). Geophysical data that depicts the subsurface strata in three dimensions. 3-D seismic data typically provides a more detailed and accurate interpretation of the subsurface strata than two-dimensional seismic data.

“Bbl”.  One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to crude oil, condensate or natural gas liquids.

“Bcf”.  One billion cubic feet of natural gas.

“Bcfe”.  One billion cubic feet of natural gas equivalent with one barrel of oil converted to six thousand cubic feet of natural gas.

“BOE”.  One barrel of oil equivalent, converting gas to oil at the ratio of 6 Mcf of gas to one Bbl of oil.

“Basin”.  A large natural depression on the earth’s surface in which sediments generally brought by water accumulate.

“Btu or British Thermal Unit”.  The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

“Completion”.  The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

“DD&A”.  Depreciation, depletion and amortization.

“De-bottlenecking”.  The process of increasing production capacity of existing facilities through the modification of existing equipment to remove throughput restrictions.

“Delineation”.  The process of placing a number of wells in various parts of a reservoir to determine its boundaries and production characteristics.

“Developed acreage”.  The number of acres that are allocated or assignable to productive wells or wells capable of production.

“Developed oil and natural gas reserves”.  Developed oil and natural gas reserves are reserves of any category that can be expected to be recovered: (i) through existing wells with existing equipment and operating methods or in which the cost of the related equipment is relatively minor compared to the cost of a new well; and (ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

“Development well”.  A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

“Dry hole”.  A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

“Dry hole costs”.  Costs incurred in drilling a well, assuming a well is not successful, including plugging and abandonment costs.

“Enhanced recovery”.  The recovery of oil and natural gas through the injection of liquids or gases into the reservoir, supplementing its natural energy. Enhanced recovery methods are often applied when production slows due to depletion of the natural pressure.

“Exploratory well”.  A well drilled to find and produce natural gas or oil reserves not classified as proved, to find a new reservoir in a field previously found to be productive of natural gas or oil in another reservoir or to extend a known reservoir.

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“Farm-in or farm-out”.  An agreement under which the owner of a working interest in an oil and natural gas lease assigns the working interest or a portion of the working interest to another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its interest in the acreage. The assignor usually retains a royalty or reversionary interest in the lease. The interest received by an assignee is a “farm-in” while the interest transferred by the assignor is a “farm-out”.

“Fault”.  A break or planar surface in brittle rock across which there is observable displacement.

“Field”.  An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.

“Formation”.  A layer of rock which has distinct characteristics that differs from nearby rock.

“Fracing or fracture stimulation technology”.  The technique of improving a well’s production or injection rates by pumping a mixture of fluids into the formation and rupturing the rock, creating an artificial channel. As part of this technique, sand or other material may also be injected into the formation to keep the channel open, so that fluids or natural gases may more easily flow through the formation.

“Gross acres or gross wells”.  The total acres or wells, as the case may be, in which a working interest is owned.

“Horizontal drilling”.  A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.

“Infill wells”.  Wells drilled into the same pool as known producing wells so that oil or natural gas does not have to travel as far through the formation.

“Lease operating expenses”.  The expenses of lifting oil or natural gas from a producing formation to the surface, constituting part of the current operating expenses of a working interest, and also including labor, superintendence, supplies, repairs, short-lived assets, maintenance, allocated overhead costs, workover, ad valorem taxes, insurance and other expenses incidental to production, but excluding lease acquisition or drilling or completion expenses.

“MBbl”.  One thousand barrels of crude oil, condensate or natural gas liquids.

“Mcf”.  One thousand cubic feet of natural gas.

“Mcfe”.  One thousand cubic feet equivalent determined using the ratio of six Mcf of natural gas to one barrel of oil, condensate or natural gas liquids.

“Mcfe/d”.  Mcfe per day.

“MMBtu”.  One million British thermal units.

“MMcf”.  One million cubic feet of natural gas.

“MMcfe”.  Million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

“MMcfe/d”.  MMcfe per day.

“MMBbl”.  One million barrels of crude oil, condensate or natural gas liquids.

“NGLs”.  Natural gas liquids. Hydrocarbons found in natural gas which may be extracted as liquefied petroleum gas and natural gasoline.

“NYMEX”.  The New York Mercantile Exchange.

“Net Acres”.  The percentage of total acres an owner has out of a particular number of acres, or a specified tract. An owner who has 50% interest in 100 acres owns 50 net acres.

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“Non-operated working interests”.  The working interest or fraction thereof in a lease or unit, the owner of which is without operating rights by reason of an operating agreement.

“Pay”.  A reservoir or portion of a reservoir that contains economically producible hydrocarbons. The overall interval in which pay sections occur is the gross pay; the smaller portions of the gross pay that meet local criteria for pay (such as a minimum porosity, permeability and hydrocarbon saturation) are net pay.

“Potential drilling locations”.  Total gross resource play locations that we may be able to drill on our existing acreage. Our actual drilling activities may change depending on the availability of capital, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, drilling results and other factors.

“Productive well”.  A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the production exceed production expenses and taxes.

“Prospect”.  A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.

“PDNP”.  Proved developed non-producing reserves.

“PDP”.  Proved developed producing reserves.

“Proved reserves”.  Proved oil and natural gas reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible — from a given date forward from known reservoirs, and under existing economic conditions, operating methods and government regulations — prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

“Proved undeveloped reserves (“PUD”)”.  Proved undeveloped oil and natural gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units are claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Estimates for proved undeveloped reserves will not be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir.

“PV-10”.  When used with respect to oil and natural gas reserves, PV-10 means the estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development and abandonment costs, using prices and costs in effect at the determination date, before income taxes, and without giving effect to non-property related expenses, discounted to a present value using an annual discount rate of 10% in accordance with the guidelines of the SEC. PV-10 is not a financial measure calculated in accordance with generally accepted accounting principles (“GAAP”) and generally differs from Standardized Measure, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future net revenues. Neither PV-10 nor Standardized Measure represents an estimate of the fair market value of our oil and natural gas properties. We and others in the industry use PV-10 as a measure to compare the relative size and value of proved reserves held by companies without regard to the specific tax characteristics of such entities. Our PV-10 is the same as our standardized measure for the periods presented in this prospectus.

“Recompletion”.  The process of re-entering an existing wellbore that is either producing or not producing and completing new reservoirs in an attempt to establish or increase existing production.

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“Reserve life index”.  A measure of the productive life of an oil and natural gas property or a group of properties, expressed in years.

“Reservoir”.  A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is separate from other reservoirs.

“Spacing”.  The distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres, e.g., 40-acre spacing, and is often established by regulatory agencies.

“Standardized measure”.  Standardized measure is the present value of estimated future net revenues to be generated from the production of proved reserves, determined in accordance with the rules and regulations of the Securities and Exchange Commission, without giving effect to non — property related expenses such as certain general and administrative expenses, debt service and future federal income tax expenses or to depreciation, depletion and amortization and discounted using an annual discount rate of 10%. Our standardized measure includes future obligations under the Texas gross margin tax, but it does not include future federal income tax expenses because we are a partnership and are not subject to federal income taxes. Our standardized measure is the same as our PV-10 for the periods presented in this prospectus.

“Undeveloped acreage”.  Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.

“Unit”.  The joining of all or substantially all interests in a reservoir or field, rather than a single tract, to provide for development and operation without regard to separate property interests. Also, the area covered by a unitization agreement.

“Waterflood”.  The injection of water into an oil reservoir to “push” additional oil out of the reservoir rock and into the wellbores of producing wells. Typically an enhanced recovery process.

“Wellbore”.  The hole drilled by the bit that is equipped for natural gas production on a completed well. Also called well or borehole.

“Working interest”.  The right granted to the lessee of a property to explore for and to produce and own natural gas or other minerals. The working interest owners bear the exploration, development, and operating costs on either a cash, penalty, or carried basis.

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INDEX TO FINANCIAL STATEMENTS

Below is an index to the financial statements and notes contained in Financial Statements and Supplementary Data.

	Page
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Introduction		F-2
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the Year Ended December 31, 2010		F-3
Notes to the Unaudited Pro Forma Condensed Consolidated Statements of Operations		F-4
Audited Financial Statements
Report of Independent Registered Public Accounting Firm		F-8
Consolidated Balance Sheets		F-9
Consolidated Statements of Operations		F-10
Consolidated Statements of Changes in Partners’ Capital		F-11
Consolidated Statements of Cash Flows		F-12
Notes to Consolidated Financial Statements		F-13
Audited Financial Statements (Deep Bossier Acquisition)
Independent Auditors’ Report		F-41
Statements of Revenues and Direct Operating Expenses		F-42
Notes to Statements of Revenues and Direct Operating Expenses		F-43
Unaudited Financial Statements (Meridian)
Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009		F-46
Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009		F-47
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009		F-48
Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2010 and 2009		F-49
Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2010 and 2009		F-50
Notes to Consolidated Financial Statements		F-51
Audited Financial Statements (Meridian)
Report of Independent Registered Public Accounting Firm		F-67
Consolidated Statements of Operations		F-68
Consolidated Balance Sheets		F-69
Consolidated Statements of Cash Flows		F-70
Consolidated Statements of Stockholders’ Equity		F-71
Consolidated Statements of Comprehensive Income (Loss)		F-72
Notes to Consolidated Financial Statements		F-73

F-1

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

The following unaudited pro forma condensed consolidated statements of operations and explanatory notes give effect to the acquisition of The Meridian Resource Corporation (“Meridian”).

The unaudited pro forma condensed consolidated statements of operations and explanatory notes are based on the estimates and assumptions set forth in the explanatory notes. The unaudited pro forma condensed consolidated statements of operations have been prepared utilizing the historical financial statements of Alta Mesa and Meridian, and should be read in conjunction with the historical consolidated financial statements and notes thereto.

The unaudited pro forma condensed consolidated statements of operations have been prepared as if the Meridian acquisition had been consummated on January 1, 2010.

The unaudited pro forma condensed consolidated statements of operations are presented for informational purposes only, are based on certain assumptions that we believe are reasonable and do not purport to represent our financial condition or our results of operations had the business combination occurred on the date noted above or to project the results for any future date or period. In the opinion of management, all adjustments have been made that are necessary to present fairly the unaudited pro forma condensed consolidated financial information.

The Meridian acquisition has been treated as a purchase business combination for accounting purposes, and the assets acquired and liabilities assumed have been recorded at their fair values.

F-2

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2010

	Alta
	Mesa			Meridian			Pro Forma			Pro
	1/1-			1/1-			Adjustments			Forma
	12/31/10			5/12/10			(Note 4)			Consolidated
	(Dollars in thousands)
Statement of Operations Data:
REVENUES:
Natural gas, oil and natural gas liquids	$	208,537		$	29,820		$	—		$	238,357
Other		1,475			69			—			1,544
Total revenue		210,012			29,889			—			239,901
Unrealized gain — derivative contracts		10,088			—			—			10,088
TOTAL REVENUES		220,100			29,889			—			249,989
EXPENSES:
Lease operating expense		41,905			4,642			—			46,547
Production, ad valorem and other taxes		11,141			2,520			—			13,661
Workover expense		7,409			152			—			7,561
Exploration expense		31,037			—			1,841	a		32,878
Depreciation, depletion and amortization		59,090			10,766			(2,266	)b		67,590
Impairment of oil and natural gas properties		8,399			—			—			8,399
Accretion of asset retirement obligations		1,370			798			—			2,168
Rig operations		—			2,088			—			2,088
General and administrative expenses		20,135			7,905			(1,609	)a		26,431
Gain on sale of assets		(1,766	)		—			—			(1,766	)
TOTAL EXPENSES		178,720			28,871			(2,034	)		205,557
OTHER INCOME (EXPENSE):
Interest expense, net		(27,149	)		(3,062	)		1,583	c		(28,628	)
Total other income (expense)		(27,149	)		(3,062	)		1,583			(28,628	)
Provision for state income tax		(2	)		—			—			(2	)
NET INCOME (LOSS)	$	14,229		$	(2,044	)	$	3,617		$	15,802

See notes to the unaudited pro forma condensed consolidated statements of operations

F-3

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED STATEMENTS OF OPERATIONS

1.   Description of Transaction

Meridian Acquisition

On May 13, 2010, Alta Mesa Acquisition Sub, LLC (“AMAS”), a newly-formed, wholly-owned subsidiary of the Company, acquired 100% of and merged with The Meridian Resource Corporation (“Meridian”), with AMAS as the surviving entity. Meridian was a publicly traded company engaged in exploration for and production of oil and natural gas. The oil and gas properties of Meridian are similar and in some cases proximate to our areas of operation. Meridian shareholders were paid in cash, funded by proceeds of our senior secured revolving credit facility as well as a $50 million equity contribution from Alta Mesa Investment Holdings Inc., an affiliate of Denham Commodity Partners Fund IV LP. The merger increased the oil portion of our reserves portfolio, improving the balance of our reserves between oil and natural gas, as well as providing us significant growth potential, significant additions to our library of 3-D seismic data, and additional experienced staff.

2.   Basis of Presentation

The unaudited pro forma condensed consolidated financial information was prepared using the acquisition method of accounting and was based on the historical financial statements of Alta Mesa and Meridian. Certain reclassifications have been made to the historical financial statements of Meridian to conform with Alta Mesa’s presentation, primarily related to converting Meridian’s full cost method of accounting for its investments in oil and natural gas properties to the successful efforts method.

The unaudited pro forma condensed consolidated financial information was prepared under the existing U.S. GAAP standards, which are subject to change and interpretation. Accordingly, the assets acquired and liabilities assumed have been recorded as of the completion of the merger primarily at their respective fair values and added to those of Alta Mesa. Reported results of operations of Alta Mesa issued after completion of the merger reflect those values, but will not be retroactively restated to reflect the historical results of operation of Meridian.

3.   Summary of Consideration and Purchase Price Allocation

A summary of the consideration paid and the allocation of the purchase price follows. The Meridian allocation is preliminary and may be subject to change.

	Meridian
	Acquisition
	(Dollars in thousands)
Summary of consideration:
Cash	$	30,948
Debt retired		82,000
Debt assumed		5,346
Working capital deficit		753
Other liabilities assumed		7,971
Fair value of asset retirement obligations assumed		30,920
Total consideration	$	157,938
Summary of purchase price allocation:
Proved oil and gas properties	$	144,325
Unproved oil and gas properties		3,113
Other tangible assets		10,500
Total purchase price allocation	$	157,938

F-4

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED STATEMENTS OF OPERATIONS — (Continued)

4.   Pro Forma Adjustments

This note should be read in conjunction with the preceding notes above. Adjustments included in the column under the heading “Pro Forma Adjustments” represent the following:

(a) To record the conversion of Meridian to the successful efforts method of accounting from the full cost method of accounting as follows:

	Year Ended
	December 31, 2010
	(Dollars in thousands)
Recognize exploration costs that had been capitalized under the full cost method	$	232
Reclassify general and administrative costs associated with exploration activities		1,609
Total exploration costs	$	1,841

(b) To adjust depreciation, depletion and amortization expense as follows:

	Year Ended
	December 31, 2010
	(Dollars in thousands)
Eliminate Meridian’s historical depreciation, depletion and amortization expense	$	(10,343	)
Estimate Meridian’s depreciation, depletion and amortization expense under the successful efforts method of accounting		8,077
Total depreciation, depletion and amortization expense	$	(2,266	)

(c) To adjust interest expense to reflect acquisition and debt incurred by Alta Mesa:

	Year Ended
	December 31, 2010
	(Dollars in thousands)
Eliminate Meridian’s historical interest expense	$	(3,120	)
Estimated interest expense for debt incurred by Alta Mesa to fund the Meridian acquisition		1,537
Total interest expense adjustment	$	(1,583	)

F-5

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED STATEMENTS OF OPERATIONS — (Continued)

5.   Pro Forma Supplemental Oil and Natural Gas Disclosures

The following table sets forth certain unaudited pro forma information concerning our proved oil and natural gas reserves at December 31, 2010, giving effect to the Meridian acquisition as if it had occurred as of January 1, 2010. There are numerous uncertainties inherent in estimating the quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve data represents estimates only and should not be construed as being exact. See “Item 1A. Risk Factors” in this report. Reserve estimates depend on many assumptions that may turn out to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions could materially affect the quantity and present values of our reserves. All of the reserves are located in the United States.

Proved Reserves

Oil Reserves (MBbl)(1)	Pro Forma(2)
Balance, December 31, 2009		12,263
Production		(1,366	)
Purchases of reserves in-place		—
Extensions, discoveries and improved recovery		3,513
Revisions of previous estimates		(488	)
Balance, December 31, 2010		13,922

Natural Gas Reserves (MMcf)	Pro Forma(2)
Balance, December 31, 2009		235,468
Production		(26,290	)
Purchases of reserves in-place		—
Extensions, discoveries and improved recovery		24,022
Revisions of previous estimates		8,253
Balance, December 31, 2010		241,453

(1)

Oil reserves include reserves attributable to natural gas liquids.

(2)

This table combines all proved reserve information for Meridian derived from Meridian’s 2009 reserve report with those of Alta Mesa derived from the Alta Mesa December 2009, December 2010, and June 2010 reserve reports. All reserve reports were prepared by T. J. Smith & Company, Inc, independent petroleum engineers, with the exception of the June 2010 reserve report, which was prepared by us and audited by Netherland, Sewell & Associates, Inc. Reserves at December 31, 2009 and 2010 also include minor (less than 4%) volumes from reserve reports prepared by W. D. Von Gonten & Co.

Standardized Measure of Discounted Future Net Cash Flows

The standardized measure of discounted future net cash flows from estimated proved reserves is provided as a common base for comparing oil and natural gas reserves of enterprises in the industry and may not represent the fair market value of the oil and natural gas reserves or the present value of future cash flow of equivalent reserves due to various uncertainties inherent in making these estimates. Those factors include changes in oil and natural gas prices from prices used in the estimates, unanticipated changes in future production and development costs and other uncertainties in estimating quantities and present values of oil and natural gas reserves.

F-6

NOTES TO THE UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED STATEMENTS OF OPERATIONS — (Continued)

The following table presents the standardized measure of discounted future pre-tax net cash flow from the ownership interest in proved oil and natural gas reserves as of December 31, 2010. The standardized measure of future pre-tax net cash flow as of December 31, 2010 is calculated based on average prices as of the first day of each of the twelve months ended December 31, 2010 of $79.43 per Bbl for oil and $4.38 per Mcf for natural gas.

The resulting estimated future pre-tax cash flow is reduced by estimated future costs to produce the estimated proved reserves based on actual operating cost levels at December 31, 2010. The future pre-tax cash flow is reduced to present value by applying a 10% discount rate.

The standardized measure of estimated discounted future pre-tax cash flow is not intended to represent the replacement cost or fair market value of the oil and natural gas properties. Our standardized measure does not include future federal income tax expenses because we are a partnership and are not subject to federal income taxes. It does not include future obligations under the Texas gross margin tax.

	At December 31,
	2010
	(Dollars in thousands)
Future pre-tax cash flow	$	2,060,794
Future production costs		(618,319	)
Future development costs		(255,128	)
Future pre-tax net cash flow		1,187,347
Effect of discounting future annual pre-tax net cash flow at 10%		(482,165	)
Discounted future pre-tax net cash flow	$	705,182

F-7

Report of Independent Registered Public Accounting Firm

To the Partners of

Alta Mesa Holdings, LP and Subsidiaries

Houston, Texas

We have audited the accompanying consolidated balance sheets of Alta Mesa Holdings, LP and Subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in partners’ capital and cash flows for each of the three fiscal years in the period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

/s/ UHY LLP

Houston, Texas

March 31, 2011

F-8

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2010		2009
	(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	4,836	$	4,274
Accounts receivable, net		38,081		19,291
Other receivables		6,338		1,726
Prepaid expenses and other current assets		2,292		148
Derivative financial instruments		10,436		8,374
TOTAL CURRENT ASSETS		61,983		33,813
PROPERTY AND EQUIPMENT
Proved oil and gas properties, successful efforts method, net		433,546		225,965
Unproved properties, net		9,334		8,351
Land		1,185		1,185
Drilling rig, net		10,056		—
Other property and equipment, net		2,143		695
TOTAL PROPERTY AND EQUIPMENT, NET		456,264		236,196
OTHER ASSETS
Investment in Partnership — cost		9,000		9,000
Deferred financing costs, net		13,552		1,451
Derivative financial instruments		14,165		7,929
Advances to operators		2,699		1,613
Deposits		576		604
TOTAL OTHER ASSETS		39,992		20,597
TOTAL ASSETS	$	558,239	$	290,606
LIABILITIES AND PARTNERS’ CAPITAL
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	87,255	$	32,629
Current portion, asset retirement obligations		1,617		—
Derivative financial instruments		3,092		3,861
TOTAL CURRENT LIABILITIES		91,964		36,490
LONG-TERM LIABILITIES
Asset retirement obligations, net of current portion		41,096		10,267
Long-term debt		371,276		201,500
Notes payable to founder		19,709		18,330
Derivative financial instruments		2,296		4,203
Other long-term liabilities		7,240		9,152
TOTAL LONG-TERM LIABILITIES		441,617		243,452
TOTAL LIABILITIES		533,581		279,942
COMMITMENTS AND CONTINGENCIES (NOTE 11)
PARTNERS’ CAPITAL		24,658		10,664
TOTAL LIABILITIES AND PARTNERS’ CAPITAL	$	558,239	$	290,606

See notes to consolidated financial statements.

F-9

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2010			2009			2008
	(Dollars in thousands)
REVENUES
Natural gas	$	125,866		$	66,290		$	58,458
Oil		75,827			34,283			38,055
Natural gas liquids		6,844			1,690			2,470
Sale of oil and gas prospects		666			364			502
Other revenues		809			1,194			3,127
		210,012			103,821			102,612
Unrealized gain (loss) — oil and natural gas derivative contracts		10,088			(26,258	)		60,612
TOTAL REVENUES		220,100			77,563			163,224
EXPENSES
Lease and plant operating expense		41,905			23,871			20,658
Production and ad valorem taxes		11,141			4,755			6,954
Workover expense		7,409			8,988			8,113
Exploration expense		31,037			12,839			11,675
Depreciation, depletion, and amortization		59,090			48,659			49,219
Impairment expense		8,399			6,165			11,487
Accretion expense		1,370			492			729
General and administrative expense		20,135			8,738			6,401
Gain on sale of assets		(1,766	)		(738	)		—
TOTAL EXPENSES		178,720			113,769			115,236
INCOME (LOSS) FROM OPERATIONS		41,380			(36,206	)		47,988
OTHER INCOME (EXPENSE)
Interest expense		(27,172	)		(13,835	)		(14,497	)
Interest income		23			4			40
Gain on extinguishment of debt		—			—			3,349
TOTAL OTHER INCOME (EXPENSE)		(27,149	)		(13,831	)		(11,108	)
INCOME (LOSS) BEFORE STATE INCOME TAXES		14,231			(50,037	)		36,880
BENEFIT FROM (PROVISION FOR) STATE INCOME TAXES		(2	)		750			(250	)
NET INCOME (LOSS)	$	14,229		$	(49,287	)	$	36,630

See notes to consolidated financial statements.

F-10

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

YEARS ENDED DECEMBER 31, 2010, 2009, AND 2008

	(Dollars in thousands)
BALANCE, DECEMBER 31, 2007	$	(11,661	)
CONTRIBUTIONS		14,700
DISTRIBUTIONS		(1,918	)
NET INCOME		36,630
BALANCE, DECEMBER 31, 2008		37,751
CONTRIBUTIONS		27,800
DISTRIBUTIONS		(100	)
REDEMPTION OF PARTNERSHIP INTEREST		(5,500	)
NET LOSS		(49,287	)
BALANCE, DECEMBER 31, 2009		10,664
CONTRIBUTIONS		50,000
DISTRIBUTIONS		(50,235	)
NET INCOME		14,229
BALANCE, DECEMBER 31, 2010	$	24,658

See notes to consolidated financial statements.

F-11

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2010			2009			2008
	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	14,229		$	(49,287	)	$	36,630
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization		59,090			48,659			49,219
Impairment expense		8,399			6,165			11,487
Accretion expense		1,370			492			729
Gain on extinguishment of debt		—			—			(3,349	)
Gain on sales of assets		(1,766	)		(738	)		—
Dry hole expense		15,834			244			1,504
Expired leases		—			918			578
Amortization of loan costs		4,240			772			288
Unrealized (gain) loss on derivatives		(10,974	)		25,308			(55,708	)
Interest converted into debt		1,379			1,191			1,194
Settlement of asset retirement obligation		(453	)		(97	)		(66	)
Deferred state tax (benefit) expense		—			(750	)		250
Changes in operating assets and liabilities:
Accounts receivable		(9,255	)		(7,416	)		2,458
Other receivables		(4,612	)		1,192			(2,918	)
Prepaid expenses and other assets		(3,305	)		2,738			(3,280	)
Accounts payable, accrued liabilities and other long-term liabilities		(13,056	)		4,952			(18,716	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		61,120			34,343			20,300
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property and equipment		(110,083	)		(100,261	)		(111,096	)
Acquisition of The Meridian Resource Company		(101,359	)		—			—
Proceeds from sale of assets		3,030			13,688			—
NET CASH USED IN INVESTING ACTIVITIES		(208,412	)		(86,573	)		(111,096	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt		584,486			37,380			69,370
Repayments of long-term debt		(420,056	)		(6,969	)		(2,231	)
Proceeds from short-term debt		—			8,000			—
Repayments of short-term debt		—			(8,000	)		—
Additions to deferred financing costs		(16,341	)		(788	)		(1,150	)
Capital contributions from partners		50,000			27,800			14,700
Redemption of partnership interest		—			(5,500	)		—
Distributions to partners		(50,235	)		(100	)		(1,918	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		147,854			51,823			78,771
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		562			(407	)		(12,025	)
CASH AND CASH EQUIVALENTS, beginning of year		4,274			4,681			16,706
CASH AND CASH EQUIVALENTS, end of year	$	4,836		$	4,274		$	4,681
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest	$	21,537		$	9,064		$	7,802
Cash paid during the year for taxes	$	—		$	—		$	—
Increase in property and equipment asset retirement obligations, net	$	609		$	162		$	1,067
Capital expenditures financed through accounts payable and accrued liabilities	$	36,025		$	3,382		$	19,233

See notes to consolidated financial statements.

F-12

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008

NOTE 1 — SUMMARY OF ORGANIZATION AND NATURE OF OEPERATIONS

Organization.   The consolidated financial statements presented herein are of Alta Mesa Holdings, LP and its (i) wholly-owned subsidiaries: Alta Mesa Finance Services Corp., Alta Mesa Acquisition Sub, LLC and its direct and indirect wholly-owned subsidiaries, Aransas Resources, LP and its wholly-owned subsidiary ARI Development, L.L.C., Brayton Resources II, LP, Buckeye Production Company, LP, Galveston Bay Resources, LP, Louisiana Exploration & Acquisitions, LP and its wholly-owned subsidiary Louisiana Exploration & Acquisition Partnership, LLC, Navasota Resources, Ltd., LLP, Nueces Resources, LP, Oklahoma Energy Acquisitions, LP, Alta Mesa Drilling, LLC, Petro Acquisitions, LP, Petro Operating Company, LP, Texas Energy Acquisitions, LP, Virginia Oil and Gas, LLC and Alta Mesa Services, LP, and (ii) partially-owned subsidiaries: Brayton Resources, LP, and Orion Operating Company, LP. The entities above are collectively referred to as the Company.

Nature of Operations.  The Company is engaged primarily in the acquisition, exploration, development, and production of oil and gas properties. The Company’s properties are located in Texas, Oklahoma, Louisiana, Florida and the Appalachian Region.

Accounting policies used by the Company and its subsidiaries reflect industry practices and conform to accounting principles generally accepted in the U.S. (“GAAP”). As used herein, the following acronyms have the following meanings: “FASB” means the Financial Accounting Standards Board; the “Codification” refers to the Accounting Standards Codification, the collected accounting and reporting guidance maintained by the FASB; “ASC” means Accounting Standards Codification and is generally followed by a number indicating a particular section of the Codification; and “ASU” means Accounting Standards Update, followed by an identification number, which are the periodic updates made to the Codification by the FASB. “SEC” means the Securities and Exchange Commission.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation.  The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, after eliminating all significant intercompany transactions. The Company’s interest in oil and gas exploration and production ventures and partnerships are proportionately consolidated.

Use of Estimates.  The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Reserve estimates significantly impact depreciation, depletion and amortization expense and potential impairments of oil and natural gas properties and are subject to change based on changes in oil and natural gas prices and trends and changes in estimated reserve quantities. We analyze estimates, including those related to oil and natural gas reserves, the value of oil and natural gas properties, oil and natural gas revenues, bad debts, asset retirement obligations, derivative contracts, income taxes and contingencies. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Cash and Cash Equivalents.  We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company maintains cash balances at financial institutions in the United States of America, which at times exceed federally insured amounts. In July 2010, the Federal Deposit Insurance Corporation permanently increased its insurance to $250,000 per depositor. Additionally, coverage for non-interest bearing accounts, which is temporary, extends through December 31, 2012. This coverage is separate from, and in addition to, the coverage provided for other accounts held at an

F-13

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

insured depository institution. We monitor the financial condition of the financial institutions and have experienced no losses associated with these accounts.

Accounts Receivable.  The Company’s receivables arise from the sale of oil and gas to third parties and joint interest owner receivables for properties in which we serve as the operator. This concentration of customers may impact our overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions affecting the oil and gas industry. Accounts receivable are generally not collateralized.

Allowance for Doubtful Accounts.  We routinely assess the recoverability of all material trade and other receivables to determine their collectability. We accrue a reserve when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of the reserve can be reasonably estimated. Accounts receivable are shown net of allowance for doubtful accounts of $338,000 and $177,000 as of December 31, 2010 and 2009, respectively.

Deferred Financing Costs. Deferred financing costs and the amount of discount at which notes payable have been issued (debt discount) are amortized using the straight-line method, which approximates the interest method, over the term of the related debt. For the years ended December 31, 2010, 2009, and 2008, amortization of deferred financing costs included in interest expense amounted to $4.2 million, $772,000, and $288,000, respectively. Deferred financing costs are listed among our long-term assets, net of accumulated amortization of $4.7 million and $437,000 at December 31, 2010 and 2009, respectively.

Property and Equipment.  Oil and gas producing activities are accounted for using the successful efforts method of accounting. Under the successful efforts method, lease acquisition costs and all development costs, including unsuccessful development wells, are capitalized.

Unproved Properties — Acquisition costs associated with the acquisition of leases are recorded as unproved leasehold costs and capitalized as incurred. These consist of costs incurred in obtaining a mineral interest or right in a property, such as a lease in addition to options to lease, broker fees, recording fees and other similar costs related to activities in acquiring properties. Leasehold costs are classified as unproved until proved reserves are discovered, at which time related costs are transferred to proved oil and gas properties.

Exploration Expense — Exploration expenses, other than exploration drilling costs, are charged to expense as incurred. These expenses include seismic expenditures and other geological and geophysical costs, expired leases, and lease rentals. The costs of drilling exploratory wells and exploratory-type stratigraphic wells are initially capitalized pending determination of whether the well has discovered proved commercial reserves. If the exploratory well is determined to be unsuccessful, the cost of the well is transferred to expense. Exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. Assessments of such capitalized costs are made quarterly.

Proved Oil and Gas Properties — Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering, and storing oil and gas are capitalized. All costs incurred to drill and equip successful exploratory wells, development wells, development-type stratigraphic test wells, and service wells, including unsuccessful development wells, are capitalized.

Impairment — The capitalized costs of proved oil and gas properties are reviewed at least annually for impairment in accordance with ASC 360-10-35, “Property, Plant and Equipment, Subsequent Measurement,” or whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset or asset group exceeds its fair market value and is not recoverable. The determination of recoverability is based on comparing the estimated undiscounted future net cash flows at a producing field level to the carrying value of the assets. If the future undiscounted cash flows, based on estimates of anticipated production from proved reserves and future crude oil and natural gas prices and operating costs, are lower than the carrying cost, the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

carrying cost of the asset or group of assets is reduced to fair value. For our proved oil and natural gas properties, we estimate fair value by discounting the projected future cash flows at an appropriate risk-adjusted discount rate. Our evaluation of the Company’s proved producing properties resulted in impairment expense of $6.4 million, $3.1 million, and $10.4 million for the years ended December 31, 2010, 2009, and 2008, respectively.

In addition, the Company recorded as impairment expense, write-downs of casing and tubing to lower of cost or market, of $18,000, $2.4 million and $80,000 for the years ended December 31, 2010, 2009 and 2008, respectively.

Unproved leasehold costs are assessed at least annually to determine whether they have been impaired. Individually significant properties are assessed for impairment on a property-by-property basis, while individually insignificant unproved leasehold costs may be assessed in the aggregate. If unproved leasehold costs are found to be impaired, an impairment allowance is provided and a loss is recognized in the statement of operations. For the years ended December 31, 2010, 2009 and 2008, impairment expense of unproved leasehold costs was $2.0 million, $696,000, and $225,000, respectively.

Management evaluates whether the carrying value of all other long-lived assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable. This evaluation is based on undiscounted cash flow projections. The carrying amount is not recoverable if it exceeds the undiscounted sum of cash flows expected to result from the use and eventual disposition of the assets. Management considers various factors when determining if these assets should be evaluated for impairment.

If the carrying value is not recoverable on an undiscounted basis, the impairment loss is measured as the excess of the asset’s carrying value over its fair value. Management assesses the fair value of long-lived assets using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third party comparable sales, internally developed discounted cash flow analysis and analysis from outside advisors. Significant changes in market conditions resulting from events such as the condition of an asset or a change in management’s intent to utilize the asset would generally require management to reassess the cash flows related to the long-lived assets. For the years ended December 31, 2010, 2009, and 2008, respectively, the Company did not record any impairment expense related to other long-lived assets.

Depreciation, Depletion and Amortization — Depreciation, depletion, and amortization (“DD&A”) of capitalized costs of proved oil and gas properties is computed using the unit-of-production method based upon estimated proved reserves. Assets are grouped for DD&A on the basis of reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field. The reserve base used to calculate DD&A for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. The reserve base used to calculate DD&A for lease and well equipment costs, which include development costs and successful exploration drilling costs, includes only proved developed reserves.

DD&A expense for the years ended December 31, 2010, 2009, and 2008 related to oil and gas properties was $58.2 million, $47.3 million, and $47.9 million, respectively.

The Company’s drilling rigs, one of which was sold in December 2009, and the other of which was acquired in connection with the acquisition of The Meridian Resource Corporation (“Meridian”) in May 2010, have been depreciated using the straight-line method of depreciation over a period of approximately fifteen years. Depreciation expense of the rigs for the years ended December 31, 2010, 2009, and 2008 was $444,000, $930,000, and $930,000, respectively.

Other property and equipment is depreciated using the straight-line method over periods ranging from three to seven years. Depreciation expense for other property and equipment for the years ended December 31, 2010, 2009, and 2008 was $494,000, $468,000, and $421,000 respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Investment.  The Company’s investment consists of a 10% ownership interest in a drilling company, Orion Drilling Company, LP (“Orion”). The investment is accounted for under the cost method. Under this method, the Company’s share of earnings or losses of the investment are not included in the statements of operations. Distributions from Orion are recognized in current period earnings as declared. For the years ended December 31, 2010, 2009, and 2008, distributions of $735,000, $957,000, and $1.7 million respectively, were included in “Other revenues” in the Consolidated Statements of Operations.

Asset Retirement Obligations.  The Company estimates the present value of future costs of dismantlement and abandonment of its wells, facilities, and other tangible long-lived assets, recording them as liabilities in the period incurred. Asset retirement obligations are calculated using an expected present value technique. Salvage values are excluded from the estimation. We follow ASC 410, “Asset Retirement and Environmental Obligations.” ASC 410 requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred or becomes determinable (as defined by the ASC), with an associated increase in the carrying amount of the related long-lived asset. The cost of the tangible asset, including the initially recognized asset retirement cost, is depreciated over the useful life of the asset and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of new ARO’s are measured using expected future cash outflows for abandonment discounted generally at our cost of capital at the time of recognition.

Derivative Financial Instruments.  We use derivative contracts to hedge the effects of fluctuations in the prices of oil, natural gas and interest rates. We account for such derivative instruments in accordance with ASC 815, “Derivatives and Hedging,” which establishes accounting and disclosure requirements for derivative instruments and requires them to be measured at fair value and recorded as assets or liabilities in the statements of financial position (see Note 5 for information on fair value).

Under ASC 815, hedge accounting is used to defer recognition of unrealized changes in the fair value of such financial instruments, for those contracts which qualify as fair value or cash flow hedges, as defined in the guidance. Historically, we have not designated any of our derivative contracts as fair value or cash flow hedges. Accordingly, the unrealized changes in fair value of the contracts are included in earnings in the period of the change as “Unrealized gain (loss) — oil and natural gas derivative contracts” for oil and gas contracts, and in interest expense for interest derivative contracts. Realized gains and losses are recorded in income in the period of settlement, and included in the related revenue account or in interest expense. Cash flows from settlements of derivative contracts are classified with the income or expense item to which such settlements directly relate.

Income Taxes.  The Company has elected under the Internal Revenue Code provisions to be treated as individual partnerships for tax purposes. Accordingly, items of income, expense, gains and losses flow through to the partners and are taxed at the partner level. Accordingly, no tax provision for federal income taxes is included in the consolidated financial statements.

The Company is subject to the Texas margin tax, which is considered a state income tax, and is included in “Benefit from (provision for) state income tax” on the consolidated statements of operations. The Company records state income tax (current and deferred) based on taxable income, as defined under the rules for the margin tax.

Effective January 1, 2009 we adopted guidance issued by the FASB in accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the consolidated financial statements and applies to all income tax positions. Each income tax position is assessed using a two step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax

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ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

position is expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement.

Management has considered the Company’s exposure under the standard at both the federal and state tax levels. We did not recognize any uncertain tax positions upon adoption of the guidance and had no uncertain tax positions as of December 31, 2010. Upon adoption of this guidance, we elected to record income tax, related interest, and penalties, if any, as a component of income tax expense. We did not incur any interest or penalties for the years ended December 31, 2010 and 2009, respectively.

The Company’s tax returns for the year ended December 31, 2007 forward remain open for examination. None of the Company’s federal or state tax returns are currently under examination by the relevant authorities.

Revenue Recognition.  We recognize oil, gas and natural gas liquids revenues when products are delivered at a fixed or determinable price, title has transferred and collectability is reasonably assured (sales method). Revenue from drilling rigs has been recorded when services were performed.

Financial Instruments.  The fair value of cash, accounts receivable and current liabilities approximate book value due to their short-term nature. The estimate of fair value of long-term debt under our credit facility is not considered to be materially different from carrying value due to market rates of interest. The fair value of the debt to our founder is not practicable to determine. We have estimated the fair value of our senior notes payable at $291 million on December 31, 2010. See Note 5 for further information on fair values of financial instruments. See Note 9 for information on long-term debt.

Acquisitions.  Acquisitions are accounted for as purchases and, accordingly, the results of operations are included in our consolidated statements of operations from the closing date of the acquisitions. Purchase prices are allocated to acquired assets and assumed liabilities based on their estimated fair value at the time of the acquisition.

Reclassifications.  Certain amounts in the 2009 and 2008 consolidated financial statements have been reclassified to conform to the 2010 presentation.

Recent Accounting Pronouncements

In January 2010, the FASB updated Topic 820 with ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements.” This ASU requires new disclosures and clarifies certain existing disclosure requirements about fair value measurements. ASU 2010-06 requires a reporting entity to disclose significant transfers in and out of Level 1 and Level 2 fair value measurements, to describe the reasons for the transfers and to present separately information about purchases, sales, issuances, and settlements for fair value measurements using significant unobservable inputs. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which is effective for interim and annual reporting periods beginning after December 15, 2010; early adoption is permitted. We adopted the new guidance effective January 1, 2010. The adoption had no material impact on our consolidated financial position or results of operations.

In December 2008, the SEC published a Final Rule, “Modernization of Oil and Gas Reporting.” The new rule permits the use of new technologies to determine proved reserves if those technologies have been demonstrated to lead to reliable conclusions about reserves volumes. The new requirements also allow companies to disclose their probable and possible reserves to investors. In addition, the new disclosure requirements require companies to: (a) report the independence and qualifications of its reserves preparer or auditor; (b) file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and (c) report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The use of average prices affects impairment and depletion calculations. The new rule

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ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

became effective for reserve reports as of December 31, 2009; the FASB incorporated the new guidance into the Codification as ASU 2010-03, effective also on December 31, 2009, ASC Topic 932, “Extractive Activities — Oil and Gas.”

We adopted the new guidance effective December 31, 2009; information about our reserves has been prepared in accordance with the new guidance and is included in Note 19. As of December 31, 2009, our reserves calculations were affected primarily by the use of the average prices rather than the period-end prices required under the prior rules. The changes resulting from the new rules did not significantly impact our impairment testing, depreciation, depletion and amortization expense, or other results of operations.

In December 2009, the FASB issued revised authoritative guidance regarding consolidation of variable interest entities (“VIEs”) in ASU 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” codified as ASC 810-10-05-08. The ASU (originally issued as SFAS No. 167 in June 2009) amends existing consolidation guidance for variable interest entities. Variable interest entities generally are thinly-capitalized entities which under previous guidance may not have been consolidated. The revised guidance requires a company to perform a qualitative analysis to determine whether to consolidate a VIE, which includes consideration of control issues other than the primarily quantitative considerations utilized prior to this revision. In addition, the revised guidance requires ongoing assessments of whether to consolidate VIEs, rather than only when specific events occur. The revised guidance also requires additional disclosures about consolidated and unconsolidated VIEs, including their impact on the company’s risk exposure and its financial statements. The revised guidance is effective for financial statements for annual and interim periods beginning after November 15, 2009. We adopted the new guidance effective January 1, 2010. The adoption did not have a material impact on our consolidated financial position or results of operations.

In April 2009, the FASB issued new authoritative guidance regarding interim disclosures about the fair value of financial instruments, which enhances consistency in financial reporting by increasing the frequency of fair value disclosures. The guidance was effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted the new guidance effective April 1, 2009. The adoption did not have a material impact on our consolidated financial position or results of operations of the Company. The disclosures are included above, “Financial Instruments.”

In May 2009, the FASB issued SFAS 165, “Subsequent Events,” codified in ASC 855. ASC 855 defines the period during which management should evaluate events or transactions that occur after the balance sheet date for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date, and the disclosures about such subsequent events. It did not substantially change existing guidance, but added a new disclosure of the date through which events have been evaluated and whether that is the date of issuance of the financial statements or an alternate date. The new guidance was effective for interim or annual financial periods ending after June 15, 2009. We adopted the new guidance effective June 30, 2009; the adoption did not have a material impact on the consolidated financial position or results of operations of the Company. The disclosures are included in Note 16.

NOTE 3 — ACQUISITIONS

On and effective May 13, 2010, Alta Mesa Acquisition Sub, LLC (“AMAS”), a wholly owned subsidiary of the Company, acquired 100% of the shares of and merged with The Meridian Resource Corporation (“Meridian”), with AMAS as the surviving entity. Meridian was a publicly traded company engaged in exploration for and production of oil and natural gas. The oil and natural gas properties of Meridian are similar and in some cases proximate to our areas of operation. Meridian shareholders were paid in cash, funded by proceeds of our senior secured revolving credit facility as well as a $50 million equity contribution from our private equity partner Alta Mesa Investment Holdings Inc., an affiliate of Denham Commodities Partners Fund IV LP (“AMIH”). The merger increased the oil portion of our reserves portfolio, improving the

F-18

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

balance of our reserves between oil and natural gas, and provided significant additions to our library of 3-D seismic data.

Total cost of the acquisition was $158 million. It was recorded using the acquisition method of accounting. The purchase price was allocated to acquired assets and assumed liabilities based on their estimated fair values at date of acquisition. Acquisition-related costs of approximately $532,000 were recorded in general and administrative expense for the year ended December 31, 2010.

A summary of the consideration paid and the preliminary allocation of the purchase price is as follows (dollars in thousands):

Summary of Consideration:
Cash	$	30,948
Debt retired		82,000
Debt assumed		5,346
Working capital deficit(1)		753
Other liabilities assumed		7,971
Fair value of asset retirement obligations assumed		30,920
Total	$	157,938
Summary of Purchase Price Allocation:
Proved oil and natural gas properties	$	144,325
Unproved oil and natural gas properties		3,113
Other tangible assets		10,500
Total	$	157,938

(1) Working capital deficit included a cash balance of $11,589.

The revenue and earnings related to this acquisition are included in our consolidated statement of operations for the year ended December 31, 2010 from date of acquisition. The revenue and earnings of the combined entity, had the acquisition occurred at the beginning of each of the periods presented, are provided below. This unaudited pro forma information has been derived from historical information and is for illustrative purposes only. The unaudited pro forma financial information does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during these periods.

	(Unaudited)
			Income
	Revenue		(Loss)
	(Dollars in thousands)
Actual results of Meridian included in our consolidated statement of operations for the period from May 13, 2010 through December 31, 2010	$	58,661	$	13,136
Pro forma results for the combined entity for the year ended December 31, 2010	$	249,989	$	15,802
Pro forma results for the combined entity for the year ended December 31, 2009	$	166,802	$	(47,693	)

Adjustments to actual historical earnings for Meridian include the effect of conversion from the full cost of method of accounting for oil and natural gas properties to the successful efforts method, as well as revision of depreciation, depletion and amortization based on acquisition date values for the oil and natural gas

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ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

properties. Adjustments to Meridian’s actual historical earnings also include removal of interest expense related to debt retired by the Company on the date of acquisition. Adjustments to actual earnings for the Company include additional interest expense for debt incurred to fund the acquisition.

On July 23, 2009, Navasota Resources Ltd., LLP, a wholly-owned subsidiary of the Company, made a payment of $25.5 million and took assignment of substantially all working interests that had been held by Chesapeake Energy Corporation (“Chesapeake”) in an approximate 50,000 acre area of Leon and Robertson Counties, Texas in the Deep Bossier play. We had exercised our preferential right to purchase these interests from Gastar Exploration Ltd. (“Gastar”) in late 2005, but Gastar and Chesapeake had opposed this and Chesapeake took record title until we finally and conclusively prevailed, and in 2008 a Texas court of appeals directed that specific performance take place. In early 2009, the Texas Supreme Court denied the defendants’ request to hear the appeal. As a result, we were able to take 25% — 33% working interests in over 30 producing wells and participate in further development of the area, primarily with EnCana Oil and Gas (USA) (“EnCana”), but also with Gastar. A subsequent payment to EnCana of $15.2 million plus purchase accounting adjustments of $3.8 million brought the total cost of the acquisition to $44.5 million. The purchase price was financed with equity contributions by our private equity partner and borrowings under our senior credit facility. All consideration was allocated to oil and gas properties; $44.3 million was recorded as proved oil and gas properties and $0.2 million was recorded as unproved oil and gas properties.

Acquisition-related costs of approximately $481,000 were recorded in general and administrative expense for the year ended December 31, 2009.

The revenue and earnings related to this acquisition included in our consolidated statement of operations for the year ended December 31, 2009, and the revenue and earnings of the combined entity had the acquisition occurred at the beginning of 2009 are provided below. This unaudited pro forma information has been derived from historical information provided by the operators of the properties and is for illustrative purpose only. Pro forma adjustments include an adjustment for DD&A. The unaudited pro forma financial information does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had the companies been combined during these periods.

	(Unaudited)
			Income
	Revenues		(Loss)
	(Dollars in thousands)
Actual results for the acquired properties included in our consolidated statement of operations for the year ended December 31, 2009(1)	$	11,277	$	4,853
Pro forma results for the combined entity for the year ended December 31, 2009(2)	$	87,378	$	(42,878	)

(1)	Actual results of the Deep Bossier properties from the date of acquisition, July 23, 2009. Expenses include severance tax, lease operating costs, and depreciation, depletion and amortization of the properties.
(2)	Pro forma revenues and earnings of the Company include the Deep Bossier properties as if they had been acquired at the beginning of the period. Adjustments to actual earnings include severance tax, lease operating costs, and depreciation, depletion and amortization for the Deep Bossier properties for the year ended December 31, 2009.

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ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 4 — PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

	December 31,
	2010			2009
	(Dollars in thousands)
OIL AND GAS PROPERTIES
Unproved properties	$	12,020		$	9,047
Land		1,185			1,185
Accumulated impairment		(2,686	)		(696	)
Unproved properties, net		10,519			9,536
Proved oil and gas properties		707,364			435,706
Accumulated depreciation, depletion, amortization and impairment		(273,818	)		(209,741	)
Proved oil and gas properties, net		433,546			225,965
TOTAL OIL AND GAS PROPERTIES, net		444,065			235,501
DRILLING RIG		10,500			—
Accumulated depreciation		(444	)		—
TOTAL DRILLING RIG, net		10,056			—
OTHER PROPERTY AND EQUIPMENT
Office furniture and equipment		3,321			1,767
Vehicles		523			347
Accumulated depreciation		(1,701	)		(1,419	)
OTHER PROPERTY AND EQUIPMENT, net		2,143			695
TOTAL PROPERTY AND EQUIPMENT, net	$	456,264		$	236,196

NOTE 5 — FAIR VALUE DISCLOSURES

Effective January 1, 2008, the Company adopted new authoritative guidance from the FASB regarding fair value, contained in ASC 820, “Fair Value Measurements and Disclosure.” ASC 820 provides a hierarchy of fair value measurements, based on the inputs to the fair value estimation process. It requires disclosure of fair values classified according to defined “levels,” which are based on the reliability of the evidence used to determine fair value, with Level 1 being the most reliable and Level 3 the least. Level 1 evidence consists of observable inputs, such as quoted prices in an active market. Level 2 inputs typically correlate the fair value of the asset or liability to a similar, but not identical item which is actively traded. Level 3 inputs include at least some unobservable inputs, such as valuation models developed using the best information available in the circumstances.

We adopted the provisions of ASC 820 as it applies to assets and liabilities measured at fair value on a recurring basis on January 1, 2008. This included oil and gas and interest rate derivatives contracts.

In accordance with the deferred effective date provided by the FASB, on January 1, 2009, we adopted the provisions of ASC 820 for non-financial assets and liabilities which are measured at fair value on a non-recurring basis. This includes new additions to asset retirement obligations, and the valuation of long-lived assets for which an impairment write-down is recorded during the period, such as oil and gas properties.

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ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We utilize the modified Black-Scholes option pricing model to estimate the fair value of oil and natural gas derivative contracts. Inputs to this model include observable inputs from the New York Mercantile Exchange (NYMEX) for futures contracts, and inputs derived from NYMEX observable inputs, such as implied volatility of oil and gas prices. We have classified the fair values of all our oil and natural gas derivative contracts as Level 2.

The fair value of our interest rate derivative contracts was calculated using the Black-Scholes option pricing model and is also considered a Level 2 fair value.

Our senior notes are carried at historical cost, net of amortized discount; we estimate the fair value of the senior notes for disclosure purposes (see Note 2). This estimation is based on the most recent trading values of the notes at or near the reporting date.

Oil and gas properties are subject to impairment testing and potential impairment write down as described in Note 2. Oil and gas properties with a carrying amount of $19.1 million were written down to their fair value of $10.7 million, resulting in an impairment charge of $8.4 million for the year ended December 31, 2010. Oil and gas properties with a carrying amount of $8.3 million were written down to their fair value of $4.5 million, resulting in an impairment charge of $3.8 million for the year ended December 31, 2009. The impairment analysis is based on the estimated discounted future cash flows for those properties. Significant Level 3 assumptions used in the calculation of estimated discounted cash flows included our estimate of future oil and gas prices, production costs, development expenditures, estimated quantities and timing of production of proved reserves, appropriate risk-adjusted discount rates, and other relevant data.

In addition, other equipment, included in oil and gas properties, was impaired $18,000 and $2.4 million for the years ended December 31, 2010 and 2009, respectively, based on market information for similar products, which is a Level 3 value.

In connection with the Deep Bossier acquisition in 2009, we recorded oil and gas properties with a fair value of $44.5 million. In connection with the Meridian acquisition in the second quarter of 2010 (Note 3), we recorded oil and natural gas properties with a fair value of $147 million. Significant Level 3 inputs used were the same as those used in determining impairments based on estimated discounted cash flows for the acquired properties.

New additions to asset retirement obligations result from estimations for new properties, and fair values for them are categorized as Level 3. Such estimations are based on present value techniques which utilize company-specific information for such inputs as cost and timing of plug and abandonment of wells and facilities. We recorded a total of $31.6 million in additions to asset retirement obligations measured at fair value for the year ended December 31, 2010, including $30.9 million added as a result of the Meridian acquisition. We recorded a total of $748,000 in additions to asset retirement obligations measured at fair value for the year ended December 31, 2009.

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ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents information about our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value:

	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
At December 31, 2010:
Financial Assets:
Derivative contracts for oil and gas		—	$	61,623		—	$	61,623
Financial Liabilities:
Derivative contracts for oil and gas		—	$	37,022		—	$	37,022
Derivative contracts for interest rate		—	$	5,388		—	$	5,388
At December 31, 2009:
Financial Assets:
Derivative contracts for oil and gas		—	$	27,699		—	$	27,699
Financial Liabilities:
Derivative contracts for oil and gas		—	$	13,186		—	$	13,186
Derivative contracts for interest rate		—	$	6,274		—	$	6,274

The amounts above are presented on a gross basis; presentation on our Consolidated Balance Sheets utilizes netting of assets and liabilities with the same counterparty where master netting agreements are in place.

For additional information on derivative contracts, see Note 6.

NOTE 6 — DERIVATIVE FINANCIAL INSTRUMENTS

We account for our derivative contracts under the provisions of ASC 815, “Derivatives and Hedging.” The Company has entered into forward-swap contracts and collar contracts to reduce its exposure to price risk in the spot market for oil and natural gas. The Company also utilizes financial basis swap contracts, which address the price differential between market-wide benchmark prices and other benchmark pricing referenced in certain of our natural gas sales contracts. All of the Company’s hedging agreements are executed by affiliates of the lenders (“Lenders”) under our senior secured revolving credit facility described in Note 9 below, and are collateralized by the security interests of the respective affiliated Lenders in certain assets of the Company under the credit facility. The contracts settle monthly and are scheduled to coincide with either oil production equivalent to barrels (Bbl) per month or gas production equivalent to volumes in millions of British thermal units (MMbtu) per month. The contracts represent agreements between the Company and the counter-parties to exchange cash based on a designated price. Prices are referenced to natural gas and crude oil futures contracts traded on either the Houston Ship Channel/ Beaumont, Texas index or on the New York Mercantile Exchange (NYMEX) index. Cash settlement occurs monthly based on the specified price benchmark. The Company has not designated any of its derivative contracts as fair value or cash flow hedges; accordingly we use mark-to-market accounting as described in Note 2, recognizing unrealized gains and losses in the consolidated statement of operations at each reporting date. Realized gains and losses on commodities hedging contracts are included in oil and natural gas revenues.

The Company has entered into a series of interest rate swap agreements with several financial institutions to mitigate the risk of loss due to changes in interest rates. The interest rate swaps are not designated as cash flow hedges in accordance with ASC 815. Both realized gains and losses from settlement and unrealized gains and losses from changes in the fair market value of the interest rate swaps are included in interest expense.

F-23

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

No derivative contracts have been entered into for trading purposes, and the Company typically holds each instrument to maturity.

The second table below provides information on the location and amounts of realized and unrealized gains and losses on derivatives included in the statement of operations for each of the years ended December 31, 2010 and 2009.

The following table summarizes the fair value (see Note 5 for further discussion of fair value) and classification of the Company’s derivative instruments, all of which have not been designated as hedging instruments under ASC 815:

	Fair Values of Derivative Contracts
	Balance Sheet Location at December 31, 2010
	Current			Current			Long-Term			Long-Term
	Asset			Liability			Asset			Liability
	Portion of			Portion of			Portion of			Portion of
	Derivative			Derivative			Derivative			Derivative
	Financial			Financial			Financial			Financial
	Instruments			Instruments			Instruments			Instruments
				(Dollars in thousands)
Fair value of oil and gas commodity contracts, assets		27,118			—			34,505			—
Fair value of oil and gas commodity contracts, (liabilities)		(16,682	)		—			(20,340	)		—
Fair value of interest rate contracts, (liabilities)		—			(3,092	)		—			(2,296	)
Total net assets, (liabilities)		10,436			(3,092	)		14,165			(2,296	)

	Fair Values of Derivative Contracts
	Balance Sheet Location at December 31, 2009
	Current			Current			Long-Term			Long-Term
	Asset			Liability			Asset			Liability
	Portion of			Portion of			Portion of			Portion of
	Derivative			Derivative			Derivative			Derivative
	Financial			Financial			Financial			Financial
	Instruments			Instruments			Instruments			Instruments
				(Dollars in thousands)
Fair value of oil and gas commodity contracts, assets		12,078			1,396			12,815			1,410
Fair value of oil and gas commodity contracts, (liabilities)		(3,704	)		(2,035	)		(4,886	)		(2,561	)
Fair value of interest rate contracts, (liabilities)		—			(3,222	)		—			(3,052	)
Total net assets, (liabilities)		8,374			(3,861	)		7,929			(4,203	)

Commodity contracts are subject to master netting arrangements and are presented on a net basis in the Consolidated Balance Sheets. This netting can cause derivative assets to be ultimately presented in a (liability) account on the Consolidated Balance Sheets. Likewise, derivative (liabilities) could be presented in an asset account.

F-24

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the effect of the Company’s derivative instruments in the consolidated statements of operations:

Derivatives not Designated as	Location of Gain	Classification of		Years Ended December 31,
Hedging Instruments Under ASC 815	(Loss)	Gain (Loss)		2010			2009			2008
				(Dollars in thousands)
Natural gas commodity contracts	Natural gas revenues		Realized	$	23,206		$	26,835		$	(3,446	)
Oil commodity contracts	Oil revenues		Realized		(224	)		4,397			(6,112	)
Interest rate contracts	Interest expense		Realized		(4,380	)		(2,967	)		(486	)
Total realized gains (losses) from derivatives not designated as hedges				$	18,602		$	28,265		$	(10,044	)
Natural gas commodity contracts	Unrealized gain (loss) — oil and natural gas derivative contracts		Unrealized	$	17,066		$	(3,579	)	$	25,463
Oil commodity contracts	Unrealized gain (loss) — oil and natural gas derivative contracts		Unrealized		(6,978	)		(22,679	)		35,149
Interest rate contracts	Interest expense		Unrealized		886			951			(4,903	)
Total unrealized gains (losses) from derivatives not designated as hedges				$	10,974		$	(25,307	)	$	55,709

Although the Company’s counterparties provide no collateral, the master derivative agreements with each counterparty effectively allow the Company, so long as it is not a defaulting party, after a default or the occurrence of a termination event, to set-off an unpaid hedging agreement receivable against the interest of the counterparty in any outstanding balance under the Credit Facility.

If a counterparty were to default in payment of an obligation under the master derivative agreements, the Company could be exposed to commodity price fluctuations, and the protection intended by the hedge could be lost. The value of our derivative financial instruments would be impacted.

In the tables below for natural gas and crude oil derivative positions open as of December 31, 2010, the notional amount is equal to the total net volumetric hedge position of the Company during the periods presented. We have hedged approximately 70% of our forecasted production from proved developed reserves through 2014.

F-25

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company had the following open derivative contracts for natural gas at December 31, 2010:

Natural Gas Derivative Contracts

NATURAL GAS DERIVATIVE CONTRACTS

	Volume in		Weighted		Range
Period and Type of Contract	MMbtu		Average		High		Low
2011
Price Swap Contracts		4,230,000	$	7.37	$	8.83	$	6.62
Collar Contracts
Short Call Options		11,315,000		6.46		7.60		5.40
Long Put Options		14,585,000		5.28		6.30		4.50
Short Put Options		18,785,000		4.43		5.25		4.00
2012
Price Swap Contracts		3,410,000		7.56		8.83		6.81
Collar Contracts
Short Call Options		4,350,000		7.74		9.25		7.00
Long Put Options		4,350,000		5.93		6.75		5.50
Short Put Options		1,920,000		5.56		5.75		5.25
2013
Price Swap Contracts		3,000,000		7.22		9.15		6.94
Collar Contracts
Short Call Options		1,500,000		8.51		8.80		8.31
Long Put Options		1,500,000		6.09		6.15		6.00
Short Put Options		900,000		5.50		5.50		5.50
2014
Price Swap Contracts		1,300,000		7.21		7.50		7.07
Collar Contracts
Short Call Options		1,650,000		8.21		9.00		7.92
Long Put Options		1,650,000		6.73		7.00		6.00
Short Put Options		1,200,000		5.50		5.50		5.50

F-26

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company had the following open derivative contracts for crude oil at December 31, 2010:

Crude Oil Derivative Contracts

OIL DERIVATIVE CONTRACTS

	Volume in		Weighted		Range
Period and Type of Contract	Bbls		Average		High		Low
2011
Price Swap Contracts		365,000	$	78.95	$	96.00	$	67.50
Collar Contracts
Short Call Options		365,000		93.13		99.00		82.25
Long Put Options		501,425		78.38		100.00		55.00
Long Call Options		109,500		75.00		75.00		75.00
Short Put Options		630,720		60.19		62.50		55.00
2012
Price Swap Contracts		228,900		85.69		96.00		67.25
Collar Contracts
Short Call Options		198,372		104.66		108.00		100.00
Long Put Options		522,648		80.75		85.00		80.00
Long Call Options		—		—		—		—
Short Put Options		635,376		62.26		65.00		60.00
2013
Price Swap Contracts		136,500		84.35		94.74		77.00
Collar Contracts
Short Call Options		235,435		101.80		127.00		90.00
Long Put Options		310,250		80.88		85.00		80.00
Long Call Options		82,500		79.00		79.00		79.00
Short Put Options		392,750		60.91		65.00		60.00
2014
Price Swap Contracts		127,300		87.63		91.05		81.00
Collar Contracts
Short Call Options		91,250		110.10		114.00		107.50
Long Put Options		273,750		81.67		85.00		80.00
Short Put Options		273,750		61.67		65.00		60.00
2015
Price Swap Contracts		—		—		—		—
Collar Contracts
Short Call Options		155,100		118.73		119.70		116.40
Long Put Options		155,100		85.00		85.00		85.00
Short Put Options		155,100		63.53		65.00		60.00

F-27

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company had the following open financial basis swap contracts at December 31, 2010:

				Spread
Volume in MMbtu		Reference Price	Period	($ per MMbtu)
	2,400,000	Houston Ship Channel	Jan’11 — Dec’11		(0.20	)
	2,400,000	Houston Ship Channel	Jan’11 — Dec’11		(0.16	)
	912,500	Houston Ship Channel	Jan’11 — Dec’11		(0.085	)
	2,737,500	Houston Ship Channel	Jan’11 — Dec’11		(0.155	)
	3,650,000	Houston Ship Channel	Jan’11 — Dec’11		(0.115	)
	1,830,000	Houston Ship Channel	Jan’12 — Dec’12		(0.1575	)
	3,660,000	Houston Ship Channel	Jan’12 — Dec’12		(0.14	)

The Company had the following open interest rate swap contracts at December 31, 2010:

	Interest Rate Swaps
			Fixed
	Principal		Interest
Term	Amount		Rate(1)
	(Dollars in
	thousands)
Floating to Fixed Rate Swaps:
January 2011— August 2012	$	50,000		4.95	%
January 2011 — March 2011	$	25,000		2.30	%
January 2011 — March 2011	$	25,000		2.12	%
January 2011 — October 2011	$	25,000		3.21	%
Fixed to Floating Rate Swaps:
January 2011 — December 2014	$	150,000		9.625	%

(1) The floating rate is the three-month LIBOR rate, except the swap for $150 million, which is a fixed to floating rate swap using a floating rate of three-month LIBOR plus 7.72%.

NOTE 7 — ASSET RETIREMENT OBLIGATIONS

As discussed in Note 2, the Company follows ASC 410 in accounting for asset retirement obligations. A summary of the changes in asset retirement obligations is included in the table below:

	Year Ended December 31,
	2010			2009			2008
	(Dollars in thousands)
Balance, beginning of year	$	10,267		$	9,710		$	7,980
Liabilities incurred		702			748			870
Liabilities assumed in acquisition of Meridian		30,920			—			—
Liabilities settled		(453	)		(97	)		(66	)
Revisions to previous estimates		(93	)		(586	)		197
Accretion expense		1,370			492			729
Balance, end of year		42,713			10,267			9,710
Less: Current portion		1,617			—			—
Long-term portion	$	41,096		$	10,267		$	9,710

F-28

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 — RELATED PARTY TRANSACTIONS

The Company has notes payable to our founder which bear interest at 10% with a balance of $19.7 million and $18.3 million at December 31, 2010 and 2009, respectively. See further information at Note 9.

Alta Mesa Services, LP (“Alta Mesa Services”), one of our wholly owned subsidiaries, conducts our business and operations and, in addition to the board of directors of our general partner, makes decisions on our behalf. Prior to the consummation of the offering of our senior notes in October 2010, Alta Mesa Services was owned by Michael E. Ellis, the founder of the Company, as well as Chief Operating Officer and Chairman of the Board and Mickey Ellis, his spouse. The consolidated results of operations include the financial activity of Alta Mesa Services for the years ended December 31, 2010, 2009, and 2008, respectively.

NOTE 9 — LONG TERM DEBT

Long-term debt consists of the following:

	December 31,
	2010		2009
	(Dollars in thousands)
Senior Debt — On November 13, 2008, the Company entered into a Fifth Amended and Restated Credit Agreement with a group of banks, which was replaced by the Sixth Amended and Restated Credit Agreement on May 13, 2010 (“credit facility”). The credit facility matures on November 13, 2012 and is secured by substantially all of the Company’s oil and gas properties. The credit facility borrowing base is redetermined periodically and as of December 31, 2010 the borrowing base under the facility was $220 million. The credit facility bears interest at LIBOR plus applicable margins between 2.50% and 3.25% or a “Reference Rate,” which is based on the prime rate of Wells Fargo Bank, N. A., plus a margin ranging from 1.50% to 2.25%, depending on the utilization of our borrowing base. The rate was 2.875% and 3.52% as of December 31, 2010 and 2009, respectively	$	73,290	$	161,500
Senior Notes Payable — On October 13, 2010, the Company issued notes due October 15, 2018 with a face value of $300 million, at a discount of $2.1 million. The senior notes carry a face interest rate of 9.625%, with an effective rate of 9.75%; interest is payable semi-annually each April 15th and October 15th. The senior notes are secured by general corporate credit, and effectively rank junior to any existing or future secured indebtedness of the Company, which includes the credit facility. The senior notes are unconditionally guaranteed on a senior unsecured basis by each material subsidiary of the Company. The balance is presented net of unamortized discount of $2,014,000		297,986		—
Subordinated Debt — On November 13, 2008, the Company entered into a Subordinated Credit Agreement (“Subordinated Credit Facility”) with a group of banks. The borrowing base under the Subordinated Credit Facility was redetermined periodically and as of December 31, 2009 was $65 million. The Subordinated Credit Facility, which was secured by scheduled oil and gas properties, bore interest at LIBOR or a bank reference rate plus a margin of 8.50% with a LIBOR floor rate of 3.50%. The rate was 12.00% as of December 31, 2009. The Subordinated Credit Facility was repaid and the agreement was cancelled in October 2010, using the proceeds from the issuance of the senior notes		—		40,000
Total long-term debt	$	371,276	$	201,500

Total proceeds from the issuance of the senior notes before expenses were $297.9 million. The proceeds were used to retire the Subordinated Credit Facility ($40 million), along with related accrued interest and a prepayment penalty (total $1.7 million). Additionally, we paid $199.7 million against the outstanding balance

F-29

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

under our credit facility. In addition to the debt payoff, the Company utilized $50 million of the proceeds to provide a distribution to AMIH. Under the terms of the credit facility, the borrowing base under that facility was reduced from $285 million to $220 million, based on a formula related to the new debt issuance.

The senior notes contain an optional redemption provision beginning in October 2013 allowing the Company to retire up to 35% of the principal outstanding under the senior notes with the proceeds of an equity offering, at 109.625%. Additional optional redemption provisions allow for retirement at 104.813%, 102.406%, and 100.0% beginning on each of October 15, 2014, 2015, and 2016, respectively.

On October 13, 2010, the Company entered into a registration rights agreement with the initial purchasers of the senior notes. Under the terms of the registration rights agreement, the Company must file a registration statement with the SEC to become effective no later than 360 days after the senior notes were issued, to allow for registration of “exchange notes” with terms substantially identical to the senior notes. The exchange notes are to be exchanged for the original senior notes.

In addition, the Company has notes payable to our founder which bear simple interest at 10% with a balance of $19.7 million and $18.3 million at December 31, 2010 and 2009, respectively. The notes mature December 31, 2018. Interest and principal are payable at maturity. The notes are subordinate to all debt. Interest on our notes payable to our founder amounted to $1.4 million during 2010, and $1.2 million during each of 2009 and 2008. Such amounts have been added to the balance of the notes.

Future maturities of long-term debt, including the notes payable to our founder, at December 31, 2010 are as follows (dollars in thousands):

Year Ending December 31,
2011	$	—
2012		73,290
2013		—
2014		—
2015		—
Thereafter		319,709
	$	392,999

The credit facility and senior notes include covenants requiring that the Company maintain certain financial covenants including a Current Ratio, Leverage Ratio, and Interest Coverage Ratio. At December 31, 2010, the Company was in compliance with the covenants. The terms of the credit facility also restrict the Company’s ability to make distributions and investments.

In January 2008, the Company entered into a Compromise, Settlement and Release Agreement with a bank holding a 9.25% note payable which had been scheduled to mature in October 2009. Per the terms of the agreement, the outstanding debt balance was forgiven. As such, a gain on extinguishment of debt of $3.3 million was recognized in the consolidated statement of operations for the year ended December 31, 2008.

F-30

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 10 — ACCOUNTS PAYABLE, ACCRUED LIABILITIES, AND OTHER LONG-TERM LIABILITIES

The following provides the detail of accounts payable and accrued liabilities:

	December 31,
	2010		2009
	(Dollars in thousands)
Capital expenditures	$	22,743	$	4,437
Revenues and royalties payable		5,962		1,688
Operating expenses/taxes		18,220		4,320
Compensation		2,591		646
Acquisition costs payable		—		15,756
Liability related to drilling rig		9,785		—
Other		1,775		—
Total accrued liabilities		61,076		26,847
Accounts payable		26,179		5,782
Accounts payable and accrued liabilities	$	87,255	$	32,629

The following provides the detail of other long-term liabilities:

	December 31,
	2010		2009
	(Dollars in thousands)
Acquisition obligation	$	411	$	787
Remediation liability		943		898
Other		5,886		7,467
Total other long-term liabilities	$	7,240	$	9,152

NOTE 11 — COMMITMENTS AND CONTINGENCIES

Contingencies

Deep Bossier Litigation:  On July 23, 2009, we made a payment of $25.5 million and took assignment of substantially all working interests that had been held by Chesapeake in an approximate 50,000 acre area of Leon and Robertson Counties, Texas in the Deep Bossier play. We had exercised our preferential right to purchase these interests from Gastar in late 2005, but Gastar and Chesapeake had opposed this and Chesapeake took record title until we finally and conclusively prevailed, and in 2008 a Texas court of appeals directed that specific performance take place. In early 2009, the Texas Supreme Court denied the dependants’ request to hear the appeal. As a result, we were able to take working interests in over 30 producing wells and participate in further development of the area, primarily with EnCana, but also with Gastar. A subsequent payment to EnCana of $15.2 million plus purchase accounting adjustments of $3.8 million brought the total cost of the acquisition to $44.5 million. While the ownership of these interests has been decided by the courts, we are pursuing other claims against Chesapeake; Chesapeake is claiming an additional $36.5 million of past expenses. The Company is unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, the Company has not provided any amount for this matter in its consolidated financial statements at December 31, 2010.

F-31

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Sydson Energy v. Alta Mesa Holdings, L.P. and The Meridian Resource and Exploration, LLC:  In January 2011, Sydson Energy brought suit for declaratory relief, breach of contract and tortious interference related to certain assignments of oil and gas interests. Meridian filed a counterclaim for declaratory relief and is seeking rescission of the disputed assignments. The Company intends to contest this matter vigorously. The Company has not provided any amount for this matter in its consolidated financial statements at December 31, 2010.

Texas Oil Distribution & Development, Inc. and Matrix Petroleum, LLC v. Alta Mesa Holdings, LP and The Meridian Resource & Exploration, LLC:  In November, 2010, Texas Oil Distribution & Development, Inc. and Matrix Petroleum LLC (together, “TODD”), filed a petition seeking declaratory relief based on TODD’s employment of Thomas Tourek, a former independent contractor of the Company. Mr. Tourek owed certain contractual and common law obligations to the Company, including, without limitation, confidentiality and non-compete obligations. TODD seeks declaratory relief of those obligations. In addition, on January 10, 2011, TODD filed an amended petition for declaratory relief, breach of contract and tortious interference related to certain assignments of oil and gas interests and joined Meridian as a defendant. Meridian filed a counterclaim for declaratory relief and seeking rescission of the disputed assignments. The Company intends to contest this matter vigorously. The Company has not provided any amount for this matter in its consolidated financial statements at December 31, 2010.

Environmental Claims:  Management has established a liability for soil contamination in Florida of approximately $943,000 and $898,000 at December 31, 2010 and 2009, respectively, based on the Company’s undiscounted engineering estimates. The obligations are included in other long-term liabilities in the accompanying consolidated balance sheets.

Various landowners have sued Meridian (along with numerous other oil companies) in lawsuits concerning several fields in which Meridian has had operations. The lawsuits seek injunctive relief and other relief, including unspecified amounts in both actual and punitive damages for alleged breaches of mineral leases and alleged failure to restore the plaintiffs’ lands from alleged contamination and otherwise from Meridian’s oil and natural gas operations. The Company is unable to express an opinion with respect to the likelihood of an unfavorable outcome of the various environmental claims or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, we have not provided any amount for these claims in our consolidated financial statements at December 31, 2010.

Due to the nature of the Company’s business, some contamination of the real estate property owned or leased by the Company is possible. Environmental site assessments of the property would be necessary to adequately determine remediation costs, if any.

Other Contingencies:  The Company is subject to legal proceedings, claims and liabilities arising in the ordinary course of business. The outcome cannot be reasonably estimated; however, in the opinion of management, such litigation and claims will be resolved without material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Accruals for losses associated with litigation are made when losses are deemed probable and can be reasonably estimated.

The Company has a contingent commitment to pay an amount up to a maximum of approximately $5 million for properties acquired in 2008 and prior years. The additional purchase consideration will be paid only if certain product price conditions are met. The Company cannot estimate the amounts that will be paid in the future, if any, or the fiscal years in which such amounts could become due.

Title/lease disputes:  Title and lease disputes may arise in the normal course of the Company’s operations. These disputes are usually small but could result in an increase or decrease in reserves once a final resolution to the title dispute is made.

F-32

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Commitments

Office and Equipment Leases:  The Company leases office space, as well as certain field equipment such as compressors, under long-term operating lease agreements. Rent expense, including office space and compressors, for the years ended December 31, 2010, 2009, and 2008 amounted to approximately $2.9 million, $1.4 million, and $1.2 million, respectively. At December 31, 2010, future base rentals for non-cancelable leases are as follows (dollars in thousands):

Year Ending December 31,
2011	$	2,881
2012		1,095
2013		1,665
2014		1,551
2015		1,181
Thereafter		7,695
	$	16,068

Additionally, at December 31, 2010, the Company had posted bonds in the aggregate amount of $8.8 million, primarily to cover future abandonment costs.

Drilling rig:  Included in the Company’s acquisition of Meridian was a contractual obligation for the use of a drilling rig. The Company’s capital expenditure plans do not include full use of this rig; however, the Company is obligated for the dayrate regardless of whether the rig is working or idle. The operator, Orion Drilling, LP, has sought other parties to use the rig and agreed to credit the Company’s obligation, based on revenues from third parties who utilize the rig when the Company is unable to. Management cannot predict whether utilization of the rig by third parties will be consistent, nor to what extent it may offset obligations under the dayrate contract. The Company provided approximately $9.8 million for future losses on this drilling contract in its financial statements at December 31, 2010. The drilling contract terminated in February 2011.

A related forbearance agreement with Orion may grant title to the Company-owned rig to Orion, the operator under the dayrate contract, in exchange for release of all accrued and future liabilities under the rig contract and under a similar rig contract now expired. This would occur at termination and final payment of the related rig note held by a third party, which was scheduled for 2013, if the Company continues to perform its obligations under the rig note and the Company-owned rig is free of any significant security interest at title transfer. The third party note was paid off on November 17, 2010. Both the rig value and the net payable to Orion would be written off at the time of such title transfer, if it were to occur. Alternatively, the terms of the forbearance agreement allow the Company an option to settle all claims with Orion in cash, and retain title to the rig. We are evaluating our options regarding transfer of title to the rig, which is no longer encumbered by the related term note.

At December 31, 2010, the rig is included in equipment at a net book value of $10.1 million; current accrued liabilities include a total of $9.8 million for the accumulated obligation to Orion.

NOTE 12 — MAJOR CUSTOMERS

The Company markets production on a competitive basis. Gas is sold under short-term contracts generally with month-to-month pricing based on published regional indices (typically the market index for delivery at the Houston Ship Channel), with differentials for transportation taken into account. Our oil is primarily sold under short-term contracts, based on local posted prices, adjusted for transportation, location, and quality.

For the year ended December 31, 2010, based on revenues excluding hedging activities, one major customer accounted for 10% or more of those revenues individually, with a contribution of $38.4 million. On

F-33

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the same basis, for the year ended December 31, 2009, four major customers accounted for 10% or more of those revenues individually, with contributions of $12.2 million, $9.0 million, $8.5 million, and $7.4 million. On the same basis, for the year ended December 31, 2008, three major customers accounted for 10% or more of those revenues individually, with contributions of $27.7 million, $13.8 million, and $16.9 million. We believe that the loss of such customers would not have a material adverse effect on us because alternative purchasers are readily available.

NOTE 13 — 401(k) SAVINGS PLAN

Employees of Alta Mesa Services and Petro Operating Company, LP (“POC”) may participate in a 401(k) savings plan, whereby the employees may elect to make contributions pursuant to a salary reduction agreement. Alta Mesa Services and POC make a matching contribution equal to fifty-percent (50%) of an employee’s salary deferral contribution up to a maximum of eight percent (8%) of an employee’s salary. Matching contributions to the plan were approximately $393,000, $128,000, and $104,000 for the years ended December 31, 2010, 2009, and 2008, respectively. Meridian employees entered the plan in 2010, and for vesting purposes, were credited with their years of service with Meridian. Meridian also had a 401(k) plan, the assets and liabilities of which we assumed.

NOTE 14 — SIGNIFICANT RISKS AND UNCERTAINTIES

The Company’s business makes it vulnerable to changes in wellhead prices of crude oil and natural gas. Such prices have been volatile in the past and can be expected to be volatile in the future. By definition, proved reserves are based on analysis of current oil and gas prices. Price declines reduce the estimated value of proved reserves and increase annual amortization expense (which is based on proved reserves). The Company mitigates some of this vulnerability by entering into oil and gas price derivative contracts. See Note 6.

NOTE 15 — PARTNERS’ CAPITAL

AMIH and affiliates of Alta Mesa Holdings created a partnership in September 2005, whereby the affiliates of Alta Mesa Holdings were Class A limited partners and AMIH was a Class B limited partner.

Management and Control:

The business and affairs of the Company are managed by the General Partner; which is a wholly owned subsidiary of Alta Mesa Holdings. With certain exceptions, the General Partner may not be removed except for the reasons of “cause,” which are defined in the Alta Mesa Holdings, LP Partnership Agreement (“Partnership Agreement”).

Distribution and Income Allocation:

Prior to January 1, 2012, net cash flow from operations is to be retained by the Company to fund development, exploration, and acquisition. After January 1, 2012, net cash from operations, as defined in the Partnership Agreement, is distributed among the partners based on a variable formula. Generally, net cash from operations is to be distributed 85% to the Class B Limited Partner, and 15% to the General Partner and the Class A Limited Partners. The formula varies after the Class B Limited Partner has received cumulative distributions equal to a return of his investment plus an internal rate of return of 15%. The split is then reduced to 65% to the Class B Limited Partner until his internal rate of return reaches a cumulative 27.5%; the split is then reduced to 25% of distributions to the Class B Limited Partner and the remaining 75% to the General Partner and the Class A Limited Partners. Any distribution which occurs must be permitted under the terms of our Credit Facility and our senior notes.

F-34

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Distribution of net cash flow from a Liquidity Event as distributed to the Class A and Class B Partners according to a variable formula as defined in the Partnership Agreement. A Liquidity Event is any event in which the Company receives cash proceeds outside the ordinary course of the Company’s business. Further, after January 1, 2012, the Class B Partners can, without consent of any other partners, request that the General Partner take action to cause the Company and its subsidiaries, or the assets of the Company to be sold to one or more third parties.

During the year ended December 31, 2009, a partner’s interest was redeemed for $5.5 million. During 2010, AMIH contributed $50 million in contributions to the Company for our purchase of Meridian. In conjunction with our subsequent offering of senior notes, AMIH received a distribution of $50 million from the proceeds of the offering.

NOTE 16 — SUBSEQUENT EVENTS

Management has evaluated all events subsequent to the balance sheet date of December 31, 2010 to March 31, 2011, which is the date of issuance, and has determined that no subsequent events require disclosure.

NOTE 17    — SUBSIDIARY GUARANTORS

All of our wholly-owned subsidiaries are guarantors under the terms of both our senior notes and our Credit Facility.

Our consolidated financial statements reflect the combined financial position of these subsidiary guarantors. Our parent company, Alta Mesa Holdings, LP has no independent operations, assets, or liabilities. The guarantees are full and unconditional and joint and several. Those subsidiaries which are not wholly owned and are not guarantors are minor. There are no restrictions on dividends, distributions, loans, or other transfers of funds from the subsidiary guarantors to our parent company.

NOTE 18    — QUARTERLY RESULTS OF OPERATIONS (Unaudited)

Results of operations by quarter for the year ended December 31, 2010 were:

	Quarter Ended
2010	March 31		June 30		Sept. 30		Dec. 31
	(Dollars in thousands)
Revenues	$	58,889	$	50,103	$	63,040	$	48,068
Results of operations from exploration and production activities(1)		13,298		18,465		19,467		(1,569	)
Net earnings (loss)	$	27,679	$	11,366	$	10,130	$	(34,946	)

Results of operations by quarter for the year ended December 31, 2009 were:

	Quarter Ended
2009	March 31			June 30			Sept. 30			Dec. 31
	(Dollars in thousands)
Revenues	$	27,423		$	3,063		$	19,788		$	27,289
Results of operations from exploration and production activities(1)		(5,586	)		(4,140	)		1,998			5,780
Net earnings (loss)	$	(4,646	)	$	(31,741	)	$	(8,443	)	$	(4,457	)

(1) Results of operations from exploration and production activities, which approximate gross profit, are computed as revenues, exclusive of unrealized gain/loss on oil and natural gas derivative contracts, less

F-35

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

expenses for lease operating, severance and ad valorem taxes, workovers, exploration, depletion and depreciation, impairment, and accretion.

NOTE 19 — SUPPLEMENTAL OIL AND NATURAL GAS DISCLOSURES (UNAUDITED)

In December 2008, the SEC published a Final Rule, “Modernization of Oil and Gas Reporting.” The new rule permits the use of new technologies to determine proved reserves if those technologies have been demonstrated to lead to reliable conclusions about reserves volumes. The new requirements also allow companies to disclose their probable and possible reserves to investors. In addition, the new disclosure requirements require companies to: (a) report the independence and qualifications of its reserves preparer or auditor; (b) file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and (c) report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The use of average prices affects impairment and depletion calculations. The new rule became effective for reserve reports as of December 31, 2009; the FASB incorporated the new guidance into the Codification as Accounting Standards Update 2010-03, effective also on December 31, 2009, ASC Topic 932, “Extractive Activities — Oil and Gas.”

We adopted the new guidance effective December 31, 2009; information about our reserves has been prepared in accordance with the new guidance; management has chosen not to provide information on probable and possible reserves. Our reserves calculations were affected primarily by the use of the average price rather than the year-end price required under the prior rules. Under the new rules issued by the SEC, the estimated future net cash flows as of December 31, 2010 and 2009, were determined using average prices for the most recent twelve months. The average is calculated using the first day of the month price for each of the twelve months that make up the reporting period. As of December 31, 2008, previous rules required that estimated future net cash flows from proved reserves be based on period end prices. The changes resulting from the new rules did not significantly impact our impairment testing, depreciation, depletion and amortization expense, or other results of operations.

Proved reserves and associated cash flows are based on the Company’s combined reserve reports as of December 31, 2010, which were prepared by T. J. Smith & Company, Inc. and W. D. Von Gonten & Co., both of which are independent reservoir engineering firms. Netherland, Sewell & Associates, Inc. audited the combined reserve reports as of December 31, 2010.

For further information on the methods and controls used in the process of estimating reserves, as well as the qualifications of each of the three engineering firms, see “Our Oil and Natural Gas Reserves — Internal Control and Qualifications” included herein.

Oil and gas producing activities are conducted onshore within the continental United States and all of our proved reserves are located within the United States.

The unaudited reserve and other information presented below is provided as supplemental information in accordance with the provisions of ASC Topic 932-235.

Estimated Quantities of Proved Reserves

The following table sets forth the net proved reserves of the Company as of December 31, 2010, 2009, and 2008, and the changes therein during the years then ended. Proved reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids that geological and engineering data demonstrate with reasonable

F-36

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made.

	Oil			Gas			NGL
	(MBbls)			(MMcf)			(MBbls)(1)
Total Proved Reserves:
Balance at December 31, 2007		5,850			83,471			—
Production during 2008		(492	)		(6,637	)		—
Purchases in place		797			19,105			—
Discoveries and extensions		219			7,273			—
Revisions of previous quantity estimates and other		(700	)		(16,026	)		—
Balance at December 31, 2008		5,674			87,186			—
Production during 2009		(552	)		(10,610	)		—
Purchases in place(2)		1			85,786			—
Discoveries and extensions		462			26,292			—
Revisions of previous quantity estimates and other		2,910			(5,549	)		—
Balance at December 31, 2009		8,495			183,105			—
Production during 2010		(964	)		(24,026	)		(147	)
Purchases in place(3)		5,301			49,217			660
Discoveries and extensions		3,306			24,022			207
Revisions of previous quantity estimates and other		(3,951	)		9,135			1,015
Balance at December 31, 2010		12,187			241,453			1,735
Proved Developed Reserves:
Balance at December 31, 2007		4,365			51,711			—
Balance at December 31, 2008		4,453			64,870			—
Balance at December 31, 2009		6,978			101,082			—
Balance at December 31, 2010		7,867			159,226			1,301

(1)	Natural gas liquids were not tracked in our reserve reports prior to 2010.
(2)	Primarily the purchase of producing properties in the Deep Bossier trend in 2009.
(3)	Purchase of Meridian in 2010.

Proved Undeveloped Reserves

The total of the Company’s proved undeveloped reserves (“PUDs”) is 111 Bcfe, or approximately 34% of total proved reserves at December 31, 2010. The PUDs are primarily in our Deep Bossier area, in South Louisiana, and in our Blackjack Creek field in Florida. Total PUDs for the prior year-end were 91 Bcfe, or 39% of our total reserves. The acquisition of Meridian in 2010, including PUDs booked post-acquisition for Meridian properties, accounts for the majority of the increase in PUDs (25 Bcfe). In addition, there were extensions at Blackjack Creek and certain fields in East Texas, which added approximately 19 Bcfe, offset by a downward revision at Deep Bossier (22 Bcfe.)

In 2010, we converted 12.6 Bcfe, or 14% of total year end 2009 PUDs, to proved developed reserves. In addition, we converted 7.0 Bcfe, or 17%, of PUDs acquired with Meridian, to proved developed reserves. Costs relating to the development of PUDs (including Meridian) were approximately $28.4 million in 2010. Costs of PUD development in 2010 do not represent the total costs of these conversions, as additional costs

F-37

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

may have been recorded in previous years. Estimated future development costs relating to the development of 2010 year-end PUDs are $156 million. All PUDs but one are scheduled to be drilled by 2015.

Approximately 7.6 Bcfe of our PUDs at December 31, 2010 originated more than five years ago. The most significant of these is a 5.6 Bcfe waterflood expansion project at the East Hennessey Unit in Oklahoma which has been underway for four years and is proceeding in stages. We expect to reach full implementation of the project over the next 2-5 years.

Capitalized Costs Relating to Oil and Natural Gas Producing Activities

	December 31,
	2010			2009
	(Dollars in thousands)
Capitalized costs:
Proved properties	$	707,364		$	435,706
Unproved properties		13,205			10,232
Total		720,569			445,938
Accumulated depreciation, depletion and amortization		(276,504	)		(210,437	)
Net capitalized costs	$	444,065		$	235,501

Costs Incurred in Oil and Natural Gas Acquisition, Exploration and Development Activities

Acquisition costs in the table below include costs incurred to purchase, lease, or otherwise acquire property. Exploration expenses include additions to exploratory wells, including those in progress, and other exploration expenses, such as geological and geophysical costs. Development costs include additions to production facilities and equipment and additions to development wells, including those in progress.

	Year Ended December 31,
	2010		2009		2008
	(Dollars in thousands)
Costs incurred during the year:
Property acquisition costs
Unproved	$	3,018	$	2,383	$	4,293
Proved(1)		148,518		47,415		36,487
Exploration		57,830		17,636		24,077
Development(2)		98,053		46,480		76,935
	$	307,419	$	113,914	$	141,792

(1)

Property acquisition costs for proved properties in 2010 include the purchase of Meridian for $147.4 million and an adjustment to the purchase price of the Deep Bossier properties of $1.0 million. Property acquisition costs for proved properties in 2009 include acquisition of a group of producing wells in the Deep Bossier, $43.5 million; acquisition of proved properties in 2008 included primarily a group of properties in San Jacinto County, Texas for $29.0 million.

(2)

Includes asset retirement costs of $609,000, $162,000, and $1,067,000, for the years ended December 31, 2010, 2009, and 2008, respectively.

F-38

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Suspended Well Costs

There were no wells in suspense at December 31, 2010, 2009 and 2008, respectively.

Results of Operations from Oil and Natural Gas Producing Activities

	Year Ended December 31,
	2010			2009			2008
	(Dollars in thousands)
Operating revenues:
Natural gas	$	125,866		$	66,290		$	58,458
Oil		75,827			34,283			38,055
Natural gas liquids		6,844			1,690			2,470
Other revenue		1,475			1,558			3,629
		210,012			103,821			102,612
Less:
Lease and plant operating expense		41,905			23,871			20,658
Production and ad valorem taxes		11,141			4,755			6,954
Workover expense		7,409			8,988			8,113
Exploration expense		31,037			12,839			11,675
Depreciation, depletion and amortization		59,090			48,659			49,219
Impairment expense		8,399			6,165			11,487
Accretion expense		1,370			492			729
Gain on sale of assets		(1,766	)		(738	)		—
(Benefit from) provision for state income taxes		2			(750	)		250
		158,587			104,281			109,085
Results of operations from oil and natural gas producing activities	$	51,425		$	(460	)	$	(6,473	)
Depletion and amortization expense per Mcfe	$	1.93		$	3.50		$	5.13

Standardized Measure of Discounted Future Net Cash Flows

The information that follows has been developed pursuant to ASC 932-235 and utilizes reserve and production data prepared by our independent petroleum consultants. Reserve estimates are inherently imprecise and estimates of new discoveries are less precise than those of producing oil and natural gas properties. Accordingly, these estimates are expected to change as future information becomes available.

Future cash inflows as of December 31, 2010 and 2009 were calculated using an unweighted arithmetic average of oil and gas prices in effect on the first day of each month in the respective year, except where prices are defined by contractual arrangements. Future cash inflows as of December 31, 2008 were estimated using oil and gas prices in effect at the end of the year, except where prices are defined by contractual arrangements, in accordance with SEC guidance in effect prior to the issuance of the Modernization Rules. Operating costs, production and ad valorem taxes and future development costs are based on current costs with no escalation.

Actual future prices and costs may be materially higher or lower. Actual future net revenues also will be affected by factors such as actual production, supply and demand for oil and natural gas, curtailments or

F-39

ALTA MESA HOLDINGS, LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

increases in consumption by natural gas purchasers, changes in governmental regulations or taxation and the impact of inflation on costs.

The following table sets forth the components of the standardized measure of discounted future net cash flows for the years ended December 31, 2010, 2009, and 2008:

	At December 31,
	2010			2009			2008
	(Dollars in thousands)
Future cash flows	$	2,060,794		$	1,154,974		$	771,781
Future production costs		(618,319	)		(360,639	)		(213,159	)
Future development costs		(255,128	)		(148,097	)		(49,524	)
Future taxes on income		—			—			—
Future net cash flows		1,187,347			646,238			509,098
Discount to present value at 10 percent per annum		(482,165	)		(307,941	)		(231,740	)
Standardized measure of discounted future net cash flows	$	705,182		$	338,297		$	277,358
Base price for natural gas, per Mcf, in the above computations was:	$	4.38		$	3.87		$	5.71
Base price for crude oil, per Bbl, in the above computations was:	$	79.43		$	61.18		$	44.60

No consideration was given to the Company’s hedged transactions.

Changes in Standardized Measure of Discounted Future Net Cash Flows

The following table sets forth the changes in standardized measure of discounted future net cash flows:

	Year Ended December 31,
	2010			2009			2008
	(Dollars in thousands)
Balance at beginning of year	$	338,297		$	277,358		$	415,237
Sales of oil and natural gas, net production costs		(148,082	)		(64,649	)		(63,258	)
Changes in sales and transfer prices, net of production costs		27,025			(124,417	)		(177,634	)
Revisions of previous quantity estimates		(15,189	)		16,223			(41,803	)
Purchases of reserves-in-place		250,996			177,581			56,451
Sales of reserves-in-place		—			—			—
Current year discoveries and extensions		131,492			48,744			69,765
Changes in estimated future development costs		5,998			(9,740	)		(3,610	)
Development costs incurred during the year		29,413			27,917			11,077
Accretion of discount		33,830			27,736			41,524
Net change in income taxes		—			—			—
Change in production rate (timing) and other		51,402			(38,456	)		(30,391	)
Net change		366,885			60,939			(137,879	)
Balance at end of year	$	705,182		$	338,297		$	277,358

F-40

Independent Auditors’ Report

To the Members of
Alta Mesa Holdings, LP and Subsidiaries

We have audited the accompanying statements of revenues and direct operating expenses of the oil and gas properties purchased by Alta Mesa Holdings, LP and Subsidiaries, from Chesapeake Energy Corporation for the period January 1, 2009 through July 22, 2009 and for the fiscal twelve month period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the statements of revenues and direct operating expenses of the oil and gas properties purchased by Alta Mesa Holdings, LP and Subsidiaries from Chesapeake Energy Corporation for the period January 1, 2009 through July 22, 2009 and for the fiscal twelve month period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

/s/ UHY LLP

Houston, Texas

April 8, 2011

F-41

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF THE OIL AND GAS PROPERTIES PURCHASED BY ALTA MESA HOLDINGS, LP
AND SUBSIDIARIES FROM CHESAPEAKE ENERGY CORPORATION

	January 1, 2009			Twelve Months Ended
	through July 22, 2009			December 31, 2008
	(Dollars in thousands)
Revenues	$	9,815		$	28,627
Direct Operating Expenses		(1,462	)		(2,223	)
Excess of revenues over direct operating expenses	$	8,353		$	26,404

See accompanying Notes to the Statements of Revenues and Direct Operating Expenses

F-42

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

OF THE OIL AND GAS PROPERTIES PURCHASED BY ALTA MESA HOLDINGS, LP
AND SUBSIDIARIES FROM CHESAPEAKE ENERGY CORPORATION

NOTE 1 — BASIS OF PRESENTATION

On July 23, 2009, as part of an on-going lawsuit related to preferential right issues with Chesapeake Energy Corporation (“Chesapeake”) and operators Gastar Exploration Texas, LP (“Gastar”) and Encana Oil and Gas Inc. (“Encana”), Navasota Resources Ltd., LLP (the “Company”), a wholly-owned subsidiary of Alta Mesa Holdings, LP, entered into an agreement to acquire from Chesapeake, interests in oil and gas properties (the “Properties) for approximately $41.7 million, with an effective date of July 23, 2009. The accompanying statements of revenues and direct operating expenses relate to the operations of the oil and gas properties acquired by the Company.

The statements of revenues and direct operating expenses associated with the properties were derived from the accounting records of Gastar and Encana. During the years presented, the Properties were not accounted for or operated as a consolidating entity or as a separate division by Chesapeake. Revenues and direct operating expenses for the Properties included in the accompanying statements represent the net collective working and revenue interests to be acquired by the Company on the accrual basis of accounting. The revenues and direct operating expenses presented herein relate only to the interests in the producing oil and natural gas properties which were acquired and do not represent all of the oil and natural gas operations of Chesapeake, other owners, or third party working interest owners. Direct operating expenses include lease operating expenses and production and other related taxes. General and administrative expenses, depreciation, depletion and amortization (“DD&A”) of oil and gas properties and federal and state taxes have been excluded from direct operating expenses in the accompanying statements of revenues and direct operating expenses because the allocation of certain expenses would be arbitrary and would not be indicative of what such costs would have been had the Properties been operated as a stand alone entity. Full separate financial statements prepared in accordance with accounting principles generally accepted in the United States of America do not exist for the Properties and are not practicable to prepare in these circumstances. The statements of revenues and direct operating expenses presented are not indicative of the results of operations of the Properties on a go forward basis due to the changes in the business and omission of various operating expenses.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue recognition:  The Company records revenues when its products are delivered at a fixed or determinable price, title has transferred and collectability is reasonably assured.

NOTE 3 — SUPPLEMENTARY OIL AND GAS INFORMATION — (UNAUDITED)

Estimated Net Quantities of Oil and Natural Gas Reserves

The following estimates of the net proved oil and natural gas reserves of the properties, which are located entirely within the United States of America, are based on evaluations prepared by third-party reservoir engineers. Reserves were estimated in accordance with guidelines established by the Securities and Exchange Commission (“SEC”) and the Financial Accounting Standards Board (“FASB”), which require that reserve estimates be prepared under existing economic and operating conditions with no provisions for price and cost changes except by contractual arrangements. Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, reserve estimates are expected to change as additional performance data becomes available.

F-43

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF THE OIL AND GAS PROPERTIES PURCHASED BY ALTA MESA HOLDINGS, LP
AND SUBSIDIARIES FROM CHESAPEAKE ENERGY CORPORATION — (Continued)

Estimated quantities of proved domestic gas reserves and changes in quantities of proved developed and undeveloped reserves in million cubic feet (“MMcf”) were as follows:

	Natural
	Gas (MMcf)
Proved reserves at December 31, 2007		8,356
Production		(1,993	)
Extensions and discoveries		13,220
Revisions in previous estimates		—
Proved reserves at December 31, 2008		19,583
Production		(2,148	)
Extensions and discoveries		14,306
Revisions in previous estimates		—
Proved reserves at July 22, 2009		31,741
Proved developed reserves:
December 31, 2007		8,356
December 31, 2008		19,583
July 22, 2009		31,741

Discounted Future Net Cash Flows

A summary of the discounted future net cash flows relating to proved natural gas reserves is shown below. Future net cash flows are computed with guidelines established by the SEC and FASB, using commodity prices and costs that relate to the properties’ existing proved natural gas reserves.

The discounted future net cash flows related to proved natural gas reserves for the period from January 1, 2009 through July 22, 2009, the twelve months ended December 31, 2008 are as follows (in thousands):

	January 1, 2009		Twelve Months Ended
	through July 22, 2009		December 31, 2008
Future cash inflows	$	198,200	$	111,817
Less related future
Production costs		34,980		19,734
Development costs		2,720		1,535
Future net cash flows		160,500		90,548
Ten percent annual discount for estimated timing of cash flows		76,042		42,899
Standardized measure of discounted future cash flows	$	84,458	$	47,649

F-44

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
OF THE OIL AND GAS PROPERTIES PURCHASED BY ALTA MESA HOLDINGS, LP
AND SUBSIDIARIES FROM CHESAPEAKE ENERGY CORPORATION — (Continued)

Changes in Discounted Future Net Cash Flows

A summary of the changes in the discounted future net cash flows applicable to proved natural gas reserves follows (in thousands):

	January 1, 2009			Twelve Months Ended
	through July 22, 2009			December 31, 2008
Beginning of period	$	47,649		$	24,177
Revisions of previous estimates
Changes in prices and costs		4,736			12,785
Changes in quantities		(7	)		—
Additions to proved reserves resulting from extensions, discoveries and improved recovery, less related costs		38,546			32,958
Accretion of discount		4,765			2,418
Sales, net of production costs		(8,353	)		(26,404	)
Changes in rate of production and other		(2,878	)		1,715
Net change		36,809			23,472
End of period	$	84,458		$	47,649

F-45

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended March 31,
	2010		2009
	(Thousands of dollars, except per share information)
	(unaudited)
REVENUES:
Oil and natural gas	$	20,976	$	22,109
Price risk management activities		—		2
Interest and other		71		21
		21,047		22,132
OPERATING COSTS AND EXPENSES:
Oil and natural gas operating		3,066		4,629
Severance and ad valorem taxes		1,772		1,635
Depletion and depreciation		7,397		11,763
General and administrative		4,517		3,369
Rig operations, net		1,442		—
Accretion expense		546		523
Impairment of long-lived assets		—		59,539
		18,740		81,458
EARNINGS (LOSS) BEFORE OTHER EXPENSE & INCOME TAXES		2,307		(59,326	)
OTHER EXPENSE:
Interest expense		1,966		1,634
EARNINGS (LOSS) BEFORE INCOME TAXES		341		(60,960	)
INCOME TAXES:
Current		1		1
Deferred		—		—
		1		1
NET EARNINGS (LOSS)	$	340	$	(60,961	)
NET EARNINGS (LOSS) PER SHARE:
Basic	$	—	$	(0.66	)
Diluted	$	—	$	(0.66	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic		92,476		92,451
Diluted		93,678		92,451

See notes to consolidated financial statements.

F-46

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2010			2009
	(Thousands of dollars)
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	7,851		$	5,273
Restricted cash		35			35
Accounts receivable, less allowance for doubtful accounts of $110 [2010 and 2009]		11,028			12,185
Prepaid expenses and other		1,381			2,195
Total current assets		20,295			19,688
PROPERTY AND EQUIPMENT:
Oil and natural gas properties, full cost method (including $1,567 [2010] and $1,647 [2009] not subject to depletion)		1,891,818			1,890,079
Equipment and other		20,467			20,469
		1,912,285			1,910,548
Less accumulated depletion and depreciation		1,754,669			1,747,274
Total property and equipment, net		157,616			163,274
OTHER ASSETS:
Other		106			168
Total other assets		106			168
TOTAL ASSETS	$	178,017		$	183,130
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	7,241		$	6,136
Revenues and royalties payable		5,095			4,890
Due to affiliates		243			542
Accrued liabilities		8,877			10,109
Asset retirement obligations		5,626			4,570
Current maturities of long-term debt		88,512			93,666
Total current liabilities		115,594			119,913
LONG-TERM DEBT		—			—
OTHER:
Asset retirement obligations		18,880			19,253
Other		2,453			3,220
		21,333			22,473
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value (200,000,000 shares authorized, 92,475,527 [2010 and 2009] issued)		925			925
Additional paid-in capital		535,449			535,443
Accumulated deficit		(495,284	)		(495,624	)
Total stockholders’ equity		41,090			40,744
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	178,017		$	183,130

See notes to consolidated financial statements.

F-47

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2010			2009
	(Thousands of dollars)
	(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)	$	340		$	(60,961	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depletion and depreciation		7,397			11,763
Impairment of long-lived assets		—			59,539
Amortization of other assets		61			304
Non-cash compensation		6			53
Non-cash gain on change in fair value of outstanding warrants		—			(641	)
Non-cash price risk management activities		—			(2	)
Accretion expense		546			523
Changes in assets and liabilities:
Restricted cash		—			4
Accounts receivable		1,157			3,927
Prepaid expenses and other		814			2,429
Due to/from affiliates		(299	)		89
Accounts payable		1,278			(3,448	)
Advances from non-operators		1			(3,376	)
Revenues and royalties payable		205			(951	)
Asset retirement obligations		(140	)		—
Other assets and liabilities		(1,869	)		(497	)
Net cash provided by operating activities		9,497			8,755
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(1,765	)		(15,009	)
Net cash used in investing activities		(1,765	)		(15,009	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reductions to long-term debt		(5,154	)		(445	)
Reductions in notes payable		—			(1,573	)
Net cash used in financing activities		(5,154	)		(2,018	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		2,578			(8,272	)
Cash and cash equivalents at beginning of period		5,273			13,354
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	7,851		$	5,082
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Increase (decrease) of Non-cash Activities:
Accrual of capital expenditures	$	(303	)	$	(2,826	)
ARO liability — changes in estimates	$	277		$	522

See notes to consolidated financial statements.

F-48

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended March 31, 2010 and 2009

										Accumulated
					Additional		Accumulated			Other
	Common Stock				Paid-In		Earnings			Comprehensive		Treasury Stock
	Shares		Par Value		Capital		(Deficit)			Income (Loss)		Shares		Cost			Total
	(In thousands)
	(unaudited)
Balance, December 31, 2008		93,045	$	948	$	538,561	$	(422,028	)	$	8,129		1,712	$	(3,099	)	$	122,511
Effect of adoption of EITF Issue 07-05 (to record outstanding warrants at fair value)		—		—		—		(960	)		—		—		—			(960	)
Stock-based compensation		25		—		53		—			—		—		—			53
Accumulated other comprehensive income		—		—		—		—			227		—		—			227
Net loss		—		—		—		(60,961	)		—		—		—			(60,961	)
Balance, March 31, 2009		93,070	$	948	$	538,614	$	(483,949	)	$	8,356		1,712	$	(3,099	)	$	60,870
Balance, December 31, 2009		92,475	$	925	$	535,443	$	(495,624	)	$	—		—	$	—		$	40,744
Stock-based compensation		—		—		6		—			—		—		—			6
Net income		—		—		—		340			—		—		—			340
Balance, March 31, 2010		92,475	$	925	$	535,449	$	(495,284	)	$	—		—	$	—		$	41,090

See notes to consolidated financial statements.

F-49

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Three Months Ended March 31,
	2010		2009
	(Thousands of dollars)
	(unaudited)
Net earnings (loss) applicable to common stockholders	$	340	$	(60,961	)
Other comprehensive income (loss), net of tax, for unrealized gains (losses) from hedging activities:
Unrealized holding gains (losses) arising during period(1)		—		3,798
Reclassification adjustments on settlement of contracts(2)		—		(3,571	)
		—		227
Total comprehensive income (loss)	$	340	$	(60,734	)
(1) Net income tax (expense) benefit	$	—	$	—
(2) Net income tax (expense) benefit	$	—	$	—

See notes to consolidated financial statements.

F-50

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.   BASIS OF PRESENTATION, AND GOING CONCERN

The consolidated financial statements reflect the accounts of The Meridian Resource Corporation and its subsidiaries (the “Company” or “Meridian”) after elimination of all significant intercompany transactions and balances. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange Commission (“SEC”).

The financial statements included herein as of March 31, 2010, and for the three month periods ended March 31, 2010 and 2009, are unaudited, and in the opinion of management, the information furnished reflects all material adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and of the results of operations for the interim periods presented. Certain minor reclassifications of prior period financial statements have been made to conform to current reporting practices. The results of operations for interim periods are not necessarily indicative of results to be expected for a full year.

Merger.  On December 22, 2009, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Alta Mesa Holdings, LP (“Alta Mesa”) and Alta Mesa Acquisition Sub, LLC, a direct wholly owned subsidiary of Alta Mesa (“Merger Sub”). Under the terms of the Merger Agreement, as amended, shareholders would receive $0.33 per share of common stock, to be paid in cash, and Alta Mesa would assume the Company’s debts and obligations. The Company would be merged into Merger Sub with Merger Sub as the surviving entity. The merger was subject to approval by holders of two thirds of the Company’s outstanding shares of common stock. The Company filed a proxy statement regarding the proposed merger on February 8, 2010, in which the Company’s board recommended that shareholders vote in favor of the merger. At a shareholder meeting held on May 10, 2010 where a vote was taken, the merger was approved. The transaction was closed on May 13, 2010, at which time the Company’s stock ceased to be publicly traded and the Company was merged with and into Merger Sub, assuming the name Alta Mesa Acquisition Sub, LLC. The Company’s shareholders immediately prior to the merger ceased to have any rights as shareholders of the Company, and no longer have an interest in the Company’s future earnings or growth (other than the right to receive consideration for their shares under the Merger Agreement, or the right to an appraisal of their shares under Texas law.) The debt under the Company’s credit facility, $82 million at the time, was extinguished, and all other liabilities, including a $5.3 million term note, were assumed by Merger Sub as of the closing date. The Company has filed the appropriate forms with the SEC to discontinue its reporting obligations, and the stock has been delisted from the New York Stock Exchange. As of May 13, 2010, Meridian is no longer a separate and independent going concern.

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which implies that the Company will continue to meet its obligations and continue its operations for the next twelve months. No adjustments relating to the recoverability or classification of recorded amounts have been made, other than to classify all bank debt as current. No adjustments related to the subsequent merger have been made.

2.   SIGNIFICANT ACCOUNTING POLICIES

Rig Operations

The Company has a long-term dayrate contract to utilize a drilling rig from an unaffiliated service company, Orion Drilling Company, LLC, (“Orion”). Although capital expenditure plans no longer accommodate full use of this rig, the Company is obligated for the dayrate regardless of whether the rig is working or idle. When the contracted rig is not in use on Meridian-operated wells, Orion may contract it to third parties, or the rig may be idled. The Company is obligated for the difference in dayrates if it is utilized by a third party at a lesser dayrate. The contracted rig was utilized drilling a Meridian-operated well through the end of

F-51

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the first quarter of 2009, and was subsequently contracted to a third party at a lesser dayrate than the Company’s contracted dayrate. The costs of the rig when it is not providing services to the Company have been included in the consolidated statements of operations as “Rig operations, net.”

TMR Drilling Corporation (“TMRD”), a wholly owned subsidiary of the Company, owns a rig which was also intended primarily to drill wells operated by the Company. In April 2008, Orion began leasing the rig from TMRD, and operating it under a dayrate contract with the Company. When the rig drills Company wells, drilling expenditures under the dayrate contract are capitalized as exploration costs and all TMRD profits or losses related to lease of the rig, including any incidental profits related to the share of drilling costs borne by joint interest partners, are offset against the full cost pool.

When the rig is used by Orion for work on third party wells in which the Company has no economic or management interest, TMRD’s profit or loss related to the lease of the rig is reflected in the consolidated statements of operations. During 2009, the rig worked on third party wells. The Company is obligated for the difference in dayrates if the rig is utilized by a third party at a lesser dayrate. Any such loss on a contractual obligation is included in “Rig operations, net” in the consolidated statements of operations. The Company’s share of profits on the lease of the rig to Orion partially offsets the loss on the drilling contract and is included in “Rig operations, net” on the consolidated statements of operations. The total lease revenue included in “Rig operations, net” for the three months ended March 31, 2010 was $145,000. For the three months ended March 31, 2009, although the Company was unable to fully utilize the two rigs, rig operations were estimated to have resulted in no profit or loss. Therefore no related expense was recognized. The dayrate contract for the Company-owned rig expired March 31, 2010; the dayrate contract for the other rig continues to February 2011.

Depreciation of the owned rig was $221,000 for each of the three month periods ended March 31, 2010 and 2009, respectively. In the first quarter of 2009, $90,000 was capitalized to the full cost pool, and the remainder was included in depletion and depreciation expense on the consolidated statements of operations. In the first quarter of 2010, the entire amount was included in depletion and depreciation expense.

See Note 8 for additional information on the Company’s plans for potential disposition of the Company-owned rig and the obligation under the remaining drilling contract and the lease of the Company-owned rig.

Property and Equipment

The Company uses the full cost method of accounting for its investments in oil and natural gas properties. Capitalized costs of proved oil and natural gas properties are depleted on a units of production method using proved oil and natural gas reserves. Costs depleted include net capitalized costs subject to depletion and estimated future dismantlement, restoration, and abandonment costs. All costs incurred in the acquisition, exploration, and development of oil and natural gas properties, including unproductive wells, are capitalized. Through March 2009, capitalized costs included general and administrative costs directly related to acquisition, exploration and development activities. Subsequent to that date, no general and administrative costs have been capitalized, as such activities have significantly decreased. The Company may capitalize general and administrative costs in the future, when costs related directly to the acquisition, exploration, and development of oil and natural gas properties are incurred. Total general and administrative costs capitalized were zero and $2.6 million for the three month periods ended March 31, 2010 and March 31, 2009, respectively.

Equipment, which includes a drilling rig, computer equipment, computer hardware and software, furniture and fixtures, leasehold improvements and automobiles, is recorded at cost and is generally depreciated on a straight-line basis over the estimated useful lives of the assets, which range in periods of three to seven years.

F-52

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and bank borrowings. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to the highly liquid nature of these short-term instruments. As of March 31, 2010 the Company believes it is not practicable to estimate the fair value of its outstanding debt under its credit facility in light of the payment default. The reduction in credit standing from this default would certainly tend to reduce the fair value of the debt. However, the merger transaction which closed in May 2010, under which Merger Sub assumed all the liabilities and paid off the $82 million outstanding balance under the credit facility, in addition to a cash purchase of all of the outstanding shares of the Company, indicates the underlying collateral, the Company’s oil and natural gas reserves, was supportive of the full balance of the debt, and the carrying value and fair value were similar. The carrying value of the debt was $83 million at March 31, 2010. See Note 6 for further details on the credit facility. The Company also has a financing agreement with a fixed rate, the rig note. The fair value of the rig note at March 31, 2010 is estimated as approximately $4 million; the corresponding carrying value of the debt is $5.5 million. The fair value was estimated based on the fair value of the underlying collateral. The collateral is a drilling rig owned by the Company; see Note 4 for further information on how fair value for the rig was estimated. Our oil and gas price risk hedging contracts are also financial instruments, recorded at fair value; see Note 11.

Recent Accounting Pronouncements

A standard to improve disclosures about fair value measurements was issued by the Financial Accounting Standards Board (the “FASB”) in January 2010. The additional disclosures required include: (1) the different classes of assets and liabilities measured at fair value, (2) the significant inputs and techniques used to measure Level 2 and Level 3 assets and liabilities for both recurring and nonrecurring fair value measurements, (3) the gross presentation of purchases, sales, issuance and settlements for the rollforward of Level 3 activity and (4) the transfers in and out of Levels 1 and 2. The Company adopted the new disclosures in the first quarter of 2010.

3.   IMPAIRMENT OF LONG-LIVED ASSETS

At the end of each quarter, the unamortized cost of oil and natural gas properties, net of related deferred income taxes, is limited to the sum of the estimated future after-tax net revenues from proved properties using period-end prices, after giving effect to cash flow hedging positions, discounted at 10%, and the lower of cost or fair value of unproved properties adjusted for related income tax effects. This is known as the “ceiling test.”

Accordingly, based on March 31, 2009 pricing of $3.76 per Mmbtu of natural gas and $49.66 per barrel of oil, the Company recognized a non-cash impairment of $59.5 million of the Company’s oil and natural gas properties under the full cost method of accounting during the first quarter of 2009. Prices used in the ceiling test in the first quarter of 2010 were $3.99 per Mmbtu of natural gas and $69.64 per barrel of oil. No impairment was required in the first quarter of 2010.

Due to the substantial volatility in oil and natural gas prices and their effect on the carrying value of the Company’s proved oil and natural gas reserves, there can be no assurance that future write-downs will not be required as a result of factors that may negatively affect the present value of proved oil and natural gas reserves and the carrying value of oil and natural gas properties, including volatile oil and natural gas prices, downward revisions in estimated proved oil and natural gas reserve quantities, and unsuccessful drilling activities.

Based on March 31, 2010 prices for oil and natural gas, the Company had an excess of the ceiling over our capitalized costs of $17.4 million (pretax and aftertax). See Note 8 for further information regarding the sensitivity of the ceiling to changes in the prices of oil and natural gas.

F-53

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company performs impairment testing of its drilling rig each quarter. At March 31, 2010, the carrying value of the rig exceeded its estimated fair value (based on discounted cash flows) by approximately $0.7 million. No impairment was necessary at that date as the undiscounted cash flows exceeded the carrying value. Authoritative accounting guidance provides for impairment only when carrying value exceeds undiscounted cash flows.

4.   FAIR VALUE MEASUREMENT

The Company follows the FASB guidance regarding fair value contained in Accounting Standards Codification Topic 820 (“ASC 820”). ASC 820 provides a hierarchy of fair value measurements, based on the inputs to the fair value estimation process. It requires disclosure of fair values classified according to defined “levels,” which are based on the reliability of the evidence used to determine fair value, with Level 1 being the most reliable and Level 3 the least. Level 1 evidence consists of observable inputs, such as quoted prices in an active market. Level 2 inputs typically correlate the fair value of the asset or liability to a similar, but not identical item which is actively traded. Level 3 inputs include at least some unobservable inputs, such as valuation models developed using the best information available in the circumstances.

The Company adopted the provisions of ASC 820 as it applies to assets and liabilities measured at fair value on a recurring basis on January 1, 2008. This included oil and natural gas derivatives contracts, and as of January 1, 2009, certain outstanding warrants known as the General Partner Warrants (see Note 9).

In accordance with the deferred effective date provided by the FASB, on January 1, 2009, the Company adopted the provisions of ASC 820 for non-financial assets and liabilities which are measured at fair value on a non-recurring basis. This includes new additions to asset retirement obligations, and any long-lived assets, other than oil and natural gas properties, for which an impairment write-down is recorded during the period. There have been no such impairments of long-lived assets in the current period. ASC 820 does not apply to oil and natural gas properties accounted for under the full cost method, which are subject to impairment based on SEC rules.

The Company utilized the modified Black-Scholes option pricing model to estimate the fair value of oil and natural gas derivative contracts. Inputs to this model include observable inputs from the New York Mercantile Exchange (“NYMEX”) for futures contracts, and inputs derived from NYMEX observable inputs, such as implied volatility of oil and gas prices. The Company classified the fair values of all its derivative contracts as Level 2. There are currently no derivative contracts outstanding.

The fair value of the Company’s General Partner Warrants (see Note 9) was calculated using the Black-Scholes option pricing model.

Assets and liabilities measured at fair value on a recurring basis

			Fair Value Measurements at
			March 31, 2010 Using
			Quoted
			Prices in
			Active		Significant		Significant
			Markets for		Other		Other
			Identical		Observable		Unobservable
	March 31,		Assets		Inputs		Inputs
Description	2010		(Level 1)		(Level 2)		(Level 3)
			(Thousands of dollars)
General Partner Warrants(1)	$	412		—	$	412		—

(1) General Partner Warrants are more fully described in Note 9.

As noted above, ASC 820 also applies to new additions to asset retirement obligations, which must be estimated at fair value when added. New additions result from estimations for new obligations for new

F-54

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

properties, and fair values for them are categorized as Level 3. Such estimations are based on present value techniques which utilize company-specific information. The Company recorded no additions to asset retirement obligations measured at fair value during the three months ended March 31, 2010.

The Company estimates the fair value of its drilling rig quarterly (see Note 3), based on the present value of estimated cash flows from the rig, using management’s best estimates of utilization and dayrates. This is considered a Level 3 fair value.

5.   ACCRUED LIABILITIES

Below is the detail of accrued liabilities on the Company’s balance sheets as of March 31, 2010 and December 31, 2009 (thousands of dollars):

	March 31,		December 31,
	2010		2009
Capital expenditures	$	703	$	830
Operating expenses/taxes		3,182		4,072
Compensation		419		918
Interest and accrued bank fees		268		353
General partner warrants		412		412
Shell settlement (current portion)		1,878		1,003
Other		2,015		2,521
Total	$	8,877	$	10,109

6.   DEBT

Credit Facility.  The Company had a credit facility with a group of banks (collectively, the “Lenders,”) with a maturity date of February 21, 2012 (the “Credit Facility.”) The Credit Facility was subject to borrowing base redeterminations and bore a floating interest rate based on LIBOR or the prime rate of

Fortis Capital Corp., the administrative agent of the Lenders. The borrowing base and the interest formula were redetermined or amended multiple times. As of December 31, 2008, the borrowing base was $95 million and was fully drawn. The interest rate formula in effect at that date was LIBOR plus 3.25% or prime plus 2.5%.

Obligations under the Credit Facility were secured by pledges of outstanding capital stock of the Company’s subsidiaries and by a first priority lien on not less than 75% (95% in the case of an event of default) of its present value of proved oil and natural gas properties. The Credit Facility also contained other restrictive covenants, including, among other items, maintenance of certain financial ratios, restrictions on cash dividends on common stock and under certain circumstances preferred stock, limitations on the redemption of preferred stock, limitations on repurchases of common stock, restrictions on incurrence of additional debt, and an unqualified audit report on the Company’s consolidated financial statements.

As of December 31, 2008, the Company was in default of two of the covenants under the agreement, including one that required that the Company maintain a current ratio (as defined in the Credit Facility) of one to one. The current ratio, as defined, was less than the required one to one at December 31, 2008 and continued to be, through March 31, 2010. The Company was also in default of the requirement that the Company’s auditors’ opinion for the current financial statements be without modification. Both the Company’s 2008 and 2009 audit reports from its independent registered public accounting firm included a “going concern” explanatory paragraph that expressed substantial doubt about the Company’s ability to continue as a going concern. As a result of the defaults, the outstanding Credit Facility balances of $87.5 million at December 31,

F-55

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2009 and $83.0 million at March 31, 2010 have been classified as current in the accompanying consolidated balance sheets. Also in response to the defaults, the Company provided additional security to the Lenders, such that first priority liens covered in excess of 95% of the present value of proved oil and natural gas properties.

The Credit Facility was subject to semi-annual borrowing base redeterminations effective on April 30 and October 31 of each year, with limited additional unscheduled redeterminations also available to the Lenders or the Company. The determination of the borrowing base was subject to a number of factors, including quantities of proved oil and natural gas reserves, the banks’ price assumptions related to the price of oil and natural gas and other various factors unique to each member bank. The Lenders could redetermine the borrowing base to a lower level if they determined that the Company’s oil and natural gas reserves, at the time of redetermination, were inadequate to support the borrowing base then in effect. In the event the redetermined borrowing base was less than outstanding borrowings under the Credit Facility, the Credit Facility required repayment of the deficit within a specified period of time.

On April 13, 2009, the Lenders notified the Company that, effective April 30, 2009, the borrowing base was reduced from its then-current and fully drawn $95 million to $60 million. As a result, a $34.5 million payment to the Lenders for the borrowing base deficiency was due July 29, 2009, based on the borrowings outstanding on that date (a $500,000 principal payment had been made in June 2009). The Company did not have sufficient cash available to repay the deficiency and, consequently, failed to pay such amount when due. Prior to July 29, 2009, the Company was in covenant default under the terms of the Credit Facility; on and after that date it was in covenant default and payment default as well.

Under the terms of the Credit Facility, the Lenders had various remedies available in the event of a default, including acceleration of payment of all principal and interest.

On September 3, 2009, the Company entered into a forbearance agreement with the Lenders under the Credit Facility (“Bank Forbearance Agreement”). The Bank Forbearance Agreement provided that the Lenders would forbear from exercising any right or remedy arising as a result of certain existing events of default under the Credit Facility until the earlier of December 3, 2009 or the date that any default occurred under the Bank Forbearance Agreement. The terms of the Bank Forbearance Agreement required the Company to consummate a capital transaction such as a capital infusion or a sale or merger of the Company, before October 30, 2009. The deadlines for the capital transaction and the forbearance period were extended several times by amendments to the Bank Forbearance Agreement.

The Bank Forbearance Agreement also modified the schedule of borrowing base redeterminations from semi-annually to quarterly. However, a subsequent amendment to the Bank Forbearance Agreement provided a limited waiver postponing the next borrowing base redetermination to the end of the forbearance period.

The Lenders exercised their right to increase the interest rate on outstanding borrowings by 2% (“default interest,” under the terms of the Credit Facility) as of July 30, 2009. The floating interest rate was based on the prime interest rate, 3.25%, plus 2.5%, plus the default increment of 2%, resulting in a total rate of 7.75% at December 31, 2009 and continuing at that rate through April 2010. The additional default interest was effective as to all outstanding borrowings under the Credit Facility since the July 29, 2009 payment default, and the LIBOR alternative was also eliminated. No interest payments were in arrears at either March 31, 2010 or December 31, 2009.

At origination of the Bank Forbearance Agreement, the Company paid the Lenders $2.0 million of principal owed under the Credit Facility. Under the terms of the agreement the Company made a total of $5.0 million in further principal payments through December 31, 2009, bringing the balance at that date to $87.5 million; as of March 31, 2010, the balance was reduced to $83.0 million, and as of May 4, 2010 the balance was $82.0 million. The Company also paid forbearance fees to the Lenders of $945,000, charged to interest expense in the third quarter of 2009, and incurred an additional $476,000 in forbearance fees, charged

F-56

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

to interest expense in the fourth quarter of 2009. In addition, the Company incurred approximately $2.3 million in legal and consulting fees, recorded in general and administrative expense, to originate and amend the Bank Forbearance Agreement and other related agreements during 2009.

On December 22, 2009, the Company entered into the Merger Agreement with Alta Mesa. The Eleventh Amendment to Forbearance and Amendment Agreement (“11th Amendment”) provided the Lenders’ consent to the Merger Agreement and extended the date for consummation of a capital transaction, such as the Alta Mesa merger, and the forbearance period, to the earlier of the consummation of the merger with Alta Mesa, the termination of the Merger Agreement, or May 31, 2010 and required the Company to repay $1 million in principal to the Lenders per month. On April 15, 2010, the Company entered the Twelfth Amendment to Forbearance and Amendment Agreement, which extended the deadline for shareholder vote to May 7, 2010 and included an amendment fee of $208,000; on May 7, 2010, the Company entered the Thirteenth Amendment to Forbearance and Amendment Agreement which extended the deadline for consummation of the transaction to May 14, 2010 (or to no later than May 31, 2010 upon consent by the Lenders, based on necessity for additional time to obtain shareholder or other approvals); this final extension included an amendment fee of $82,000. Total forbearance fees in the first quarter of 2010 were zero; forbearance fees of $290,000 will be recorded in the second quarter of 2010.

On May 10, 2010, the merger proposal was approved by the shareholders and the merger transaction was closed on May 13, 2010. On that date, all debts under the Credit Facility, including accrued interest and forbearance fees, were extinguished.

Rig Note.  On May 2, 2008, the Company, through its wholly owned subsidiary TMRD, entered into a financing agreement (“rig note”) with The CIT Group / Equipment Financing, Inc. (“CIT”). Under the terms of the agreement, TMRD borrowed $10.0 million, at a fixed interest rate of 6.625%, which increases in an event of default. The loan was collateralized by the drilling rig, as well as general corporate credit. The term of the loan was five years, expiring on May 2, 2013.

Effective as of December 31, 2008, the Company was in default under the rig note. Under the terms of the rig note, a default under the Credit Facility triggered a cross-default under the rig note. The remedies available to CIT in the event of default included acceleration of all principal and interest payments. Accordingly, all indebtedness under the rig note, $6.2 million at December 31, 2009 and $5.5 million at March 31, 2010, has been classified as current in the accompanying consolidated balance sheets.

On September 3, 2009, the Company entered into a forbearance agreement with CIT (“CIT Forbearance Agreement.”) The forbearance period under the CIT Forbearance Agreement was extended several times, most recently by the Fourth Amendment to Forbearance and Amendment Agreement (“4th Amendment”). The forbearance period would end the earlier of the consummation of the merger with Alta Mesa, the termination of the Merger Agreement, May 31, 2010, or the date of any default under either the CIT Forbearance Agreement or the Bank Forbearance Agreement. The 4th Amendment also provided CIT’s consent to the merger with Alta Mesa.

At origination of the CIT Forbearance Agreement, the Company prepaid, without penalty, $1.0 million of principal on the rig note and began to pay “default interest” of an additional 4% effective August 1, 2009, as allowed to CIT under the terms of the rig note, bringing the total monthly payment to approximately $220,000. The Company also paid, and recorded in general and administrative expense in the third quarter of 2009, a forbearance fee of approximately $50,000.

On May 13, 2010, the merger transaction with Alta Mesa was closed, and the forbearance period ended. The note continued with TMRD, and both Merger Sub and Alta Mesa Holdings, LP became guarantors of the note.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7.   INCOME TAXES

The Company’s effective income tax rate is near zero in the first quarters of both 2009 and 2010. Generally accepted accounting principles require a valuation allowance to be recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company does not expect to realize its deferred tax assets, and therefore recorded a valuation allowance in the fourth quarter of 2008 to the full extent of all net deferred tax assets. The allowance has subsequently been adjusted each quarter, including the first quarters of 2009 and 2010, to maintain this complete offset of all deferred tax assets. Thus, the tax expense or benefit related to net income or loss recognized in the first quarter of each of 2010 and 2009 was zero, and the effective tax rate for those periods is 0%. There is no tax expense related to net income for the first quarter of 2010, as tax loss carryforwards are sufficient to absorb the income.

8.   COMMITMENTS AND CONTINGENCIES

Default under Credit Agreement

As described in Note 6, the Company has been in default under the terms of the Credit Facility and the rig note since December 31, 2008. As of December 31, 2009, and continuing at March 31, 2010, the Company had obtained forbearance from these Lenders under short-term agreements. The credit defaults have subsequently been resolved by the closing of the merger transaction on May 13, 2010. Consistent with prior periods, the Company has not provided for this matter in its financial statements at March 31, 2010 and December 31, 2009, other than to reclassify all outstanding debt as current at those dates.

Litigation

H. L. Hawkins litigation.  In December 2004, the estate of H.L. Hawkins filed a claim against Meridian for damages “estimated to exceed several million dollars” for Meridian’s alleged gross negligence, willful misconduct and breach of fiduciary duty under certain agreements concerning certain wells and property in the S.W. Holmwood and E. Lake Charles Prospects in Calcasieu Parish in Louisiana, as a result of Meridian’s satisfying a prior adverse judgment in favor of Amoco Production Company. Mr. James Bond had been added as a defendant by Hawkins claiming Mr. Bond, when he was General Manager of Hawkins, did not have the right to consent, could not consent or breached his fiduciary duty to Hawkins if he did consent to all actions taken by Meridian. Mr. James T. Bond was employed by H.L. Hawkins Jr. and his companies as General Manager until 2002. He served on the Board of Directors of the Company from March 1997 to August 2004. After Mr. Bond’s employment ended with Mr. Hawkins, Jr., and his companies, Mr. Bond was engaged by The Meridian Resource & Exploration LLC as a consultant. This relationship continued until his death. Mr. Bond was also the father-in-law of Michael J. Mayell, the Chief Operating Officer of the Company at the time. A hearing was held before Judge Kay Bates on April 14, 2008. Judge Bates granted Hawkins’ Motion finding that Meridian was estopped from arguing that it did not breach its contract with Hawkins as a result of the United States Fifth Circuit’s decision in the Amoco litigation. Meridian disagrees with Judge Bates’ ruling but the Louisiana First Court of Appeal declined to hear Meridian’s writ requesting the court overturn Judge Bates’ ruling. Meridian filed a motion with Judge Bates asking that the ruling be made a final judgment which would give Meridian the right to appeal immediately; however, the Judge declined to grant the motion, allowing the case to proceed to trial. Management continues to vigorously defend this action on the basis that Mr. Hawkins individually and through his agent, Mr. Bond, agreed to the course of action adopted by Meridian and further that Meridian’s actions were not grossly negligent, but were within the business judgment rule. Since Mr. Bond’s death, a pleading has been filed substituting the proper party for Mr. Bond. The Company is unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, the Company has not provided any amount for this matter in its financial statements at March 31, 2010.

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Title/lease disputes.  Title and lease disputes may arise in the normal course of the Company’s operations. These disputes are usually small but could result in an increase or decrease in reserves once a final resolution to the title dispute is made.

Environmental litigation.  Various landowners have sued Meridian (along with numerous other oil companies) in lawsuits concerning several fields in which the Company has had operations. The lawsuits seek injunctive relief and other relief, including unspecified amounts in both actual and punitive damages for alleged breaches of mineral leases and alleged failure to restore the plaintiffs’ lands from alleged contamination and otherwise from the Company’s oil and natural gas operations. In some of the lawsuits, Shell Oil Company and SWEPI LP (together, “Shell”) have demanded contractual indemnity and defense from Meridian based upon the terms of the two acquisition agreements related to the fields, and in another lawsuit, Exxon Mobil Corporation has demanded contractual indemnity and defense from Meridian on the basis of a purchase and sale agreement related to the field(s) referenced in the lawsuit; Meridian has challenged such demands. In some cases, Meridian has also demanded defense and indemnity from their subsequent purchasers of the fields. On December 9, 2008 Shell sent Meridian a letter reiterating its demand for indemnity and making claims of amounts which were substantial in nature and if adversely determined, would have a material adverse effect on the Company. Shell initiated formal arbitration proceedings on May 11, 2009, seeking relief only for the claimed costs and expenses arising from one of the two acquisition agreements between Shell and Meridian. Meridian denies that it owes any indemnity under either of the two acquisition agreements; however, the Company and Shell entered into a settlement agreement on January 11, 2010, which was amended on April 15, 2010. Under the terms of the settlement as amended, the Company will pay Shell $5 million in five equal annual payments beginning in 2010 upon the closing of a sale of the assets or equity interest in the Company to a third party (such as the merger with Alta Mesa described in Note 1, which has now occurred), or at an earlier date should Meridian be able. Meridian will also transfer title to certain land the Company owns in Louisiana and an overriding royalty interest of minor value. In return, Shell will release Meridian from any indemnity claim arising from any current or historical claim against Shell, and will release Meridian’s indemnity obligation with respect to any future claim on all but a small subset of the properties acquired pursuant to the acquisition agreements related to the fields. The Company recorded $4.2 million in expense in the fourth quarter of 2009 to recognize the estimated value of the proposed settlement, including the historical cost of the land and discounting the cash payments to present value. The settlement becomes binding upon the first payment of $1 million, which occurred in conjunction with the closing of the merger transaction on May 13, 2010, and the transfer of the land and overriding royalty interest. Merger Sub has assumed all of the remaining obligations to Shell under the settlement agreement.

Other than the Shell matter, the Company is unable to express an opinion with respect to the likelihood of an unfavorable outcome of the various environmental claims or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, the Company has not provided any amount for these claims in its financial statements at March 31, 2010.

Litigation involving insurable issues.  There are no material legal proceedings involving insurable issues which exceed insurance limits to which Meridian or any of its subsidiaries is a party or to which any of its property is subject, other than ordinary and routine litigation incidental to the business of producing and exploring for crude oil and natural gas.

Property tax litigation.  In August, 2009, Gene P. Bonvillain, the tax assessor for Terrebonne Parish, Louisiana, filed a lawsuit against the Company, alleging under-reporting and underpayment of parish property taxes for the years 1998-2008. The claims, which are very similar to thirty other cases filed by Bonvillain against other oil and natural gas companies, allege that certain facilities or other property of the Company were improperly omitted from annual self-reporting tax forms submitted to the parish for the years 1998-2008, and that the properties Meridian did report on such forms were improperly undervalued and mischaracterized. The claims include recovery of delinquent taxes in the amount of $3.5 million, which the claimant advises

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

may be revised upward, and general fraud charges against the Company. All thirty-one similar cases have been consolidated in U.S. District Court for the Eastern District of Louisiana.

Meridian denies the claims and expects to file a motion to dismiss the case, which it considers to be without merit. Meridian asserts that Mr. Bonvillain has no legal basis for filing litigation to collect what are, in essence, additional taxes based on reassessed property values. Furthermore, Meridian asserts that the fraud element of the case is insufficiently supported. Meridian intends to vigorously defend this action. The Company is unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, the Company has not provided any amount for this matter in its financial statements at March 31, 2010.

Shareholder litigation.  On January 8, 2010 Mr. Eliezer Leider, a purported Company shareholder, filed a derivative lawsuit filed on behalf of the Company, Leider, derivatively on behalf of The Meridian Resource Corporation v. Ching, et al. in Harris County District Court. Defendants were the Company’s directors, Alta Mesa Holdings, LP, and Alta Mesa Acquisition Sub, LLC. Leider alleged that the Company’s directors breached their fiduciary duties in approving the merger transaction with Alta Mesa and he requested, but was denied, a temporary restraining order against the Company. This lawsuit was consolidated with another, similar one from Mr. Jeremy Rausch, which was a class action lawsuit. Counsel for Leider was appointed lead counsel. Effective on March 23, 2010, the parties executed a Memorandum of Understanding (“MOU”) reflecting their agreement in principle to settle the now-consolidated Leider action. The MOU provides that the defendants deny all liability. The proposed settlement was conditioned on, among other things, approval of the merger by Meridian’s shareholders, which has now occurred. Under the terms of the proposed settlement, and upon approval by the Court, all claims relating to the Merger Agreement as amended, the merger, and disclosures related to the merger will be dismissed on behalf of Meridian’s stockholders. As part of the proposed settlement, the defendants have agreed not to oppose plaintiff’s counsel’s request to the court to be paid up to $164,000 for their fees and expenses and up to $1,000 as an incentive award for plaintiff Leider. Any payment of fees, expenses, and incentives is subject to final approval of the settlement and such fees, expenses, and incentives by the court. The parties have agreed to stay the litigation while the settlement process is ongoing. The proposed settlement did not affect the amount of merger consideration to be paid to Meridian’s shareholders in the merger or change any other terms of the merger or Merger Agreement as amended. The terms of the MOU have been described in previous SEC filings. Expenses of the proposed settlement were recorded in the first quarter of 2010.

Other contingencies

Ceiling Test.  At the end of each quarter, the unamortized cost of oil and natural gas properties, net of related deferred income taxes, is limited to the sum of the estimated future after-tax net revenues from proved properties, after giving effect to cash flow hedge positions, discounted at 10%, and the lower of cost or fair value of unproved properties adjusted for related income tax effects. This limitation is known as the “ceiling test.” Under new rules issued by the SEC, the estimated future net cash flows as of March 31, 2010, were determined using average prices for the most recent twelve months. The average is calculated using the first day of the month price for each of the twelve months that make up the reporting period. As of March 31, 2009, previous rules required that estimated future net cash flows from proved reserves be based on period end prices. The Company recorded impairment charges against oil and natural gas properties based on the results of the ceiling test in the fourth quarter of 2008 and again in the first and fourth quarters of 2009. No impairment was recorded in the first quarter of 2010.

At March 31, 2010, we had a cushion (i.e., the excess of the ceiling over capitalized costs) of approximately $17.4 million (pretax and after-tax). A 10% increase in prices would have increased the cushion by approximately $27.9 million. A 10% decrease in prices would have eliminated the cushion and resulted in an impairment write down of approximately $10 million. Decreases in prices affecting the end of subsequent

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

accounting periods, net of the effect of any hedging positions the Company may have at the time, may necessitate additional impairment charges. Any future impairment would be impacted by changes in the accumulated costs of oil and natural gas properties, which may in turn be affected by sales or acquisitions of properties and additional capital expenditures. Future impairment would also be impacted by changes in estimated future net revenues, which are impacted by additions and revisions to oil and natural gas reserves.

Drilling rigs.  As described in Note 2, “Rig Operations”, the Company continues to have a significant contractual obligation for the use of a drilling rig. The Company’s capital expenditure plans no longer include full use of this rig; however, the Company is obligated for the dayrate regardless of whether the rig is working or idle. The operator, Orion, has sought other parties to use the rig and agreed to credit the Company’s obligation, based on revenues from third parties who utilize the rig when the Company is unable to. Management cannot predict whether utilization of the rig by third parties will be consistent, nor to what extent it may offset obligations under the dayrate contract. The Company has not provided any amount for any future losses on this drilling contract in its financial statements at March 31, 2010. The drilling contract will terminate in February 2011.

The Company entered into a forbearance agreement with Orion which may grant title to a company-owned rig to Orion, the operator under the dayrate contract, in exchange for release of all accrued and future liabilities under the rig contract and under a similar rig contract now expired. This would occur at termination and final payment of the related rig note held by CIT, which is scheduled for 2013, if the Company continues to perform its obligations under the rig note and the Company-owned rig is free of any significant security interest at title transfer. Both the rig value and the net payable to Orion would be written off at the time of such title transfer, if it were to occur. Alternatively, the terms of the forbearance agreement allow the Company an option to settle all claims with Orion in cash at the end of the term of the rig note, and retain title to the rig.

At March 31, 2010, the rig is included in equipment at a net book value of $4.4 million, and accounts payable includes a total of $5.5 million in accrued unpaid invoices from Orion for underutilization of both rigs, which is net of a reduction of $1.2 million estimated as the Company’s share of profits on the rig it owns. The Company performs impairment testing of the rig each quarter; see Note 3.

9.   STOCKHOLDER’S EQUITY

Merger

Subsequent to March 31, 2010, as described in Note 1, the Company merged with and into Merger Sub, with Merger Sub as the surviving entity as of May 13, 2010. In connection with the consummation of the merger, each share of the Company’s common stock outstanding immediately prior to the merger was converted into the right to receive $0.33 per share in cash. Shares of the Company have ceased to be publicly traded. The Company’s shareholders immediately prior to the merger ceased to have any rights as shareholders of the Company and no longer have an interest in the Company’s future earnings and growth (other than the right to receive consideration for their shares under the Merger Agreement, or the right to an appraisal of their shares under Texas law.)

Subsequent to March 31, 2010, certain outstanding warrants (see below, “Warrants”) were settled for a total of approximately $431,000 with two members of the Company’s Board of Directors, who are also former officers.

Common Stock

In March 2007, the Company’s Board of Directors authorized a share repurchase program; an amendment to the Credit Facility agreement at that time increased the available limit for the Company’s repurchase of its common stock from $1.0 million to $5.0 million annually, so long as the Company was in compliance with

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

certain provisions of the Credit Facility. From March 2007, the inception of the share repurchase program, through March 31, 2010, the Company had repurchased 535,416 common shares at a cost of $1,234,000, of which 501,300 shares were reissued for 401(k) contributions, for contract services and for compensation, and 34,116 were retired. The Bank Forbearance Agreement prohibited any further repurchase of Company stock; none was repurchased in either 2009 or in 2010.

General Partner Warrants

As of March 31, 2010, the Company had outstanding warrants (the “General Partner Warrants”) that entitle Joseph A. Reeves, Jr. and Michael J. Mayell to purchase an aggregate of 1,872,998 shares of common stock at an exercise price of $0.10 per share through December 31, 2015. The number of shares of common stock purchasable upon the exercise of each warrant and its corresponding exercise price are subject to various anti-dilution adjustments. Messrs. Reeves and Mayell, respectively, are the former Chief Executive Officer and former Chief Operating Officer of the Company.

The Company adopted new authoritative guidance from the FASB with regard to these warrants on January 1, 2009. The provisions of the new guidance, which relate to equity securities indexed to the price of a company’s own stock, were considered in regard to the General Partner Warrants and it was determined that they were not indexed to the price of the Company’s own stock and should therefore be subject to fair value accounting. Accordingly, a charge of $960,000 was recorded on January 1, 2009 to retained earnings to reflect the cumulative effect of recording the 1,884,544 warrants outstanding at that date at fair value, with an offsetting entry to accrued liabilities. Adjustments to fair value are made each quarter, beginning in 2009. For the three month periods ended March 31, 2010 and 2009, the Company recorded a gain (loss) on the valuation of the warrants of zero and $641,000, respectively. The gain in 2009 is included in General and Administrative Expense.

There were 1,872,998 General Partner Warrants outstanding at March 31, 2010, included in accrued liabilities at a total fair value of $412,000. Fair value is based on the Black-Scholes model for option pricing.

At the closing of the merger transaction, the warrants were canceled and the holders of the warrants received approximately $431,000 in total.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.   EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net earnings (loss) per share (in thousands, except per share):

	Three Months Ended March 31,
	2010		2009
Numerator:
Net earnings (loss)	$	340	$	(60,961	)
Denominator:
Denominator for basic earnings per share — weighted-average shares outstanding		92,476		92,451
Effect of potentially dilutive common shares:
Warrants and stock rights(a)		1,202		NA
Employee and director stock options(a)		NA		NA
Denominator for diluted earnings per share — weighted-average shares outstanding and assumed conversions		93,678		92,451
Basic earnings (loss) per share	$	—	$	(0.66	)
Diluted earnings (loss) per share	$	—	$	(0.66	)

(a) The number of warrants excluded for the three months ended March 31, 2009 totaled approximately 3.3 million. The number of options excluded for that period totaled approximately 700,000. A total of 404,000 options were excluded for the three months ended March 31, 2010, because the options’ exercise price was greater than the average market price of the common shares, which made them anti-dilutive.

Warrants and stock options for which the exercise prices were greater than the average market price of the Company’s common stock are excluded from the computation of diluted earnings per share. All potentially dilutive shares, whether from options or warrants, are excluded when there is an operating loss, because inclusion of such shares would be anti-dilutive.

11.   RISK MANAGEMENT ACTIVITIES

Management of Financial Risk

The Company’s operating environment included two primary financial risks which could be addressed through derivatives and similar financial instruments: the risk of movement in oil and natural gas commodity prices, which impacted revenue, and the risk of interest rate movements, which impacted interest expense from floating rate debt.

The Company has not historically utilized derivative contracts or any other form of hedging against interest rate risk.

The Company utilized derivative contracts to address the risk of adverse oil and natural gas commodity price fluctuations. While the use of derivative contracts limits the downside risk of adverse price movements, it may also limit future gains from favorable movements. No derivative contracts were entered into for trading purposes, and the Company generally holds each instrument to maturity. The Company’s commodity derivative contracts were considered cash flow hedges under generally accepted accounting principles.

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Oil and Natural Gas Hedging Contracts

The Company has historically utilized derivative contracts to hedge the sale of a portion of its future production. The Company’s objective was to reduce the impact of commodity price fluctuations on both income and cash flow, as well as to protect future revenues from adverse price movements. Management considered some exposure to market pricing to be desirable, due to the potential for favorable price movements, but preferred to achieve a measure of stability and predictability over revenues and cash flows by hedging some portion of production. All the Company’s hedging agreements expired in December 2009. All of the Company’s hedging agreements were executed by affiliates of the Lenders under the Credit Facility and were collateralized by the security interest the Lenders had in the oil and natural gas assets of the Company. Due to the default under the Credit Facility, the Lenders did not allow the Company to enter into any additional hedging agreements. As a result, the Company’s oil and natural gas sales for the first quarter of 2010 were unhedged, and there are no assets or liabilities from price risk management as of March 31, 2010.

Accounting and financial statement presentation for derivatives

The Company accounts for its derivative contracts under the provisions of ASC 815, “Derivatives and Hedging.” Under ASC 815, the Company’s commodity derivatives were designated as cash-flow hedges and were stated at fair value on the Consolidated Balance Sheets. See Note 4, “Fair Value Measurements” for further information on how fair values of derivative instruments are determined. Changes in fair value, which occur due to commodity price movements, were offset in Accumulated Other Comprehensive Income. When the derivative contract or a portion of it matured, the gain or loss was settled in cash and reclassified from Accumulated Other Comprehensive Income to Revenues from Oil and Natural Gas. Net settlements under hedging agreements increased oil and natural gas revenues by zero and $3,571,000 for the three months ended March 31, 2010 and 2009, respectively. A gain or loss may be recorded to earnings prior to contract maturity if a portion of the cash flow hedge becomes “ineffective” under the guidelines provided by ASC 815, or if the forecasted transaction is no longer expected to occur. Although the Company periodically recorded gains or losses from hedge ineffectiveness, there were no losses recorded due to cancellations or changes in expectations regarding occurrence of the hedged transactions. The following table provides information

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

regarding gains and losses related to derivative contracts, and where these amounts are reflected within the Company’s financial statements (in thousands):

Effect of Derivative Contracts on the Consolidated Statements of Operations

	Location of Gain	For the Three Months Ended
	(Loss) Within	March 31,	March 31,
Description	Financial Statements	2010	2009
Derivative contracts designated as cash flow hedging instruments:
Gain (loss) on derivative contracts recognized in Other Comprehensive Income (OCI)
Commodities Contracts	Accumulated Other Comprehensive Income	—		3,798
Gain (loss) on derivative contracts reclassified from OCI to earnings Commodities Contracts	Oil and Natural Gas Revenues	—		3,571
Gain (loss) due to hedging ineffectiveness reported in earnings
Commodities Contracts	Revenues from Price Risk Management Activities	—		2
Fair value of derivative contracts designated as cash flow hedging instruments, excluded from effectiveness assessments		NONE		NONE
Derivative contracts not designated as hedging instruments		NONE		NONE

As of March 31, 2010, the Company had no unrealized gains or losses deferred in Accumulated Other Comprehensive Income.

12.   SHARE-BASED COMPENSATION

Stock Options

The Company records share-based compensation expense based on the fair value of the share-based award determined at grant date and recognized over the service period, which is generally the vesting period of the award. Share-based compensation expense of approximately $6,000 and $53,000 was recorded in the three month periods ended March 31, 2010 and 2009, respectively. Compensation paid in share-based awards included stock options and non-vested shares granted to our employees and directors.

13.   ASSET RETIREMENT OBLIGATIONS

The Company estimates the present value of future costs of dismantlement and abandonment of its wells, facilities, and other tangible long-lived assets, recording them as liabilities in the period incurred. Asset retirement obligations are calculated using an expected present value technique. Salvage values are excluded from the estimation.

When the liability is initially recorded, the entity increases the carrying amount of the related long-lived asset. Accretion of the liability is recognized each period, and the capitalized cost is amortized over the useful life of the related asset. Upon settlement of the liability, the Company incurs a gain or loss based upon the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

difference between the estimated and final liability amounts. The Company records gains or losses from settlements as adjustments to the full cost pool.

The following table describes the change in the Company’s asset retirement obligations for the three months ended March 31, 2010 (thousands of dollars):

Asset retirement obligation at December 31, 2009	$	23,823
Additional retirement obligations recorded in 2010		—
Settlements during 2010		(140	)
Revisions to estimates and other changes during 2010		277
Accretion expense for 2010		546
Asset retirement obligation at March 31, 2010		24,506
Less: current portion		5,626
Asset retirement, long-term, at March 31, 2010	$	18,880

The Company’s revisions to estimates represent changes to the expected amount and timing of payments to settle the asset retirement obligations. These changes primarily result from obtaining new information about the timing of our obligations to plug the natural gas and oil wells and costs to do so.

14.   SUBSEQUENT EVENT

Merger.  On May 10, 2010, the Company held a shareholder meeting and vote at which the merger with Alta Mesa was approved. The transaction was closed on May 13, 2010 and the Company was merged with and into Merger Sub, with Merger Sub as the surviving entity. In connection with the consummation of the merger, each share of the Company’s common stock outstanding immediately prior to the merger was converted into the right to receive $0.33 per share in cash. Shares of the Company have ceased to be publicly traded. The Company’s shareholders immediately prior to the merger ceased to have any rights as shareholders of the Company and no longer have an interest in the Company’s future earnings and growth (other than the right to receive consideration for their shares under the Merger Agreement, or the right to an appraisal of their shares under Texas law.) The debt under the Company’s credit facility, $82 million at the time, was extinguished, and all other liabilities, including a $5.3 million term note, were assumed by Merger Sub.

The Company has filed the appropriate forms with the SEC to discontinue its reporting obligations, and the stock has been delisted from the New York Stock Exchange.

F-66

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

The Meridian Resource Corporation

Houston, Texas

We have audited the accompanying consolidated balance sheets of The Meridian Resource Corporation as of December 31, 2009 and 2008 and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Meridian Resource Corporation at December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, at December 31, 2009, the Company was in violation of certain debt covenants resulting in the default on its revolving credit and other debt agreements, which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 2 to the consolidated financial statements, effective December 31, 2009, the Company changed its reserve estimates and related disclosures as a result of adopting new oil and natural gas reserve estimation and disclosure requirements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The Meridian Resource Corporation’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated April 15, 2010 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP (formerly known as BDO Seidman, LLP)

Houston, Texas

April 15, 2010

F-67

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2009			2008			2007
	(Thousands, except per share data)
REVENUES:
Oil and natural gas	$	89,245		$	148,634		$	150,709
Price risk management activities		(6	)		(18	)		21
Interest and other		15			549			1,448
		89,254			149,165			152,178
OPERATING COSTS AND EXPENSES:
Oil and natural gas operating		17,550			24,280			28,338
Severance and ad valorem taxes		6,696			9,727			9,409
Depletion and depreciation		37,102			72,072			77,076
General and administrative		18,121			19,063			16,221
Rig operations, net		4,254			—			—
Contract settlement		—			9,894			—
Indemnification settlement		4,223			—			—
Accretion expense		2,083			2,064			2,230
Impairment of long-lived assets		63,495			223,543			—
Hurricane damage repairs		—			1,462			—
		153,524			362,105			133,274
EARNINGS (LOSS) BEFORE OTHER EXPENSES & INCOME TAXES		(64,270	)		(212,940	)		18,904
OTHER EXPENSES:
Interest expense		8,486			5,408			6,090
EARNINGS (LOSS) BEFORE INCOME TAXES		(72,756	)		(218,348	)		12,814
INCOME TAX EXPENSE (BENEFIT):
Current		(120	)		(269	)		650
Deferred		—			(8,193	)		5,027
		(120	)		(8,462	)		5,677
NET EARNINGS (LOSS)		(72,636	)		(209,886	)		7,137
NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCKHOLDERS	$	(72,636	)	$	(209,886	)	$	7,137
NET EARNINGS (LOSS) PER SHARE:
Basic	$	(0.79	)	$	(2.30	)	$	0.08
Diluted	$	(0.79	)	$	(2.30	)	$	0.08
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic		92,465			91,382			89,307
Diluted		92,465			91,382			94,944

See notes to consolidated financial statements.

F-68

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2009			2008
	(Thousands of dollars)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,273		$	13,354
Restricted cash		35			9,971
Accounts receivable, less allowance for doubtful accounts of $110 [2009] and $210 [2008]		12,185			16,980
Prepaid expenses and other		2,195			3,292
Assets from price risk management activities		—			8,447
Total current assets		19,688			52,044
PROPERTY AND EQUIPMENT:
Oil and natural gas properties, full cost method (including $1,647 [2009] and $39,927 [2008] not subject to depletion)		1,890,079			1,877,925
Land		—			48
Equipment and other		20,469			21,371
		1,910,548			1,899,344
Less accumulated depletion and depreciation		1,747,274			1,647,496
Total property and equipment, net		163,274			251,848
OTHER ASSETS:
Other		168			683
Total other assets		168			683
TOTAL ASSETS	$	183,130		$	304,575
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	6,133		$	15,097
Advances from non-operators		3			5,517
Revenues and royalties payable		4,890			6,267
Due to affiliates		542			8,145
Notes payable		—			1,775
Accrued liabilities		10,109			18,831
Liabilities from price risk management activities		—			311
Asset retirement obligations		4,570			1,457
Current income taxes payable		—			47
Current maturities of long-term debt		93,666			103,849
Total current liabilities		119,913			161,296
LONG-TERM DEBT		—			—
OTHER:
Asset retirement obligations		19,253			20,768
Other		3,220			—
		22,473			20,768
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7, 11, and 12)
STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value (200,000,000 shares authorized, 92,475,527 [2009] and 93,045,592 [2008] shares issued)		925			948
Additional paid-in capital		535,443			538,561
Accumulated deficit		(495,624	)		(422,028	)
Accumulated other comprehensive income		—			8,129
		40,744			125,610
Less treasury stock, at cost, -0- [2009] and 1,712,114 [2008] shares		—			3,099
Total stockholders’ equity		40,744			122,511
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	183,130		$	304,575

See notes to consolidated financial statements.

F-69

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2009			2008			2007
	(Thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)	$	(72,636	)	$	(209,886	)	$	7,137
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depletion and depreciation		37,102			72,072			77,076
Impairment of long-lived assets		63,495			223,543			—
Amortization of other assets		516			224			436
Non-cash compensation		153			1,728			2,549
Non-cash gain on change in fair value of outstanding warrants		(549	)		—			—
Non-cash price risk management activities		6			18			(21	)
Accretion expense		2,083			2,064			2,230
Deferred income taxes		—			(8,193	)		5,027
Changes in assets and liabilities:
Restricted cash		9,936			(9,941	)		1,252
Accounts receivable		4,044			3,645			4,411
Prepaid expenses and other		1,191			1,246			(1,081	)
Accounts payable		(3,022	)		4,629			(946	)
Advances from non-operators		(5,514	)		(1,480	)		3,945
Due to (from) affiliates		(7,603	)		10,725			(1,910	)
Revenues and royalties payable		(1,377	)		(325	)		(1,341	)
Asset retirement obligations		(2,243	)		(613	)		(2,055	)
Other assets and liabilities		1,435			3,311			282
Net cash provided by operating activities		27,017			92,767			96,991
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(25,377	)		(124,059	)		(116,696	)
Proceeds from sale of property		2,432			7,171			3,060
Net cash used in investing activities		(22,945	)		(116,888	)		(113,636	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt		—			48,000			3,000
Reductions in long-term debt		(10,183	)		(19,150	)		(3,000	)
Proceeds — Notes payable		2,232			5,684			9,540
Reductions — Notes payable		(4,007	)		(6,571	)		(9,632	)
Repurchase of common stock		—			(75	)		(1,158	)
Payment of taxes due on vested stock		(195	)		(3,035	)		—
Additions to deferred loan costs		—			(904	)		(3	)
Net cash provided by (used in) financing activities		(12,153	)		23,949			(1,253	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(8,081	)		(172	)		(17,898	)
Cash and cash equivalents at beginning of year		13,354			13,526			31,424
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	5,273		$	13,354		$	13,526
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash activities:
Issuance of shares for contract services	$	—		$	144		$	(1,033	)
Capital expenditures	$	(12,585	)	$	(6,460	)	$	4,799
Rig depreciation capitalized to oil and natural gas properties	$	91		$	1,538		$	—
ARO Liability — new wells drilled	$	47		$	451		$	476
ARO Liability — changes in estimates	$	1,711		$	(3,160	)	$	24

See notes to consolidated financial statements.

F-70

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2007, 2008 and 2009

													Accumulated
							Additional			Accumulated			Other
	Common Stock						Paid-In			Earnings			Comprehensive			Treasury Stock
	Shares			Par Value			Capital			(Deficit)			Income (Loss)			Shares			Cost			Total
	(In thousands)
Balance, December 31, 2006		89,140		$	928		$	534,441		$	(219,279	)	$	4,707			—		$	—		$	320,797
Shares repurchased		—			—			—			—			—			501			(1,158	)		(1,158	)
Issuance of rights to common stock		—			5			(5	)		—			—			—			—			—
Company’s 401(k) plan contribution		42			1			155			—			—			(157	)		390			546
Share-based compensation		—			—			294			—			—			—			—			294
Compensation expense		—			—			1,598			—			—			—			—			1,598
Accum. other comprehensive income activity		—			—			—			—			(4,928	)		—			—			(4,928	)
Issuance of shares for contract services		237			2			584			—			—			(175	)		447			1,033
Issuance of shares as compensation		31			—			78			—			—			(10	)		33			111
Net earnings		—			—			—			7,137			—			—			—			7,137
Balance, December 31, 2007		89,450		$	936		$	537,145		$	(212,142	)	$	(221	)		159		$	(288	)	$	325,430
Issuance of rights to common stock		—			4			(4	)		—			—			—			—			—
Compensation expense — stock rights		—			—			968			—			—			—			—			968
Issuance of shares for rights to common stock		3,515			17			3,082			—			—			1,712			(3,099	)		—
Reductions of rights to common stock		—			(10	)		(3,025	)		—			—			—			—			(3,035	)
Company’s 401(k) plan contribution		103			1			240			—			—			(99	)		181			422
Share-based compensation		—			—			193			—			—			—			—			193
Accum. other comprehensive income activity		—			—			—			—			8,350			—			—			8,350
Issuance of shares for contract services		11			—			37			—			—			(60	)		107			144
Shares repurchased and retired		(34	)		—			(75	)		—			—			—			—			(75	)
Net loss		—			—			—			(209,886	)		—			—			—			(209,886	)
Balance, December 31, 2008		93,045			948			538,561			(422,028	)		8,129			1,712			(3,099	)		122,511
Effect of adoption of EITF Issue 07- 05 (to record outstanding warrants at fair value)		—			—			—			(960	)		—			—			—			(960	)
Distribution of shares from Rabbi Trust:
From treasury shares		—			(17	)		(3,082	)		—			—			(1,712	)		3,099			—
Repurchased in exchange for payment of withholding tax on vested stock		—			—			—			—			—			610			(195	)		(195	)
Retired		(610	)		(6	)		(189	)		—			—			(610	)		195			—
Share-based compensation		40			—			153			—			—			—			—			153
Accum. other comprehensive income activity		—			—			—						(8,129	)		—			—			(8,129	)
Net loss		—			—			—			(72,636	)		—			—			—			(72,636	)
Balance, December 31, 2009		92,475		$	925		$	535,443		$	(495,624	)	$	—			—		$	—		$	40,744

See notes to consolidated financial statements.

F-71

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Year Ended December 31,
	2009			2008			2007
	(Thousands of dollars)
Net earnings (loss) applicable to common stockholders	$	(72,636	)	$	(209,886	)	$	7,137
Other comprehensive income (loss), net of tax, for unrealized gains (losses) from hedging activities:
Unrealized holding gains (losses) arising during period(1)		3,616			3,806			(2,814	)
Reclassification adjustments on settlement of contracts(2)		(11,745	)		4,544			(2,114	)
		(8,129	)		8,350			(4,928	)
Total comprehensive income (loss)	$	(80,765	)	$	(201,536	)	$	2,209
(1) Net income tax (expense) benefit	$	—		$	—		$	1,515
(2) Net income tax (expense) benefit	$	—		$	(119	)	$	1,138

See notes to consolidated financial statements.

F-72

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN

The Meridian Resource Corporation and its subsidiaries (the “Company” or “Meridian”) explores for, acquires, develops and produces oil and natural gas reserves, principally located onshore in south Louisiana, Texas and offshore in the Gulf of Mexico. The Company was initially organized in 1985 as a master limited partnership and operated as such until 1990 when it converted into a Texas corporation.

Since December 31, 2008, the Company has been in default of its credit facility, under which borrowings were $87.5 million at December 31, 2009. The credit facility default gave rise to a cross default under the Company’s $6.2 million term loan (“rig note”). As a result, the Company faces substantial economic difficulties. Although operating cash flow has been positive and capital expenditures have been very significantly reduced, the Company continues to be obligated for the expense of drilling rigs it cannot fully utilize and continues to be impacted by prices for oil and natural gas which have exhibited extreme volatility in the recent past. The Company’s default under the debt agreements, which has been mitigated in the short term by certain forbearance agreements, negatively impacts future cash flow and the Company’s access to credit or other forms of capital. If the Company is unable to comply with the terms of the forbearance agreements, it will continue to be in default under the credit facility and the rig note and will be subject to the exercise of remedies by third parties on account of such defaults. The exercise of such remedies, which include acceleration of all principal and interest payments, could potentially result in the Company seeking protection under federal bankruptcy laws. Such relief could materially and adversely affect the Company and its shareholders. Therefore, there is substantial doubt as to the Company’s ability to continue as a going concern for a period longer than the next twelve months. In addition, the accompanying report of the Company’s independent registered public accounting firm includes a “going concern” explanatory paragraph that expresses substantial doubt as to the Company’s ability to continue as a going concern.

For further information regarding bank debt and forbearance agreements, see Note 5. For further information regarding the Company’s drilling rig contracts, and a forbearance agreement with the rig operator, see Note 7.

Proposed Merger.  Management has actively pursued many avenues to strengthen the financial position of the Company over the past year. As a result, on December 22, 2009, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Alta Mesa Holdings, LP (“Alta Mesa”) and Alta Mesa Acquisition Sub, LLC, a direct wholly owned subsidiary of Alta Mesa (“Merger Sub”). Under the terms of the Merger Agreement, as amended, shareholders will receive $0.33 per share of common stock, to be paid in cash, and Alta Mesa will assume the Company’s debts and obligations. The Company would be merged into Alta Mesa Acquisition Sub, LLC with the Merger Sub as the surviving entity. The Company’s stock would cease to be publicly traded. The merger is subject to approval by holders of two thirds of the Company’s outstanding shares of common stock; a shareholder meeting and vote are currently scheduled for April 28, 2010. The Company filed a proxy statement regarding the proposed merger on February 8, 2010, in which the Company’s board recommended that shareholders vote in favor of the merger. For further information on the proposed merger, refer to the proxy statement.

The Company’s various forbearance agreements have been extended to allow for completion of the merger, assuming shareholder approval is obtained. However, the most recent amendment to the bank forbearance agreement also allows the lenders to terminate the forbearance period on or after February 28, 2010, without cause, so long as the decision to terminate is unanimous among the lenders.

The Merger Agreement may be terminated under various conditions, including the occurrence of an event with a material adverse effect on Meridian (“Material Adverse Event,” as defined in the Merger Agreement). Both Meridian and Alta Mesa must adhere to certain customary representations and covenants contained in the Merger Agreement, including those that restrict Meridian’s conduct of business primarily to current operations, and restrict Meridian from soliciting other offers for the Company, although Meridian is entitled to consider

F-73

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

any “superior proposal,” as defined in the Merger Agreement. As a condition of the merger, Meridian was required to enter into a settlement regarding certain indemnification claims, which it has done (see Note 7, “Environmental litigation,” for further information).

The Merger Agreement with Alta Mesa includes a reimbursement clause under which the Company will pay Alta Mesa’s reasonable costs of the merger, not to exceed $1 million, in case of termination of the agreement under various circumstances, including expiration of the term on May 31, 2010 without consummation of the merger, and also including termination of the Merger Agreement due to non-approval in the shareholder vote. In addition to reimbursement of Alta Mesa’s costs, the Company would pay Alta Mesa a $3 million termination fee if, among other reasons, the Company terminates the Alta Mesa agreement and accepts another offer for the Company, so long as the definitive agreement related to the other offer is entered into within nine months after termination of the Merger Agreement with Alta Mesa. The termination fee would be payable no later than two business days after consummation of the transaction which triggered the fee.

Alta Mesa has the right to terminate the Merger Agreement at any time, whether before or after approval by the Company’s shareholders, upon payment of a termination fee of $3 million to the Company. The terms of the Company’s Credit Facility forbearance agreement require any such termination payment received by Meridian to be used to repay any outstanding balance under the Credit Facility.

There can be no assurance that the proposed merger will be completed. Approval by the shareholders is not assured. Litigation was filed by some shareholders claiming the Company’s directors breached their fiduciary duties in approving the merger. To avoid the risk of the litigation delaying or adversely affecting the merger and to minimize the expense of defending the Company against the lawsuit, in March 2010 management agreed to a proposed settlement of the litigation (see Note 7). There can be no assurance the bank forbearance period will not be terminated by the lenders before the proposed merger can be completed. There can be no assurance that cash flow from operations and other sources of liquidity, including asset sales, will be sufficient to meet contractual, operating and capital obligations. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which implies that the Company will continue to meet its obligations and continue its operations for the next twelve months. No adjustments relating to the recoverability or classification of recorded amounts have been made, other than to classify all bank debt as current.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, after eliminating all significant intercompany transactions.

Restricted Cash

The Company classifies cash balances as restricted cash when cash is restricted as to withdrawal or usage. The restricted cash balance at December 31, 2009, was $35,000 and at December 31, 2008, was $9,971,000. Restricted cash was increased by $9,894,000 in May 2008, when contractual obligations to certain executives were funded by cash placed in a Rabbi Trust account. The obligations and trust are more fully described in Note 12. The funds from the trust were disbursed in 2009. Remaining restricted cash is related to a contractual obligation with respect to royalties payable.

Property and Equipment

The Company follows the full cost method of accounting for its investments in oil and natural gas properties. All costs incurred in the acquisition, exploration and development of oil and natural gas properties, including unproductive wells, are capitalized. Through March 2009, capitalized costs included general and

F-74

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

administrative costs directly related to acquisition, exploration and development activities. Subsequent to that date, no general and administrative costs have been capitalized, as such activities have significantly decreased. The Company may capitalize general and administrative costs in the future, when costs related directly to the acquisition, exploration, and development of oil and natural gas properties are incurred. Total general and administrative costs capitalized for the years 2009 and 2008 were $2.6 million and $17.4 million, respectively. Proceeds from the sale of oil and natural gas properties are credited to the full cost pool, except in transactions involving a significant quantity of reserves, or where the proceeds received from the sale would significantly alter the relationship between capitalized costs and proved reserves, in which case a gain or loss is recognized. Under the rules of the Securities and Exchange Commission (“SEC”) for the full cost method of accounting, the net carrying value of oil and natural gas properties, less related deferred taxes, is limited to the sum of the present value (10% discount rate) of the estimated future net after-tax cash flows from proved reserves, as adjusted for the Company’s cash flow hedge positions, and on current costs, plus the lower of cost or estimated fair value of unproved properties adjusted for related income tax effects. Under new rules issued by the SEC, the estimated future net cash flows as of December 31, 2009, were determined using average prices for the most recent twelve months. The average is calculated using the first day of the month price for each of the twelve months that make up the reporting period. As of December 31, 2008 and 2007, previous rules required that estimated future net cash flows from proved reserves be based on period end prices. See Note 4.

Capitalized costs of proved oil and natural gas properties are depleted on a units of production method using proved oil and natural gas reserves. Costs subject to depletion include net capitalized costs, and estimated future dismantlement, restoration, and abandonment costs and are reduced by estimated salvage values. Estimated future abandonment, dismantlement and site restoration costs include costs to dismantle, relocate and dispose of the Company’s offshore production platforms, gathering systems, and wells and related structures. Capitalized costs related to unproved oil and natural gas properties are excluded from the full cost pool until proven or impaired in the judgment of management; such costs total $1.6 million and $39.9 million as of December 31, 2009 and 2008, respectively. At December 31, 2009, excluded costs include no exploratory well costs.

Equipment, which includes a drilling rig, computer equipment, computer hardware and software, furniture and fixtures, leasehold improvements and automobiles, is recorded at cost and is generally depreciated on a straight-line basis over the estimated useful lives of the assets, which range in periods of three to seven years. In 2009, gross asset retirements included $940,000 for furniture and equipment retired, with related accumulated depreciation of $911,000.

Repairs and maintenance are charged to expense as incurred.

Rig Operations

The Company has a long-term dayrate contract to utilize a drilling rig from an unaffiliated service company, Orion Drilling Company, LLC, (“Orion”). Although capital expenditure plans no longer accommodate full use of this rig, the Company is obligated for the dayrate regardless of whether the rig is working or idle. When the contracted rig is not in use on Meridian-operated wells, Orion may contract it to third parties, or the rig may be idled. The Company is obligated for the difference in dayrates if it is utilized by a third party at a lesser dayrate. The contracted rig was utilized drilling a Meridian-operated well through the end of the first quarter of 2009, and has subsequently been contracted to a third party at a lesser dayrate than the Company’s contracted dayrate. The costs of the rig when it is not providing services to the Company have been included in the consolidated statements of operations as “Rig operations, net.” TMR Drilling Corporation (“TMRD”), a wholly owned subsidiary of the Company, owns a rig which was also intended primarily to drill wells operated by the Company. In April 2008, Orion began leasing the rig from TMRD, and operating it under a dayrate contract with the Company. When the rig drills Company wells, drilling expenditures under the dayrate contract are capitalized as exploration costs and all TMRD profits or losses related to lease of the

F-75

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

rig, including any incidental profits related to the share of drilling costs borne by joint interest partners, are offset against the full cost pool. From April through December of 2008, the rig was utilized almost continuously on Company wells and its profits were accordingly capitalized. For the years ended 2009 and 2008, the rig profits capitalized to the full cost pool were $180,000 and $1.1 million, respectively.

When the rig is used by Orion for work on third party wells in which the Company has no economic or management interest, TMRD’s profit or loss related to the lease of the rig is reflected in the consolidated statements of operations. During 2009, the rig worked on third party wells. The Company is obligated for the difference in dayrates if the rig is utilized by a third party at a lesser dayrate, which has occurred during 2009. This loss on a contractual obligation is included in “Rig Operations, net” in the consolidated statements of operations. The Company’s share of profits on the lease of the rig to Orion partially offsets the loss on the drilling contract and is included in “Rig operations, net” on the consolidated statements of operations. The total lease revenue included in “Rig operations, net” for 2009 was $1.1 million.

Depreciation of the owned rig was $0.9 million and $1.5 million for 2009 and 2008, respectively, of which $0.8 million and zero was included in depletion and depreciation expense on the consolidated statements of operations, and the remainder was capitalized to the full cost pool. In addition, impairment expense includes $6.7 million in 2008 for impairment of the value of the rig.

See Note 7 for additional information on the Company’s plans for potential disposition of the rig and the obligations under the drilling contracts.

Statement of Cash Flows

For purposes of the statements of cash flows, cash equivalents include time deposits, certificates of deposit and all highly liquid instruments with original maturities of three months or less. The Company made cash payments for interest of $7.9 million, $5.6 million, and $6.0 million in 2009, 2008 and 2007, respectively. Such payments include $1.2 million in forbearance fees in 2009, which have been included in interest expense. Cash payments (refunds) for income taxes (federal and state, net of receipts) were $(505,000), $385,000, and $61,000 for 2009, 2008, and 2007, respectively.

Concentrations of Credit Risk

Substantially all of the Company’s receivables are due from oil and natural gas purchasers and other oil and natural gas producing companies located in the United States. Accounts receivable are generally not collateralized. Historically, credit losses incurred on receivables of the Company have not been significant.

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 as of December 31, 2009. As of December 31, 2008, the FDIC also provides an unlimited guarantee for balances in non-interest bearing transactional accounts. At December 31, 2009, and December 31, 2008, the Company had approximately $35,000 and $20,696,000, respectively, in excess of FDIC insured limits, including cash in restricted cash accounts. The Company has not experienced any losses in such accounts.

Revenue Recognition and Accounts Receivable

Meridian recognizes oil and natural gas revenue from its interests in producing wells as oil and natural gas is produced and sold from those wells (the sales method). Oil and natural gas sold is not significantly different from the Company’s share of production. Accounts receivable includes accrued oil and natural gas revenue receivables of approximately $10.1 million and $10.2 million as of December 31, 2009 and 2008, respectively.

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Accounts receivable includes $1.1 million and $1.6 million in amounts due from joint interest owners as of December 31, 2009 and 2008, respectively. As of December 31, 2008, accounts receivable included $2.4 million for insurance proceeds related to hurricane damage.

The Company maintains an allowance for doubtful accounts for trade receivables equal to amounts estimated to be uncollectible. This estimate is based upon historical collection experience, combined with a specific review of each customer’s outstanding trade receivable balance. Management believes that the allowance for doubtful accounts is adequate; however, actual write-offs may exceed the recorded allowance.

Hurricane Damage Repairs

The expense of $1.5 million in 2008 is related to damages incurred from hurricanes Ike and Gustav and is primarily related to the Company’s insurance deductible.

Capitalized Interest

Interest cost is capitalized as part of the historical cost of assets. During 2008 and 2007, respectively, interest of approximately $191,000 and $323,000 was capitalized on the construction of the Company’s drilling rig. The Company’s oil and natural gas properties did not include any individual investments considered significant enough to qualify for interest capitalization under our internal policies. Interest is capitalized using a weighted average interest rate based on the Company’s outstanding borrowings. No interest was capitalized in 2009.

Earnings Per Share

Basic earnings per share amounts are calculated based on the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is based on the weighted average number of shares of common stock outstanding for the periods, including the dilutive effects of stock options, warrants, and share rights granted. Dilutive options, warrants, and share rights that are issued during a period or that expire or are canceled during a period are reflected in the computations for the time they were outstanding during the periods being reported. Options where the exercise price of the options exceeds the average price for the period are considered antidilutive, and therefore are not included in the calculation of dilutive shares. Shares of Company stock held by the trustee of the Rabbi Trust, although treated as treasury stock for presentation on the Consolidated Balance Sheets, have been included in the computation of basic and diluted earnings per share, as all conditions precedent to their issue, other than passage of time, had been satisfied prior to distribution of the shares in 2009.

Stock Options

The Company follows the guidance in Accounting Standards Codification Topic 718 (“ASC 718”) to account for share-based payment transactions in which the Company receives services in exchange for equity instruments of the Company.

Compensation expense is recorded for stock options and other equity awards over the requisite vesting periods based upon the fair value on the date of the grant.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and bank borrowings. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to the highly liquid nature of these short-term instruments. As of December 31, 2009 the Company believes it is not practicable to estimate the fair value of its outstanding debt under its credit facility in light of the payment default. The reduction in credit

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standing from this default would certainly tend to reduce the fair value of the debt, but it is not practicable to estimate the amount of such reduction. The carrying value of that debt is $87.5 million at December 31, 2009. See Note 5 for further details on the credit facility. The Company also has a smaller bank debt with a fixed rate. The fair value of the rig note at December 31, 2009 is estimated as approximately $4 million; the corresponding carrying value is $6.2 million. The fair value was estimated based on the fair value of the underlying collateral. The collateral is a drilling rig owned by the Company; see Note 9 for further information on how fair value for the rig was estimated. The Company’s oil and gas price risk hedging contracts are also financial instruments, recorded at fair value; see Note 13.

Notes Payable

Notes payable are related to the financing of the Company’s insurance program. The weighted average interest rate on the notes payable was 4.69%, as of December 31, 2008. There were no outstanding notes payable as of December 31, 2009.

Lease Accounting

The Company amortizes the cost of leasehold improvements over the shorter of the life of the asset or the term of the lease. Rent incentives, such as rent holidays, are also amortized over the life of the lease.

Derivative Financial Instruments

The Company follows the guidance of Accounting Standards Codification Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company enters into derivative contracts to hedge the price risks associated with a portion of anticipated future oil and natural gas production. The Company’s derivative financial instruments have not been entered into for trading purposes and the Company typically has the ability and intent to hold these instruments to maturity. Counterparties to the Company’s derivative agreements are major financial institutions.

All derivatives are recognized on the balance sheet at their fair value. Derivatives are noted as “Assets (or Liabilities) from price risk management activities” and are classified on the Consolidated Balance Sheets as long-term or short-term based on the maturity date of the derivative agreement. On the date the derivative contract is entered into, the Company designates the derivative as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value” hedge) or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge). The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value or cash-flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income, until earnings are affected by the variability in cash flows of the designated hedged item, whereupon they are recognized in oil or natural gas revenues. The Company recognized a loss of $6,000, a loss of $18,000, and a gain of $21,000 related to hedge ineffectiveness during the years ended December 31, 2009, 2008, and 2007, respectively. Gains and losses from hedge ineffectiveness are presented as “Price risk management activities” in the Consolidated Statements of Operations.

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The Company discontinues cash flow hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, the derivative is redesignated as a hedging instrument because it is unlikely that a forecasted transaction will occur, or management determines that designation of the derivative as a hedging instrument is no longer appropriate.

When cash flow hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the Company continues to carry the derivative on the balance sheet at its fair value with subsequent changes in fair value included in earnings, and gains and losses that were accumulated in other comprehensive income are immediately recognized in earnings. In all other situations in which hedge accounting is discontinued, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings. Gains or losses accumulated in other comprehensive income at the time the hedge relationship is terminated are reclassified into operations in the month in which the related derivative contracts settle.

Income Taxes

The Company accounts for federal income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Under the liability method, deferred tax assets and liabilities are recognized for the estimated future tax effects attributable to temporary differences and carryforwards. Ultimately, realization of a deferred tax benefit depends on the existence of sufficient taxable income within the carryback/carryforward period to absorb future deductible temporary differences or a carryforward. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized, including such evidence as the scheduled reversal of deferred tax liabilities and projected future taxable income. As a result of the current assessment, in both 2008 and 2009 the Company recorded a valuation allowance equal to the net deferred tax assets.

The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to our financial results. Should the Company determine that any of its tax positions are uncertain, it may record related interest and penalties that may be assessed. Interest recorded, if any, will be charged to interest expense and penalties recorded will be charged to operating expenses in the Company’s Consolidated Statements of Operations.

Environmental Expenditures

The Company is subject to extensive federal, state and local environmental laws and regulations. These laws regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally not estimable unless the timing of cash payments for the liability or component are fixed or reliably determinable.

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Recent Accounting Pronouncements

In July 2009, the Financial Accounting Standards Board (“FASB”) issued revised authoritative guidance regarding the hierarchy of generally accepted accounting principles. Under this revised guidance, the FASB Accounting Standards Codification (“Codification”), the FASB’s new web-based codification of accounting and reporting guidance, along with guidance provided by the SEC, are the only “authoritative” sources of such guidance. All guidance not contained in the Codification, other than SEC guidance, will be considered “non-authoritative.” The Codification is designed to incorporate previously issued guidance from sources such as the FASB, the American Institute of Certified Public Accountants, and the Public Company Accounting Oversight Board, and is not intended to change GAAP for non-governmental entities. The revised guidance on the hierarchy provides additional guidance on the selection, interpretation, and application of accounting principles from the Codification and from non-authoritative sources when necessary. The guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted the revised guidance effective July 1, 2009; the adoption did not have a material impact on financial position or results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements,” codified in Accounting Standards Codification (“ASC”) Topic 820 (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements. In accordance with the effective dates provided in the guidance, the Company adopted the guidance for measurements of the fair values of financial instruments and recurring fair value measurements of non-financial assets and liabilities on January 1, 2008. Effective January 1, 2009, the Company began applying the new guidance to non-recurring measurements of the fair values of non-financial assets and liabilities, such as asset retirement obligations and impairments of long-lived assets other than oil and natural gas properties. The adoptions had no material impact on financial position or results of operations.

In January 2010, the FASB updated Topic 820 with Accounting Standards Update (“ASU”) 2010-06, “Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements.” This ASU requires new disclosures and clarifies certain existing disclosure requirements about fair value measurements. ASU 2010-06 requires a reporting entity to disclose significant transfers in and out of Level 1 and Level 2 fair value measurements, to describe the reasons for the transfers and to present separately information about purchases, sales, issuances and settlements for fair value measurements using significant unobservable inputs. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which is effective for interim and annual reporting periods beginning after December 15, 2010; early adoption is permitted. The Company does not expect that the adoption of ASU 2010-06 will have a material impact on financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” codified in ASC Topic 805 (“ASC 805”). ASC 805 retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies and requires the expensing of acquisition-related costs as incurred. Generally, ASC 805 is effective on a prospective basis for all business combinations completed on or after January 1, 2009. The Company adopted the revised guidance effective January 1, 2009; the adoption did not have a material impact on financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” codified in ASC Topic 815-10-50 (“ASC 815-10-50”). ASC 815-10-50 provides guidance for additional disclosures regarding derivative contracts, including expanded discussions of risk and hedging

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strategy, as well as new tabular presentations of accounting data related to derivative instruments. The Company adopted the revised guidance effective January 1, 2009; the adoption did not have a material impact on financial position or results of operations. The additional disclosures are included in Note 13.

In June 2008, the FASB Emerging Task Force issued EITF Abstract Issue No. 07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” codified as ASC Topic 815-40-15 (“ASC 815-40-15”). ASC 815-40-15 clarifies the determination of equity instruments which may qualify for an exemption from the other provisions of ASC 815, “Derivatives and Hedging.” Generally, equity instruments which qualify under the guidelines of ASC 815-40-15 may be accounted for in equity accounts; those which do not qualify are subject to derivative accounting. The Company adopted the guidance of ASC 815-40-15 on January 1, 2009. The effects of the adoption included a revision in the carrying value of certain outstanding warrants, and recognition of a related liability of $960,000 on January 1, 2009, as well as recognition of an unrealized gain of $548,000 included in general and administrative expense, due to the change in fair value of those warrants during 2009. See Note 10, “Warrants,” for further information.

In December 2008, the SEC published a Final Rule, “Modernization of Oil and Gas Reporting.” The new rule permits the use of new technologies to determine proved reserves if those technologies have been demonstrated to lead to reliable conclusions about reserves volumes. The new requirements also allow companies to disclose their probable and possible reserves to investors. In addition, the new disclosure requirements require companies to: (a) report the independence and qualifications of its reserves preparer or auditor; (b) file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and (c) report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The use of average prices affects impairment and depletion calculations. The new rule became effective for reserve reports as of December 31, 2009; the FASB incorporated the new guidance into the Codification as Accounting Standards Update 2010-03, effective also on December 31, 2009, ASC Topic 932, “Extractive Activities — Oil and Gas.”

The Company adopted the new guidance effective December 31, 2009; information about the company’s reserves has been prepared in accordance with the new guidance and is included in Note 19; management has chosen not to provide information on probable and possible reserves. The Company’s reserves were affected primarily by the use of the average prices rather than the period-end prices required under the prior rules. As a result of adopting the new guidance, we estimate that Meridian’s December 31, 2009 proven reserves decreased approximately 1.4 Bcfe and prices used in the calculation decreased approximately 30%. This change in turn affected the results of the Company’s ceiling test for the fourth quarter of 2009, which was a write-down of $4.0 million. Had the new rule using average pricing not been implemented, the write down in the fourth quarter of 2009 would not have been necessary. The change in total reserves using the new rules had a negligible effect on depletion expense in the fourth quarter of 2009, as total proved reserves are the basis of depletion calculations.

In December 2009, the FASB issued revised authoritative guidance regarding consolidation of variable interest entities (“VIE’s”) in ASU 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” codified as ASC 810-10-05-08. The ASU (originally issued as SFAS No. 167 in June 2009) amends existing consolidation guidance for variable interest entities. Variable interest entities generally are thinly-capitalized entities which under previous guidance may not have been consolidated. The revised guidance requires a company to perform a qualitative analysis to determine whether to consolidate a VIE, which includes consideration of control issues other than the primarily quantitative considerations utilized prior to this revision. In addition, the revised guidance requires ongoing assessments of whether to consolidate VIE’s, rather than only when specific events occur. The revised guidance also requires additional disclosures about consolidated and unconsolidated VIE’s, including their impact on the company’s risk exposure and its financial statements. The revised guidance will be effective for financial statements for annual and interim

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periods beginning after November 15, 2009. The Company has not yet determined the impact of adoption on its financial position or results of operations.

In April 2009, the FASB issued new authoritative guidance regarding interim disclosures about the fair value of financial instruments, which enhances consistency in financial reporting by increasing the frequency of fair value disclosures. The guidance is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted the new guidance effective April 1, 2009. The adoption did not have a material impact on financial position or results of operations of the Company. The disclosures are included above, “Fair Value of Financial Instruments.”

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities, if any, at the date of the financial statements. Reserve estimates significantly impact depreciation and depletion expense and potential impairments of oil and natural gas properties. The Company analyzes its estimates, including those related to oil and natural gas revenues, bad debts, oil and natural gas properties, derivative contracts, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Reclassification of Prior Period Statements

Certain reclassifications of prior period financial statements have been made to conform to current reporting practices.

3.   ASSET RETIREMENT OBLIGATIONS

The Company estimates the present value of future costs of dismantlement and abandonment of its wells, facilities, and other tangible long-lived assets, recording them as liabilities in the period incurred. Asset retirement obligations are calculated using an expected present value technique. Salvage values are excluded from the estimation.

When the liability is initially recorded, the entity increases the carrying amount of the related long-lived asset. Accretion of the liability is recognized each period, and the capitalized cost is amortized over the useful life of the related asset. Upon settlement of the liability, the Company incurs a gain or loss based upon the difference between the estimated and final liability amounts. The Company records gains or losses from settlements as adjustments to the full cost pool.

Accretion expenses were $2.1 million, $2.1 million and $2.2 million in 2009, 2008 and 2007, respectively.

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The following table describes the change in the Company’s asset retirement obligations for the years ended December 31, 2009 and 2008 (thousands of dollars):

	2009			2008
Asset retirement obligation at beginning of year	$	22,225		$	23,483
Additional retirement obligations incurred		47			451
Settlements		(2,243	)		(613	)
Revisions to estimates and other changes		1,711			(3,160	)
Accretion expense		2,083			2,064
Asset retirement obligation at end of year		23,823			22,225
Less: current portion		4,570			1,457
Asset retirement obligation, long-term	$	19,253		$	20,768

Our revisions to estimates represent changes to the expected amount and timing of payments to settle our asset retirement obligations. These changes primarily result from obtaining new information about the timing of our obligations to plug our natural gas and oil wells and the costs to do so.

4.   IMPAIRMENT OF LONG-LIVED ASSETS

At the end of each quarter, the unamortized cost of oil and natural gas properties, net of related deferred income taxes, is limited to the sum of the present value (10% discount rate) of the estimated future after-tax net revenues from proved properties after giving effect to cash flow hedge positions, and the lower of cost or fair value of unproved properties adjusted for related income tax effects. Under new rules issued by the SEC, the estimated future net cash flows as of December 31, 2009, were determined using average prices for the most recent twelve months. The average is calculated using the first day of the month price for each of the twelve months that make up the reporting period. As of December 31, 2008 and 2007, previous SEC rules required that estimated future net cash flows from proved reserves be based on period end prices.

The cost of unevaluated oil and natural gas properties not subject to depletion is also assessed quarterly to determine whether such properties have been impaired. In determining impairment, an evaluation is performed on current drilling results, lease expiration dates, current oil and natural gas industry conditions, available geological and geophysical information, and actual exploration and development plans. Any impairment assessed is added to the cost of proved properties being amortized.

In the first quarter of 2009, the Company recognized a non-cash impairment of $59.5 million to oil and natural gas properties, based on March 31, 2009 pricing of $3.76 per Mcf of natural gas and $49.66 per barrel of oil. In the fourth quarter of 2009, the Company recognized a non-cash impairment of $4.0 million to oil and natural gas properties, based on December 31, 2009 pricing of $3.87 per Mcf of natural gas and $61.18 per barrel of oil. The total impairment recorded in 2009 to oil and natural gas properties was $63.5 million.

In the fourth quarter of 2008, the Company recognized non-cash impairment expense of $216.8 million ($203.2 million after tax) to the Company’s oil and natural gas properties under the full cost method of accounting, based on December 31, 2008 pricing of $5.79 per Mcf of natural gas and $44.04 per barrel of oil.

The Company also recorded a non-cash impairment of the value of its drilling rig in 2008, due to uncertainties regarding utilization and dayrates for similar rigs, which decreased significantly after the second quarter of 2008. The value of the rig was based on the present value of estimated cash flows from the asset, using management’s best estimates of utilization and dayrates. The estimated value was $5.5 million as of December 31, 2008. Accordingly, the Company recorded non-cash impairment expense of $6.7 million to write down the net book value of the rig to $5.5 million. Management performs impairment testing of the drilling rig each quarter. No further impairment has been recorded for the rig. At December 31, 2009, the

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carrying value of the rig exceeded its estimated fair value (based on discounted cash flows) by approximately $0.9 million. However, no impairment was necessary at that date as the undiscounted cash flows exceeded the carrying value. Authoritative accounting guidance provides for impairment only when carrying value exceeds undiscounted cash flows.

Due to the substantial volatility in oil and natural gas prices and their effect on the carrying value of the Company’s proved oil and natural gas reserves, there can be no assurance that future write-downs will not be required as a result of factors that may negatively affect the present value of proved oil and natural gas reserves and the carrying value of oil and natural gas properties, including volatile oil and natural gas prices, downward revisions in estimated proved oil and natural gas reserve quantities and unsuccessful drilling activities. Furthermore, due to the related impact of volatile energy prices on the drilling industry, there can be no assurance that future write-downs will not be required for the drilling rig as well.

5.   DEBT

Credit Facility.  The Company has a credit facility with a group of banks (collectively, the “Lenders,”) with a maturity date of February 21, 2012 (the “Credit Facility.”) The Credit Facility is subject to borrowing base redeterminations and bears a floating interest rate based on LIBOR or the prime rate of Fortis Capital Corp., the administrative agent of the Lenders. The borrowing base and the interest formula have been redetermined or amended multiple times. As of December 31, 2008, the borrowing base was $95 million and was fully drawn. The interest rate formula in effect at that date was LIBOR plus 3.25% or prime plus 2.5%.

Obligations under the Credit Facility are to be secured by pledges of outstanding capital stock of the Company’s subsidiaries and by a first priority lien on not less than 75% (95% in the case of an event of default) of its present value of proved oil and natural gas properties. The Credit Facility also contains other restrictive covenants, including, among other items, maintenance of certain financial ratios, restrictions on cash dividends on common stock and under certain circumstances preferred stock, limitations on the redemption of preferred stock, limitations on repurchases of common stock, restrictions on incurrence of additional debt, and an unqualified audit report on the Company’s consolidated financial statements.

As of December 31, 2008, the Company was in default of two of the covenants under the agreement, including one that requires that the Company maintain a current ratio (as defined in the Credit Facility) of one to one. The current ratio, as defined, was less than the required one to one at December 31, 2008 and continued to be, through December 31, 2009. The Company is also in default of the requirement that the Company’s auditors’ opinion for the current financial statements be without modification. Both the Company’s 2008 and 2009 audit reports from its independent registered public accounting firm included a “going concern” explanatory paragraph that expressed substantial doubt about the Company’s ability to continue as a going concern. As a result of the defaults, the outstanding Credit Facility balances of $95 million at December 31, 2008 and $87.5 million at December 31, 2009 have been classified as current in the accompanying consolidated balance sheets. Also in response to the defaults, the Company provided additional security to the Lenders, such that first priority liens cover in excess of 95% of the present value of proved oil and natural gas properties.

The Credit Facility has been subject to semi-annual borrowing base redeterminations effective on April 30 and October 31 of each year, with limited additional unscheduled redeterminations also available to the Lenders or the Company. The determination of the borrowing base is subject to a number of factors, including quantities of proved oil and natural gas reserves, the banks’ price assumptions related to the price of oil and natural gas and other various factors unique to each member bank. The Lenders can redetermine the borrowing base to a lower level than the current borrowing base if they determine that the Company’s oil and natural gas reserves, at the time of redetermination, are inadequate to support the borrowing base then in effect. In the event the redetermined borrowing base is less than outstanding borrowings under the Credit Facility, the Credit Facility requires repayment of the deficit within a specified period of time.

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On April 13, 2009, the Lenders notified the Company that, effective April 30, 2009, the borrowing base was reduced from its then-current and fully drawn $95 million to $60 million. As a result, a $34.5 million payment to the Lenders for the borrowing base deficiency was due July 29, 2009, based on the borrowings outstanding on that date. The Company did not have sufficient cash available to repay the deficiency and, consequently, failed to pay such amount when due. Prior to July 29, 2009, the Company was in covenant default under the terms of the Credit Facility; on and after that date it was in covenant default and payment default as well.

Under the terms of the Credit Facility, the Lenders have various remedies available in the event of a default, including acceleration of payment of all principal and interest.

On September 3, 2009, the Company entered into a forbearance agreement with the Lenders under the Credit Facility (“Bank Forbearance Agreement”). The Bank Forbearance Agreement provided that the Lenders would forbear from exercising any right or remedy arising as a result of certain existing events of default under the Credit Facility until the earlier of December 3, 2009 or the date that any default occurred under the Bank Forbearance Agreement. The terms of the Bank Forbearance Agreement required the Company to consummate a capital transaction such as a capital infusion or a sale or merger of the Company, before October 30, 2009. The deadlines for the capital transaction and the forbearance period were extended several times by amendments to the Bank Forbearance Agreement.

At origination of the Bank Forbearance Agreement, the Company paid the Lenders $2.0 million of principal owed under the Credit Facility. Under the terms of the agreement the Company made a total of $5.0 million in further principal payments through December 31, 2009, bringing the balance at that date to $87.5 million. The Company also paid forbearance fees to the Lenders of $945,000, charged to interest expense in the third quarter of 2009, and incurred an additional $476,000 in forbearance fees, charged to interest expense in the fourth quarter of 2009. In addition, the Company incurred approximately $2.3 million in legal and consulting fees, recorded in general and administrative expense, to originate and amend the Bank Forbearance Agreement and other related agreements.

On December 22, 2009, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Alta Mesa Holdings, LP (“Alta Mesa”) and Alta Mesa Acquisition Sub, LLC, a direct wholly owned subsidiary of Alta Mesa. The Eleventh Amendment to Forbearance and Amendment Agreement (“11th Amendment”) provided the Lenders’ consent to the Merger Agreement and extended the date for consummation of a capital transaction, such as the Alta Mesa merger, and the forbearance period, to the earlier of the consummation of the merger with Alta Mesa, the termination of the Merger Agreement, or May 31, 2010. However, the 11th Amendment also allows the Lenders to terminate the forbearance period on or after February 28, 2010, without cause, so long as the decision to terminate is unanimous among the Lenders. The 11th Amendment also requires the Company to repay $1 million in principal to the Lenders per month. As of March 31, 2010, the outstanding balance under the Credit Facility is $83 million.

In accordance with the 11th Amendment, the Company has filed its shareholder proxy statement regarding the merger and called a shareholder meeting currently scheduled for April 28, 2010 to approve the transaction. There can be no assurance that shareholders will approve the transaction or that the merger will be consummated within the time constraints specified in the11th Amendment. Should the forbearance period terminate, the Company will be in default, unprotected from the action of remedies available to the Lenders, which cannot be predicted. Such remedies include acceleration of all outstanding principal and interest.

The Bank Forbearance Agreement placed other restrictions on the Company with respect to capital expenditures, sales of assets, and incurrence and prepayments of other indebtedness and amended the Credit Facility in certain respects. It contains covenants regarding the frequency of reporting of financial and cash flow information to the Lenders, as well as cash account control agreements which provide a secured lien over substantially all of the Company’s cash accounts.

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Under the terms of the Bank Forbearance Agreement, as amended, the Credit Facility is amended such that scheduled borrowing base redeterminations will occur quarterly rather than semi-annually, to be effective January 31, April 30, July 31, and October 31 of each year. Outstanding amounts in excess of the borrowing base must be repaid according to certain defined terms. The deficiency could be paid in three equal installments over a maximum period of 100 days after the incurrence of a borrowing base deficiency, or alternatively, the Company could provide additional sufficient collateral to cover the deficiency. However, as the Company has already pledged in excess of 95% of the value of all proved oil and natural gas reserves as security, such an alternative could apply only to a small borrowing base deficiency. The Lenders have provided the Company with a limited waiver postponing the next borrowing base redetermination to the end of the forbearance period. No assurance can be given that further deficiencies will not be incurred at the next redetermination.

The Lenders exercised their right to increase the interest rate on outstanding borrowings by 2% (“default interest,” under the terms of the Credit Facility) as of July 30, 2009. The floating interest rate is based on the prime interest rate, currently 3.25%, plus 2.5%, plus the default increment of 2%, resulting in a total rate of 7.75% at December 31, 2009 and continuing at that rate currently. The additional default interest has been effective as to all outstanding borrowings under the Credit Facility since the July 29, 2009 payment default, and the LIBOR alternative was also eliminated. No interest payments are in arrears.

Rig Note.  On May 2, 2008, the Company, through its wholly owned subsidiary TMRD, entered into a financing agreement (“rig note”) with The CIT Group / Equipment Financing, Inc. (“CIT”). Under the terms of the agreement, TMRD borrowed $10.0 million, at a fixed interest rate of 6.625%, which increases in an event of default. The loan is collateralized by the drilling rig, as well as general corporate credit. The term of the loan is five years, expiring on May 2, 2013.

Effective as of December 31, 2008, the Company was in default under the rig note. Under the terms of the rig note, a default under the Credit Facility triggers a cross-default under the rig note. The remedies available to CIT in the event of default include acceleration of all principal and interest payments. Accordingly, all indebtedness under the rig note, $8.8 million at December 31, 2008 and $6.2 million at December 31, 2009, has been classified as current in the accompanying consolidated balance sheets.

On September 3, 2009, the Company also entered into a forbearance agreement with CIT (“CIT Forbearance Agreement.”) The forbearance period under the CIT Forbearance Agreement has been extended several times, most recently by the Fourth Amendment to Forbearance and Amendment Agreement (“4th Amendment”). The forbearance period ends the earlier of the consummation of the merger with Alta Mesa, the termination of the Merger Agreement, May 31, 2010, or the date of any default under either the CIT Forbearance Agreement or the Bank Forbearance Agreement. The 4th Amendment also provides CIT’s consent to the merger with Alta Mesa. CIT retains the right to terminate the forbearance period if, in its sole determination, Alta Mesa experiences changes to its financial condition that would adversely affect its ability to complete the merger with the Company.

At origination of the CIT Forbearance Agreement, the Company prepaid, without penalty, $1.0 million of principal on the rig note and began to pay “default interest” of an additional 4% effective August 1, 2009, as allowed to CIT under the terms of the rig note, bringing the total monthly payment to approximately $220,000. The Company also paid, and recorded in general and administrative expense in the third quarter, a forbearance fee of approximately $50,000. There can be no assurance that the forbearance period under the CIT Forbearance Agreement will provide sufficient time to resolve the cross-default under the rig note.

Current Debt Maturities

Scheduled debt maturities for the next five years and thereafter, as of December 31, 2009, including notes payable, are as follows: $93.7 million in 2010 and none thereafter. Absent the assumed acceleration of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

principal under the Credit Facility and the rig note, scheduled maturities would be: $29.5 million in 2010, $2.2 million in 2011, $62.0 million in 2012, and none thereafter.

6.   CONTRACTUAL OBLIGATIONS

In April 2006, the Company negotiated an amendment to its office building lease agreement that extended the Company’s office lease until September 30, 2011. As of December 31, 2009, the remaining base rental payments will be $2.0 million in 2010 and $1.6 million in 2011. The Company also has operating leases for equipment with various terms, none exceeding three years. Rental expense amounted to approximately $1.8 million, $2.0 million, and $2.1 million in 2009, 2008, and 2007, respectively. Future minimum lease payments under all non-cancelable operating leases having initial terms of one year or more are $2.1 million for 2010, $1.6 million for 2011, and none thereafter. In addition, over the next two years, the Company has contractual obligations for the use of two drilling rigs. These obligations are $12.4 million in 2010 and $0.9 million in 2011. See Note 7 for further information.

Additional contractual obligations include: $1 million in 2010 to Shell Oil Company under the settlement contract described in Note 7 below, if the contract is not terminated; and $1.5 million in 2010 and $0.2 million in 2011 to be paid under various settlement contracts. The Shell Oil Company obligation continues through 2014, with a payment of $1 million due each calendar year, for a total of $5 million.

In addition to the obligations described above, the Company has a contingent obligation related to the merger with Alta Mesa. The Merger Agreement with Alta Mesa includes a reimbursement clause under which the Company will pay Alta Mesa’s reasonable costs of the merger, not to exceed $1 million, in case of termination of the agreement under various circumstances, including expiration of the term on May 31, 2010 without consummation of the merger, and also including termination of the Merger Agreement due to non-approval in the shareholder vote. In addition to reimbursement of Alta Mesa’s costs, the Company would pay Alta Mesa a $3 million termination fee if, among other reasons, the Company terminates the Alta Mesa agreement and accepts another offer for the Company, so long as the definitive agreement related to the other offer is entered into within nine months after termination of the Merger Agreement with Alta Mesa. The termination fee would be payable no later than two business days after consummation of the transaction which triggered the fee.

7.   COMMITMENTS AND CONTINGENCIES

Default under Credit Agreement

As described in Notes 1 and 5, the Company has been in default under the terms of the Credit Facility and the rig note since December 31, 2008. Although forbearance has been provided by these Lenders under short-term agreements, there can be no assurance that the Company will be able to comply with the terms of the agreements. Among the default remedies available to the Lenders under each of these debt agreements is acceleration of all principal and interest payments. Accordingly, all such debt has been classified as current in the Consolidated Balance Sheets as of December 31, 2009 and 2008. The Company can give no assurance that the transactions contemplated by the Merger Agreement will be completed (see Note 1) and failure to complete the merger will significantly impact the credit defaults as well as the Company’s ability to continue as a going concern; therefore, the Company has not provided for this matter as of December 31, 2009, in its financial statements at December 31, 2009, other than to reclassify all outstanding debt as current at that date and at December 31, 2008.

Proposed Merger Termination Fee

As described in Note 1, the Company’s board of directors has approved an offer of merger with Alta Mesa, pending a shareholder vote. If the Merger Agreement is terminated by Meridian under various scenarios,

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including lack of shareholder approval, the Company will be required to reimburse Alta Mesa for their expenses of the merger, not to exceed $1 million. Acceptance of an alternative offer for the Company and consummation of that transaction under certain circumstances could obligate the Company to pay Alta Mesa a termination fee of $3 million (see Note 6 above).

Litigation

H. L. Hawkins litigation.  In December 2004, the estate of H.L. Hawkins filed a claim against Meridian for damages “estimated to exceed several million dollars” for Meridian’s alleged gross negligence, willful misconduct and breach of fiduciary duty under certain agreements concerning certain wells and property in the S.W. Holmwood and E. Lake Charles Prospects in Calcasieu Parish in Louisiana, as a result of Meridian’s satisfying a prior adverse judgment in favor of Amoco Production Company. Mr. James Bond had been added as a defendant by Hawkins claiming Mr. Bond, when he was General Manager of Hawkins, did not have the right to consent, could not consent or breached his fiduciary duty to Hawkins if he did consent to all actions taken by Meridian. Mr. James T. Bond was employed by H.L. Hawkins Jr. and his companies as General Manager until 2002. He served on the Board of Directors of the Company from March 1997 to August 2004. After Mr. Bond’s employment ended with Mr. Hawkins, Jr., and his companies, Mr. Bond was engaged by The Meridian Resource & Exploration LLC as a consultant. This relationship continued until his death. Mr. Bond was also the father-in-law of Michael J. Mayell, the Chief Operating Officer of the Company at the time. A hearing was held before Judge Kay Bates on April 14, 2008. Judge Bates granted Hawkins’ Motion finding that Meridian was estopped from arguing that it did not breach its contract with Hawkins as a result of the United States Fifth Circuit’s decision in the Amoco litigation. Meridian disagrees with Judge Bates’ ruling but the Louisiana First Court of Appeal declined to hear Meridian’s writ requesting the court overturn Judge Bates’ ruling. Meridian filed a motion with Judge Bates asking that the ruling be made a final judgment which would give Meridian the right to appeal immediately; however, the Judge declined to grant the motion, allowing the case to proceed to trial. Management continues to vigorously defend this action on the basis that Mr. Hawkins individually and through his agent, Mr. Bond, agreed to the course of action adopted by Meridian and further that Meridian’s actions were not grossly negligent, but were within the business judgment rule. Since Mr. Bond’s death, a pleading has been filed substituting the proper party for Mr. Bond. The Company is unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, the Company has not provided any amount for this matter in its financial statements at December 31, 2009.

Title/lease disputes.  Title and lease disputes may arise in the normal course of the Company’s operations. These disputes are usually small but could result in an increase or decrease in reserves once a final resolution to the title dispute is made.

Environmental litigation.  Various landowners have sued Meridian (along with numerous other oil companies) in lawsuits concerning several fields in which the Company has had operations. The lawsuits seek injunctive relief and other relief, including unspecified amounts in both actual and punitive damages for alleged breaches of mineral leases and alleged failure to restore the plaintiffs’ lands from alleged contamination and otherwise from the Company’s oil and natural gas operations. In some of the lawsuits, Shell Oil Company and SWEPI LP (together, “Shell”) have demanded contractual indemnity and defense from Meridian based upon the terms of the two acquisition agreements related to the fields, and in another lawsuit, Exxon Mobil Corporation has demanded contractual indemnity and defense from Meridian on the basis of a purchase and sale agreement related to the field(s) referenced in the lawsuit; Meridian has challenged such demands. In some cases, Meridian has also demanded defense and indemnity from their subsequent purchasers of the fields. On December 9, 2008 Shell sent Meridian a letter reiterating its demand for indemnity and making claims of amounts which were substantial in nature and if adversely determined, would have a material adverse effect on the Company. Shell initiated formal arbitration proceedings on May 11, 2009, seeking relief only for the claimed costs and expenses arising from one of the two acquisition agreements between Shell and Meridian.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Meridian denies that it owes any indemnity under either of the two acquisition agreements; however, the Company and Shell entered into a settlement agreement on January 11, 2010. Under the terms of the settlement, the Company will pay Shell $5 million in five equal annual payments beginning in 2010 upon the closing of a sale of the assets or equity interest in the Company to a third party (such as the merger with Alta Mesa described in Note 1), or at an earlier date should Meridian be able. Meridian will also transfer title to certain land the Company owns in Louisiana and an overriding royalty interest of minor value. In return, Shell will release Meridian from any indemnity claim arising from any current or historical claim against Shell, and will release Meridian’s indemnity obligation with respect to any future claim on all but a small subset of the properties acquired pursuant to the acquisition agreements related to the fields. The settlement agreement will terminate on May 1, 2010 if the first payment and the land and overriding royalty interest transfer have not been made, or unless extended at the discretion of Shell. The Company recorded $4.2 million in expense in the fourth quarter of 2009 to recognize the estimated value of the proposed settlement, including the historical cost of the land and discounting the cash payments to present value.

Other than the with regard to the Shell matter, the Company is unable to express an opinion with respect to the likelihood of an unfavorable outcome of the various environmental claims or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, the Company has not provided any amount for these claims in its financial statements at December 31, 2009.

Litigation involving insurable issues.  There are no material legal proceedings involving insurable issues which exceed insurance limits to which Meridian or any of its subsidiaries is a party or to which any of its property is subject, other than ordinary and routine litigation incidental to the business of producing and exploring for crude oil and natural gas.

Property tax litigation.  In August, 2009, Gene P. Bonvillain, the tax assessor for Terrebonne Parish, Louisiana, filed a lawsuit against the Company, alleging under-reporting and underpayment of parish property taxes for the years 1998-2008. The claims, which are very similar to thirty other cases filed by Bonvillain against other oil and natural gas companies, allege that certain facilities or other property of the Company were improperly omitted from annual self-reporting tax forms submitted to the parish for the years 1998-2008, and that the properties Meridian did report on such forms were improperly undervalued and mischaracterized. The claims include recovery of delinquent taxes in the amount of $3.5 million, which the claimant advises may be revised upward, and general fraud charges against the Company. All thirty-one similar cases have been consolidated in U.S. District Court for the Eastern District of Louisiana.

Meridian denies the claims and expects to file a motion to dismiss the case, which it considers to be without merit. Meridian asserts that Mr. Bonvillain has no legal basis for filing litigation to collect what are, in essence, additional taxes based on reassessed property values. Furthermore, Meridian asserts that the fraud element of the case is insufficiently supported. Meridian intends to vigorously defend this action. The Company is unable to express an opinion with respect to the likelihood of an unfavorable outcome of this matter or to estimate the amount or range of potential loss should the outcome be unfavorable. Therefore, the Company has not provided any amount for this matter in its financial statements at December 31, 2009.

Shareholder litigation.  On January 8, 2010 Mr. Eliezer Leider, a purported Company shareholder, filed a derivative lawsuit filed on behalf of the Company, Leider, derivatively on behalf of The Meridian Resource Corporation v. Ching, et al. in Harris County District Court. Defendants were the Company’s directors, Alta Mesa Holdings, LP, and Alta Mesa Acquisition Sub, LLC. Leider alleged that the Company’s directors breached their fiduciary duties in approving the merger transaction with Alta Mesa and he requested, but was denied, a temporary restraining order against the Company. This lawsuit was consolidated with another, similar one from Mr. Jeremy Rausch, which was a class action lawsuit. Counsel for Leider was appointed lead counsel. On March 23, 2010, the parties agreed in principle to settle the now-consolidated Leider action. The proposed settlement is conditioned on, among other things, approval of the merger by Meridian’s shareholders. Under the terms of the proposed settlement, all claims relating to the Merger Agreement and the merger will

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

be dismissed on behalf of Meridian’s stockholders. As part of the proposed settlement, the defendants have agreed not to oppose plaintiff’s counsel’s request to the court to be paid up to $164,000 for their fees and expenses and up to $1,000 as an incentive award for plaintiff Leider. Any payment of fees, expenses, and incentives is subject to final approval of the settlement and such fees, expenses, and incentives by the court. The proposed settlement will not affect the amount of merger consideration to be paid to Meridian’s shareholders in the merger or change any other terms of the merger or Merger Agreement. Expenses of the proposed settlement are expected to be recorded in the first quarter of 2010.

Other contingencies

Ceiling Test.  At the end of each quarter, the unamortized cost of oil and natural gas properties, net of related deferred income taxes, is limited to the sum of the estimated future after-tax net revenues from proved properties, after giving effect to cash flow hedge positions, discounted at 10%, and the lower of cost or fair value of unproved properties adjusted for related income tax effects. This limitation is known as the “ceiling test.” Under new rules issued by the SEC, the estimated future net cash flows as of December 31, 2009, were determined using average prices for the most recent twelve months. The average is calculated using the first day of the month price for each of the twelve months that make up the reporting period. As of December 31, 2008 and 2007, previous rules required that estimated future net cash flows from proved reserves be based on period end prices. The Company recorded impairment charges against oil and natural gas properties based on the results of the ceiling test in the fourth quarter of 2008 and again in the first and fourth quarters of 2009.

At December 31, 2009, the Company had no cushion (i.e., the excess of the ceiling over capitalized costs). Thus, any future decrease in the average price to be used for the ceiling test, net of the effect of any hedging positions the Company may have, may necessitate additional impairment charges. Any future impairment would be impacted by changes in the accumulated costs of oil and natural gas properties, which may in turn be affected by sales or acquisitions of properties and additional capital expenditures. Future impairment would also be impacted by changes in estimated future net revenues, which are impacted by additions and revisions to oil and natural gas reserves, as well as by sales and acquisitions of properties. A 10% decrease in prices would have increased our fourth quarter 2009 non-cash impairment expense by approximately $28 million; a 10% increase in prices would have eliminated the need for a write-off.

Due to the its default under lending agreements, should the proposed merger with Alta Mesa (see Note 1) not be completed, the Company would be forced to consider sales of assets to generate cash for repayment of debt. Sales of significant assets would impact future ceiling tests, as their estimated future after-tax net revenues would be removed from the calculation. Proceeds from sales of properties are generally credited to the full cost pool, reducing the carrying value of oil and gas properties subject to the ceiling test. The Company cannot predict whether significant property sales will cause additional ceiling test impairments, but it is possible that they will.

Drilling rigs.  As described in Note 2, “Rig Operations”, the Company has significant contractual obligations for the use of two drilling rigs. The Company’s capital expenditure plans no longer include full use of these rigs; however, the Company is obligated for the dayrate regardless of whether the rigs are working or idle. The operator, Orion, has sought other parties to use the rigs and agreed to credit the Company’s obligation, based on revenues from third parties who utilize the rig(s) when the Company is unable to. Management cannot predict whether utilization of the rigs by third parties will be consistent, nor to what extent it may offset obligations under the dayrate contracts. The Company has not provided any amount for any future losses on these drilling contracts in its financial statements at December 31, 2009. The two drilling contracts will terminate in February 2011 (as to the rig not owned by the Company) and March 2010 (as to the rig owned by the Company and operated by Orion).

The Company entered into a forbearance agreement with Orion which may grant title to the company-owned rig to Orion, the operator under both the dayrate contracts, in exchange for release of all accrued and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

future liabilities under the rig contracts. This would occur at termination and final payment of the related rig note held by CIT, which is scheduled for 2013, if the Company continues to perform its obligations under the rig note and the rig is free of any significant security interest at title transfer. Both the rig value and the net payable to Orion would be written off at the time of such title transfer, if it were to occur. Alternatively, the terms of the forbearance agreement allow the Company an option to settle all claims with Orion in cash at the end of the term of the rig note, and retain title to the rig. There can be no assurance that the forbearance period under the CIT Forbearance Agreement will provide sufficient time to cure the default under the rig note and ensure performance under the Orion forbearance agreement. All accrued unpaid liabilities for rig expense through December 31, 2009 are classified in the accompanying consolidated balance sheet as current.

At December 31, 2009, the rig is included in equipment at a net book value of $4.6 million, and accounts payable includes a total of $4.3 million in accrued unpaid invoices from Orion for underutilization of both rigs, which is net of a reduction of $1.1 million estimated as the Company’s share of profits on the rig it owns. The Company performs impairment testing of the rig each quarter; see Note 4.

8.   TAXES ON INCOME

Provisions (benefits) for federal and state income taxes are as follows (thousands of dollars):

	Year Ended December 31,
	2009			2008			2007
Current:
Federal	$	(96	)	$	(304	)	$	560
State		(24	)		35			90
Deferred:
Federal		—			(7,984	)		4,470
State		—			(209	)		557
Income tax expense (benefit)	$	(120	)	$	(8,462	)	$	5,677

Income tax expense (benefit) as reported is reconciled to the federal statutory rate (35%) as follows (thousands of dollars):

	Year Ended December 31,
	2009			2008			2007
Income tax provision (benefit) computed at statutory rate	$	(25,465	)	$	(76,422	)	$	4,485
Nondeductible costs		2,005			1,956			577
State income tax, net of federal tax benefit		(2,864	)		(1,475	)		615
Tax on other comprehensive income		(2,846	)		2,846			—
Change in valuation allowance		29,050			64,633			—
Income tax expense (benefit)	$	(120	)	$	(8,462	)	$	5,677

Deferred income taxes reflect the net tax effects of net operating losses, depletion carryovers, and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes

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and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows (thousands of dollars):

	December 31,
	2009			2008
Deferred tax assets:
Net operating tax loss carryforward	$	57,674		$	32,745
Statutory depletion carryforward		950			950
Tax credits		1,805			1,901
Deferred compensation		—			5,474
Tax basis in excess of book basis in property and equipment		31,717			25,655
Valuation allowance		(93,683	)		(64,633	)
Other		1,537			754
Total deferred tax assets		—			2,846
Deferred tax liabilities:
Unrealized hedge gain		—			2,846
Total deferred tax liabilities		—			2,846
Net deferred tax liability	$	—		$	—

As of December 31, 2009, the Company had approximately $164.8 million of tax net operating loss carryforwards. The net operating loss carryforwards assume that certain items, primarily intangible drilling costs, have been capitalized and are being amortized under the tax laws for the current year. However, the Company has not made a final determination whether an election will be made to capitalize all or part of these items for tax purposes.

A portion of the net operating loss carryforwards is subject to change in ownership limitations that could restrict the Company’s ability to utilize such losses in the future.

As of December 31, 2009, the Company had net operating loss carryforwards for regular tax and alternative minimum tax (AMT) purposes available to reduce future taxable income. These carryforwards expire as follows (in thousands of dollars):

	Net		AMT
Year of Expiration	Operating Loss		Operating Loss
2018	$	10,549	$	13,820
2019		47,730		48,630
2020		31		31
2021		36		36
2022		3,719		6,232
2023		36,376		44,516
2025		42		11
2026		52		—
2027		77		1,369
2028		6,596		8,062
2029		59,574		61,896
Total	$	164,782	$	184,603

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2009, the Company had approximately $1.8 million of AMT tax credit carryforwards that do not expire.

Generally Accepted Accounting Principles require a valuation allowance to be recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company does not expect to fully realize its deferred tax assets, and therefore recorded a valuation allowance in 2008 and 2009 to the full extent of all net deferred tax assets.

9.   FAIR VALUE MEASUREMENT

Effective January 1, 2008, the Company adopted new authoritative guidance from the FASB regarding fair value, contained in Accounting Standards Codification Topic 820 (“ASC 820”). ASC 820 provides a hierarchy of fair value measurements, based on the inputs to the fair value estimation process. It requires disclosure of fair values classified according to defined “levels,” which are based on the reliability of the evidence used to determine fair value, with Level 1 being the most reliable and Level 3 the least. Level 1 evidence consists of observable inputs, such as quoted prices in an active market. Level 2 inputs typically correlate the fair value of the asset or liability to a similar, but not identical item which is actively traded. Level 3 inputs include at least some unobservable inputs, such as valuation models developed using the best information available in the circumstances.

The Company adopted the provisions of ASC 820 as it applies to assets and liabilities measured at fair value on a recurring basis on January 1, 2008. This included oil and natural gas derivatives contracts, and as of January 1, 2009, certain outstanding warrants known as the General Partner Warrants (see Notes 2 and 9).

In accordance with the deferred effective date provided by the FASB, on January 1, 2009, the Company adopted the provisions of ASC 820 for non-financial assets and liabilities which are measured at fair value on a non-recurring basis. This includes new additions to asset retirement obligations, and any long-lived assets, other than oil and natural gas properties, for which an impairment write-down is recorded during the period. There have been no such impairments of long-lived assets since adoption. ASC 820 does not apply to oil and natural gas properties accounted for under the full cost method, which are subject to impairment based on SEC rules.

The Company utilizes the modified Black-Scholes option pricing model to estimate the fair value of oil and natural gas derivative contracts. Inputs to this model include observable inputs from the New York Mercantile Exchange (NYMEX) for futures contracts, and inputs derived from NYMEX observable inputs, such as implied volatility of oil and gas prices. The Company has classified the fair values of all its derivative contracts as Level 2.

The fair value of the Company’s general partner warrants (see Notes 2 and 10) was calculated using the Black-Scholes option pricing model.

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Assets and liabilities measured at fair value on a recurring basis

			Fair Value Measurements at
			December 31, 2009 Using
			Quoted
			Prices in
			Active	Significant		Significant
			Markets for	Other		Other
			Identical	Observable		Unobservable
	December 31,		Assets	Inputs		Inputs
Description	2009		(Level 1)	(Level 2)		(Level 3)
			(Thousands of dollars)
Assets from price risk management activities(1)	$	—		$	—
Liabilities from price risk management activities(1)	$	—		$	—
General partner warrants(2)	$	412		$	412

			Fair Value Measurements at
			December 31, 2008 Using
			Quoted
			Prices in
			Active	Significant		Significant
			Markets for	Other		Other
			Identical	Observable		Unobservable
	December 31,		Assets	Inputs		Inputs
Description	2008		(Level 1)	(Level 2)		(Level 3)
			(Thousands of dollars)
Assets from price risk management activities(1)	$	8,447		$	8,447
Liabilities from price risk management activities(1)	$	311		$	311
General partner warrants(2)	$	—		$	—

(1)	Assets and liabilities from price risk management activities are oil and natural gas derivative contracts, primarily in the form of floor contracts to sell oil and natural gas within specific future time periods. These contracts are more fully described in Note 12. As of December 31, 2009, all of the Company’s oil and natural gas derivative contracts had expired.
(2)	General partner warrants are more fully described in Note 10. The warrants were carried at historical cost at December 31, 2008; historical cost was replaced with fair value upon adoption of new accounting guidance on January 1, 2009 (see Note 2).

As noted above, ASC 820 also applies to new additions to asset retirement obligations, which must be estimated at fair value when added. New additions result from estimations for new obligations for new properties, and fair values for them are categorized as Level 3. Such estimations are based on present value techniques which utilize company-specific information. The Company recorded $47,000 in additions to asset retirement obligations measured at fair value during the year ended December 31, 2009.

The Company estimates the fair value of its drilling rig quarterly (see Note 4), based on the present value of estimated cash flows from the rig, using management’s best estimates of utilization and dayrates. This is considered a Level 3 fair value.

10.   STOCKHOLDERS’ EQUITY

Proposed Merger

As described in Note 1, the Company has proposed that it be merged with Alta Mesa, and the board of directors has recommended that shareholders vote in favor of the merger, with the vote currently scheduled for April 28, 2010. Under the terms of the Merger Agreement, as amended, shareholders will receive $0.33 per

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

share of common stock, to be paid in cash, and shares of the Company would cease to be publicly traded. The Company would be merged into Alta Mesa Acquisition Sub, LLC with the Merger Sub as the surviving entity.

Under the terms of the Merger Agreement, all the Company’s outstanding stock options will become vested and exercisable. As all such options bear exercise prices in excess of the price of $0.33 per share to be received in the merger, the Company expects no additional consideration for the options. Certain outstanding warrants (see below, “Warrants”) are expected to be settled for a total of approximately $431,000 with two members of the Company’s Board of Directors, who are also former officers.

Common Stock

In March 2007, the Company’s Board of Directors authorized a share repurchase program; an amendment to the credit agreement at that time increased the available limit for the Company’s repurchase of its common stock from $1.0 million to $5.0 million annually, so long as the Company was in compliance with certain provisions of the Credit Facility. From March 2007, the inception of the share repurchase program, through December 31, 2009, the Company had repurchased 535,416 common shares at a cost of $1,234,000, of which 501,300 shares have been reissued for 401(k) contributions, for contract services and for compensation, and 34,116 have been retired. The Bank Forbearance Agreement prohibits any further repurchase of Company stock. The Company did not repurchase any shares during 2009 and does not expect to make share repurchases in the foreseeable future.

In 2008, the Company issued shares to certain former executives upon the discontinuation of its deferred compensation plan (see Note 12). Shares sufficient to cover the value of these former executives withholding taxes were withheld from issuance, and the Company made a cash payment for the withholding tax. The total number of shares withheld was 1,001,511, at a value of approximately $3,035,000. In 2009, the Company again withheld shares from a distribution in order to cover the recipients’ personal withholding tax, which was paid in cash by the Company. The total shares withheld in the 2009 transaction were 610,938 shares at a total cost of $195,000. These transactions are considered an indirect repurchase and have been presented in the Consolidated Statements of Cash Flows as a financing item.

Warrants

As of December 31, 2009, the Company had outstanding warrants (the “General Partner Warrants”) that entitle Joseph A. Reeves, Jr. and Michael J. Mayell to purchase an aggregate of 1,872,998 shares of common stock at an exercise price of $0.10 per share through December 31, 2015. Messrs. Reeves and Mayell, respectively, were the Chief Executive Officer and Chief Operating Officer of the Company for many years. Messrs. Reeves and Mayell both ceased to be employees of the Company on December 29, 2008.

The number of shares of common stock purchasable upon the exercise of the warrants and its corresponding exercise price are subject to customary anti-dilution adjustments. In addition to such customary adjustments, the number of shares of common stock and exercise price per share of the General Partner Warrants are subject to adjustment for any issuance of common stock by the Company such that each warrant will permit the holder to purchase at the same aggregate exercise price, a number of shares of common stock equal to the percentage of outstanding shares of the common stock that the holder could purchase before the issuance. Currently each of these two warrant arrangements permits the holder to purchase approximately 1% of the outstanding shares of the common stock for an aggregate exercise price of $94,303. The General Partner Warrants were issued to Messrs. Reeves and Mayell in conjunction with certain transactions with Messrs. Reeves and Mayell that took place in anticipation of the Company’s consolidation in December 1990 and were a component of the total consideration issued for various interests that Messrs. Reeves and Mayell had as general partners in TMR, Ltd., a predecessor entity of the Company. There are adequate authorized unissued common stock shares that are required to be issued upon conversion of the General Partner Warrants. The Company is not required to redeem the General Partner Warrants in cash.

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company adopted new authoritative guidance from the FASB with regard to these warrants on January 1, 2009. The provisions of the new guidance, which relate to equity securities indexed to the price of a company’s own stock, were considered in regard to the General Partner Warrants and it was determined that they were not indexed to the price of the Company’s own stock and should therefore be subject to fair value accounting. Accordingly, a charge of $960,000 was recorded on January 1, 2009 to retained earnings to reflect the cumulative effect of recording the 1,884,544 warrants outstanding at that date at fair value, with an offsetting entry to accrued liabilities. Adjustments to fair value have been made on a prospective basis, beginning in 2009. For the year ended December 31, 2009, the Company recorded a gain on the valuation of the warrants of $548,000, which is included in general and administrative expense.

At December 31, 2009, 1,872,998 General Partner Warrants were outstanding and included in accrued liabilities at a total fair value of $412,000. Fair value is based on the Black-Scholes model for option pricing.

Share-based Compensation

Options to purchase the Company’s common stock have been granted to officers, employees, nonemployee directors and certain key individuals, under various stock incentive plans. Options generally become exercisable in 25% cumulative annual increments beginning with the date of grant and expire at the end of ten years. The Company has also made grants of stock shares which vest over time (typically, three years). The Company has also issued rights to shares of common stock under its deferred compensation plan (see additional information for that plan below, “Deferred Compensation.”) The Company typically utilizes newly issued stock shares when options are exercised or shares vest.

Compensation expense is recorded for share-based awards over the requisite vesting periods based upon the fair value of the award on the date of the grant. Share-based compensation expense for grants of options and non-vested shares of approximately $153,000, $193,000, and $294,000 was recorded in the years ended December 31, 2009, 2008, and 2007, respectively and is included in general and administrative expense. In addition, general and administrative expense related to issuance of shares in lieu of cash for services was zero, $144,000, and $1,144,000, for each of the years ended December 31, 2009, 2008, and 2007, respectively. No portion of this expense has been capitalized. At December 31, 2009, 2008, and 2007, 4,140,000, 3,970,000,

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and 3,850,000 shares, respectively, were available for grant under the plans. Summaries of share-based awards transactions follow:

				Weighted
	Number			Average
	of Share Options			Exercise Price
Outstanding at December 31, 2006		3,458,968		$	3.84
Granted		115,000			2.69
Exercised		—			—
Canceled		(174,280	)		8.80
Outstanding at December 31, 2007		3,399,688		$	3.55
Granted		115,000			2.34
Exercised		—			—
Canceled or Expired		(3,053,188	)		3.37
Outstanding at December 31, 2008		461,500		$	4.41
Granted		250,000		$	0.58
Exercised		—			—
Canceled or Expired		(307,500	)	$	5.01
Outstanding at December 31, 2009		404,000		$	1.59
Share options exercisable:
December 31, 2007		3,252,001		$	3.57
December 31, 2008		265,875		$	5.74
December 31, 2009		226,500		$	1.90

				Weighted
	Number			Average
	of Non-Vested			Grant Date
	Shares			Fair Value
Outstanding non-vested at December 31, 2007		—		$	—
Granted		40,873			2.32
Vested		—			—
Forfeited		—			—
Outstanding non-vested at December 31, 2008		40,873		$	2.32
Granted		—			—
Vested		(40,873	)	$	2.32
Forfeited		—			—
Outstanding non-vested at December 31, 2009		—			—

Fair value of share options was estimated at the date of grant using the Black-Scholes option pricing model. Certain assumptions were used in determining the fair value of share options using this model. The Company calculated the estimated volatility of its stock by averaging the historical daily price intervals for closing prices of the common stock. The risk-free interest rate is based on observed U.S. Treasury rates at date of grant, appropriate for the expected lives of the options. The expected life of options was determined based on the method provided in Staff Accounting Bulletin 107, as we do not have an adequate exercise history to determine the average life for the options with the characteristics of those granted.

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Weighted averages of the assumptions used in the Black-Scholes option pricing model were as follows for grants of options in the years ended December 31, 2009, 2008 and 2007, respectively: risk-free interest rates of 1.5%, 3.0% and 4.54%; dividend yield of 0%; volatility factors of the expected market price of the Company’s common stock of 0.58, 0.59, and 0.59; and weighted-average expected lives of three years, four years, and five years. These assumptions resulted in weighted average grant date fair values of $0.25, $1.14 and $1.36 for options granted in 2009, 2008, and 2007, respectively.

The aggregate intrinsic value of share options exercised was zero in each of the years ended December 31, 2009, 2008, and 2007, as no options were exercised. The aggregate intrinsic value of non-vested shares which vested was $14,000, zero, and zero, for each of the years 2009, 2008, and 2007, respectively. No shares vested during 2008 and 2007.

	Options Outstanding				Options Exercisable
			Weighted				Weighted
Range of	Outstanding at		Average		Exercisable at		Average
Exercisable Prices	December 31, 2009		Exercise Price		December 31, 2009		Exercise Price
$0.58 — $1.93		267,500		0.66		129,375		.62
$2.31 — $3.99		114,000		3.06		74,625		3.16
$4.42 — $5.32		22,500		5.11		22,500		5.11
		404,000		1.59		226,500		1.90

The weighted average remaining contractual life of options outstanding at December 31, 2009, was approximately four years.

The aggregate intrinsic value for all options outstanding and for all exercisable options at December 31, 2009 was zero. The aggregate intrinsic value represents the total pre-tax value (the difference between the Company’s closing stock price on the last trading day of 2009 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they exercised their options on December 31, 2009. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock.

As of December 31, 2009, there was approximately $30,000 of total unrecognized compensation expense related to stock-based compensation plans. This compensation expense is expected to be recognized on a straight-line basis over the remaining vesting period of approximately 2 years.

Deferred Compensation

In July 1996, the Company through the Compensation Committee of the Board of Directors offered to Messrs. Reeves and Mayell (at the time, the Company’s Chief Executive Officer and Chief Operating Officer, respectively) the option to accept in lieu of an electable portion of their cash, compensation rights to common stock pursuant to the Company’s Long Term Incentive Plan. Under the terms of this deferred compensation plan, Messrs. Reeves and Mayell each deferred $160,000 for 2008 and $400,000 for 2007. In exchange for and in consideration of their accepting this option to reduce the Company’s cash payments to each of Messrs. Reeves and Mayell, the Company granted to each officer a matching deferral equal to 100% of the amount deferred, subject to a one-year vesting period. Under the terms of the deferred compensation plan, the employee and matching deferrals were allocated to a notional common stock account in which notional shares of common stock were credited to the accounts of the officers based on the number of shares that could be purchased at the market price of the common stock with the deferred and matched funds. For 1997, the price was determined at December 31, 1996, and for all years subsequent to 1997, it was determined on a semi-annual basis at December 31st and June 30th. Compensation costs related to the amounts deferred by the officers and matched by the Company for these equity grants were $968,000 and $1,598,000 for 2008 and 2007, respectively. The costs are reflected in general and administrative expense and in oil and natural gas

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

properties for the years ended December 31, 2008 and 2007, respectively as follows: $484,000 and $799,000 in general and administrative expense, and $484,000 and $799,000 capitalized to oil and natural gas properties.

The Company discontinued the deferred compensation plan provided to these officers, which resulted in the issuance of a total of 1,803,291 shares of new common stock for Messrs. Reeves and Mayell (combined) on July 2, 2008. The shares issued were net of a reduction of 1,001,511 shares withheld in lieu of the executives’ personal withholding tax. The intrinsic value of all these shares on date of issuance, including those withheld, was approximately $8.5 million at $3.03 per share. Also due to termination of the plan, 1,712,114 new shares (856,057 shares for each of the two officers) were issued and placed into a Rabbi Trust on October 2, 2008. The intrinsic value of these shares on date of issuance to the trust was approximately $3.1 million at $1.81 per share. The shares were distributed upon dissolution of the trust on June 26, 2009. The distribution was again issued net of a reduction of shares withheld in lieu of personal withholding tax; the number of shares withheld totaled 610,938. The intrinsic value of the 1,101,176 shares distributed and the 610,938 shares withheld was $352,000 and $195,000, respectively, at $0.32. See Note 12 for further information.

Activity in the notional accounts for the years ended December 31, 2008 and 2007 is as follows:

				Weighted
				Average
	Number			Grant Date
	of Share Rights*			Fair Value
Outstanding at December 31, 2006		3,640,188			4.54
Granted		523,144			3.06
Outstanding at December 31, 2007		4,163,332			4.36
Granted		353,584			1.81
Converted to shares of common stock		(4,516,916	)		4.16
Outstanding at December 31, 2008		—			—

* For simplicity, share rights vesting on a routine schedule are not separately shown; only the original granting of the share rights is presented, and outstanding year-end balances include both vested and unvested shares. As the Company matching portion of share rights vested monthly over a one year period, each year’s activity actually included vesting of approximately one-half of the prior year’s matching rights, and non-vesting of approximately one-half of the current year’s matching rights. When the plan was discontinued in 2008, all remaining unvested rights (approximately 180,478 rights) were vested on an accelerated basis, then all rights were converted to shares of common stock. As of December 31, 2008, there were no rights remaining in the notional accounts and no cost related to any rights granted which had not yet been recognized.

The shares of common stock which would have been issuable upon distribution of deferrals and matching grants during the time the plan was active (including 2007 and early 2008) have been treated as common stock equivalents in computing earnings per share.

11.   PROFIT SHARING AND SAVINGS PLAN

The Company has a 401(k) profit sharing and savings plan (the “Plan”) that covers substantially all employees and entitles them to contribute up to 15% of their annual compensation, subject to maximum limitations imposed by the Internal Revenue Code. The Company matches 100% of each employee’s contribution up to 6.5% of annual compensation subject to certain limitations as outlined in the Plan. In addition, the Company may make discretionary contributions which are allocable to participants in accordance

F-99

THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

with the Plan. Total expense related to the Company’s 401(k) plan was $382,000, $531,000, and $545,000, in 2009, 2008, and 2007, respectively.

During 1998, the Company implemented a net profits program that was adopted effective as of November 1997. All employees participate in this program. Pursuant to this program, the Company adopted three separate well bonus plans: (i) The Meridian Resource Corporation Geoscientist Well Bonus Plan (the “Geoscientist Plan”); (ii) The Meridian Resource Corporation TMR Employees Trust Well Bonus Plan (the “Trust Plan”) and (iii) The Meridian Resource Corporation Management Well Bonus Plan (the “Management Plan,” together with the Trust Plan and the Geoscientist Plan, the “Well Bonus Plans”). Payments under the plans are calculated based on revenues from production on previously discovered reserves, as realized by the Company at current commodity prices, less operating expenses. Total compensation related to these plans was $2.3 million, $5.0 million, and $4.7 million, in 2009, 2008, and 2007, respectively. A portion of these amounts was capitalized with regard to personnel engaged in activities associated with exploratory projects. The Executive Committee of the Board of Directors, which was comprised of Messrs. Reeves and Mayell, administers each of the Well Bonus Plans. The participants in each of the Well Bonus Plans are designated by the Executive Committee in its sole discretion. Participants in the Management Plan are limited to executive officers of the Company and other key management personnel designated by the Executive Committee. Neither Messrs. Reeves nor Mayell participated in the Management Plan. The participants in the Trust Plan generally will be employees of the Company that do not participate in one of the other Well Bonus Plans. Effective March 2001, the participants in the Geoscientist Plan were notified that no additional future wells would be placed into the Geoscientist Plan. During 2002, the Executive Committee decided to modify this position and for certain key geoscientists the Geoscientist Plan will include new wells.

Pursuant to the Well Bonus Plans, the Executive Committee designates, in its sole discretion, the individuals and wells that will participate in each of the Well Bonus Plans. The Executive Committee also determines the percentage bonus that will be paid under each well and the individuals that will participate thereunder. The Well Bonus Plans cover all properties on which the Company expends funds during each participant’s employment with the Company, with the percentage bonus generally ranging from less than 0.1% to 0.5%, depending on the level of the employee. It is intended that these well bonuses function similar to actual net profit interests, except that the employee will not have a real property interest and will be subject to the general credit of the Company. For certain employees covered under the Management Well Bonus Plan and the Geoscientist Well Bonus Plan, payments under vested bonus rights will continue to be made after an employee leaves the employment of the Company based on their adherence to the obligations required in their non-compete agreement upon termination. The Company has the option to make payments in whole, or in part, utilizing shares of common stock. The determination whether to pay cash or issue common stock is based upon a variety of factors, including the Company’s current liquidity position and the fair market value of the common stock at the time of issuance. In practice, most payments have been made in cash, with some payments to ex-employees made in common stock.

In connection with the execution of their employment contracts in 1994, both Messrs. Reeves and Mayell were granted a 2% net profit interest in the oil and natural gas production from the Company’s properties to the extent the Company acquires a mineral interest therein. The net profits interest for Messrs. Reeves and Mayell applies to all properties on which the Company expended funds during their employment with the Company. Each grant of a net profits interest is reflected at a value based on a third party appraisal of the interest granted. For the years ended December 31, 2009, 2008, and 2007, compensation expense in the amounts of zero, $137,350, and $78,054 were recorded for each Messrs. Reeves and Mayell. Grants made in 2009 were negligible. The net profit interests represent real property rights not subject to vesting or continued employment with the Company. Messrs. Reeves and Mayell did not participate in the Well Bonus Plans. The net profits interest plan for Messrs. Reeves and Mayell was discontinued in April, 2008 as to new properties, but continues to apply to all properties on which the Company had expended funds prior to discontinuation. See Note 12 for further information.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12.   CONTRACT SETTLEMENTS, RABBI TRUST, EMPLOYEE RETENTION, AND INDEMNIFICATION SETTLEMENT

In April 2008 the Company made significant changes in the structure of the compensation of two executives, Mr. Joseph A. Reeves and Mr. Michael J. Mayell, former Chief Executive Officer and former Chief Operating Officer. Effective April 29, 2008, the employment contracts for Messrs. Reeves and Mayell were replaced with new agreements. In addition, certain other agreements that governed other elements of their compensation packages were also settled. As a result of the agreements, the Company recorded $9.9 million in contract settlement expense in the second quarter of 2008, and placed that amount of cash in a Rabbi Trust for the former officers. In June 2009, pursuant to the contractual terms, the cash was distributed from the trust to the former officers. Also in the third quarter of 2008, the Company recorded a $1.2 million non-cash expense due to write-down of the deferred tax asset related to the stock rights; the write-down was the result of the difference between the market value of the stock when the rights were issued and expensed, and the market value at conversion of the rights into shares.

In addition, the Company discontinued the deferred compensation plan provided to these officers, which resulted in the issuance of a total of 1,803,291 shares of new common stock for Messrs. Reeves and Mayell (combined) on July 2, 2008. The shares issued were net of a reduction of 1,001,511 shares withheld from issuance in lieu of the former executives’ personal withholding tax. An additional 1,712,114 new shares (856,057 shares to each of the two former officers) were placed in the Rabbi Trust in the third quarter of 2008, and distributed to the former officers in June 2009. The shares were again issued net of shares withheld for personal withholding tax (a total of 610,938 shares were withheld from distribution and retired). The total net shares distributed to the two officers was 1,101,176 (550,588 each). Substantially all of the compensation expense related to these shares had been recognized historically, when the rights to such future shares were granted.

Prior to distribution, the cash in the Rabbi Trust was included on the Consolidated Balance Sheets under “Restricted Cash,” and the shares in the trust were accounted for as treasury shares, assigned a value based on the closing market price on the date they were issued, October 2, 2008. Until distribution, the assets of the trust belonged to the Company, but were effectively restricted due to the obligation to the former officers.

On July 29, 2008, the Company reached an agreement with a former employee to terminate a compensation agreement. Under the terms of the termination agreement, the Company paid the former employee $825,000 and repurchased from him, 34,116 shares of Company stock, which had been issued to him in lieu of cash compensation. The total cost of repurchasing the shares was approximately $75,000. The Company has no further obligation to this former employee. The termination payment was recorded as general and administrative expense in the third quarter of 2008.

On July 3, 2008, the Company initiated the Meridian Resource & Exploration LLC Retention Incentive Compensation Plan, and under the terms of the plan, distributed a total of $1.6 million in bonuses to its employees. The purpose of the plan was to encourage the retention of valued employees for the immediate term. The employment market for experienced personnel in the oil and gas industry had been very strong for some time when the plan was initiated. Management’s intention for the incentive program was to help equalize its employees’ compensation with current market conditions and motivate them to continue their careers with Meridian. The terms of the plan included a second, final bonus to those employees who continued their employment with the Company through March 31, 2009. The second payment, issued April 3, 2009, totaled approximately $2.9 million; the expense was accrued ratably over the time period July 2008 through March 2009. The Company recognized $1.7 million in general and administrative expense, net of capitalization of a portion to the full cost pool, through December 31, 2008, and approximately $0.5 million in general and administrative expense for the retention bonus plan in 2009, net of capitalization.

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As described in Note 7, in the fourth quarter of 2009 the Company recorded $4.2 million in expense for a settlement with Shell regarding indemnification of environmental claims.

13.   RISK MANAGEMENT ACTIVITIES

Management of Financial Risk

The Company’s operating environment includes two primary financial risks which could be addressed through derivatives and similar financial instruments: the risk of movement in oil and natural gas commodity prices, which impacts revenue, and the risk of interest rate movements, which impacts interest expense from floating rate debt.

The Company currently does not utilize derivative contracts or any other form of hedging against interest rate risk.

The Company utilizes derivative contracts to address the risk of adverse oil and natural gas commodity price fluctuations. While the use of derivative contracts limits the downside risk of adverse price movements, it may also limit future gains from favorable movements. No derivative contracts have been entered into for trading purposes, and the Company generally holds each remaining instrument to maturity. The Company’s commodity derivative contracts are considered cash flow hedges under generally accepted accounting principles.

Oil and Natural Gas Hedging Contracts

The Company has historically utilized derivative contracts to hedge the sale of a portion of its future production. The Company’s objective is to reduce the impact of commodity price fluctuations on both income and cash flow, as well as to protect future revenues from adverse price movements. Management considers some exposure to market pricing to be desirable, due to the potential for favorable price movements, but prefers to achieve a measure of stability and predictability over revenues and cash flows by hedging some portion of production. All the Company’s hedging agreements expired in December 2009. All of the Company’s hedging agreements are executed by affiliates of the Lenders under the Credit Facility and are collateralized by the security interest the Lenders have in the oil and natural gas assets of the Company. Due to the default under the Credit Facility, the Lenders have not allowed the Company to enter into any additional hedging agreements. As a result, the Company’s oil and natural gas sales for periods beyond December 2009 will more closely resemble prevailing market prices.

Accounting and financial statement presentation for derivatives

The Company accounts for its derivative contracts under the provisions of ASC 815, “Derivatives and Hedging.” Under ASC 815, the Company’s commodity derivatives are designated as cash-flow hedges and are stated at fair value on the Consolidated Balance Sheets. See Note 9, “Fair Value Measurements” for further information on how fair values of derivative instruments are determined. Changes in the fair value of the contracts, which occur due to commodity price movements, are offset in Accumulated Other Comprehensive Income. When the derivative contract or a portion of it matures, the gain or loss is settled in cash and reclassified from Accumulated Other Comprehensive Income to Revenues from Oil and Natural Gas. Net settlements under hedging agreements increased (decreased) oil and natural gas revenues by $11.7 million, ($4.7 million) and $3.3 million for the years ended December 31, 2009, 2008 and 2007, respectively. A gain or loss may be recorded to earnings prior to contract maturity if a portion of the cash flow hedge becomes “ineffective” under the guidelines provided under generally accepted accounting principles, or if the forecasted transaction is no longer expected to occur. Although the Company periodically records gains or losses from hedge ineffectiveness, there have been no losses recorded due to changes in expectations regarding occurrence of the hedged transactions. The following two tables provide information regarding assets, liabilities, gains,

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and losses related to derivative contracts, and where these amounts are reflected within the Company’s financial statements (in thousands):

	Fair Values of Derivative Contracts at
Description and Location Within	December 31,		December 31,
Consolidated Balance Sheet	2009		2008
Derivative contracts designated as hedging instruments
Commodities Contracts
Current assets from price risk management activities		—	$	8,447
Non-current assets from price risk management activities		—		—
Current liabilities from price risk management activities		—	$	311
Non-current liabilities from price risk management activities		—		—
Derivative contracts not designated as hedging instruments		NONE		NONE

Effect of Derivative Contracts on the Consolidated Balance Sheets and the Consolidated Statements of Operations

	Location of Gain	For the Year Ended
	(Loss) Within	December 31,			December 31,
Description	Financial Statements	2009			2008
Derivative contracts designated as cash flow hedging instruments:
Gain (loss) on derivative contracts recognized in Other Comprehensive Income (OCI)
Commodities Contracts	Accumulated Other Comprehensive Income		3,616			3,806
Gain (loss) on derivative contracts reclassified from OCI to earnings
Commodities Contracts	Oil and Natural Gas Revenues		11,745			(4,663	)
Gain (loss) due to hedging ineffectiveness reported in earnings
Commodities Contracts	Revenues from Price Risk Management Activities		(6	)		(18	)
Fair value of derivative contracts designated as cash flow hedging instruments, excluded from effectiveness assessments			NONE			NONE
Derivative contracts not designated as hedging instruments			NONE			NONE

As of December 31, 2009 and 2008, the Company had unrealized gains of zero and $8.1 million (pre-tax and net of tax) deferred in Accumulated Other Comprehensive Income, respectively. All of the Company’s derivative agreements expired December 31, 2009.

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14.   MAJOR CUSTOMERS

Major customers for the years ended December 31, 2009, 2008, and 2007, were as follows (based on sales exceeding 10% of total oil and natural gas revenues):

	Year Ended December 31,
Customer	2009			2008			2007
Shell Trading (U.S.)		28	%		21	%		14	%
Stone Energy Corporation		17	%		8	%		8	%
Superior Natural Gas		11	%		17	%		23	%
Crosstex Gulfcoast Marketing		10	%		14	%		16	%

15.   RELATED PARTY TRANSACTIONS

Messrs. Joseph A. Reeves, Jr. and Michael J. Mayell, each of whom was an officer of the Company until December 29, 2008 and is a current Director of Meridian, are working interest partners of the Company. Historically since 1994, affiliates of Meridian have been permitted to hold interests in projects of the Company. With the approval of the Board of Directors, Texas Oil Distribution and Development, Inc. (“TODD”) and JAR Resources LLC (“JAR”), entities controlled by Joseph A. Reeves, Jr. and Sydson Energy, Inc. (“Sydson”), an entity controlled by Michael J. Mayell, have each invested in Meridian drilling locations, where applicable, at a 1.5% to 4% working interest basis. The maximum total percentage at which either officer was allowed to participate in any prospect was a 4% working interest. The right to participate in “new oil and gas projects” was terminated as of December 29, 2008, under the settlement agreements with Messrs. Reeves and Mayell described immediately below and in Note 12. On a collective basis, TODD, JAR and Sydson invested $997,000, $4,321,000, and $9,871,000, for the years ended December 31, 2009, 2008, and 2007, respectively, in oil and natural gas drilling activities. The former officers continued to be offered participation in new wells in 2009, from prospects initiated prior to December 29, 2008. Net amounts due to (from) TODD, JAR, Matrix Petroleum LLC (see below) and Mr. Reeves were approximately $76,000 and ($1,981,000) as of December 31, 2009 and 2008, respectively. Net amounts due to Sydson and Mr. Mayell were approximately $466,000 and $232,000 as of December 31, 2009 and 2008, respectively.

Messrs. Reeves and Mayell each entered into consulting agreements with the Company, commencing December 30, 2008. Each provided professional services to the Company for a monthly fee; the agreements terminated on April 30, 2009, with a total of $217,000 paid to or on behalf of each of the two former officers during 2009. During 2008, the Company settled certain compensation-related contracts with Messrs. Reeves and Mayell, accruing a total of $9,894,000 for obligations under the settlements, included in “Due to affiliates” in the accompanying Consolidated Balance Sheet for December 31, 2008. See Note 12 for further details. As a result of this settlement, during the second quarter of 2009, the Company paid $4,954,000 and $4,940,000 to Messrs. Reeves and Mayell, respectively. Funds for the payments were provided from those previously set aside in the related Rabbi Trust. In addition to the cash payment, each of the former officers received 550,588 shares of Company stock distributed from the Rabbi Trust. Under the terms of other employment contracts entered into in 2008, Messrs. Reeves and Mayell also continued to receive such employee benefits as medical insurance throughout 2009, as well as other fringe benefits, primarily the maintenance of certain club memberships on their behalf. The Company is obligated to continue these benefits to each of these two former officers through October 2010.

Also under the terms of the 2008 settlement with Messrs. Reeves and Mayell, in 2009 the Company transferred to them the furniture, equipment, and artwork from their Meridian executive offices.

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2009, Matrix Petroleum LLC (“Matrix”), an entity controlled by Mr. Reeves, entered into a lease of office space from Meridian. The Company has invoiced Matrix a total of $77,000 for rent and minor charges for use of Meridian office support staff.

As described in Note 11, Messrs. Reeves and Mayell are entitled to certain grants of net profits interests in properties initiated for development during their term of employment. As properties develop from geological studies to executed mineral leases, Messrs. Reeves and Mayell receive interests in the mineral leases. Such grants were valued by third party appraisal at $137,350 and $78,054 for the years 2008 and 2007, respectively. Grants made in 2009 were negligible.

In December 2009, the Company reached a settlement agreement with Mr. Reeves, TODD, and JAR (collectively, the “Reeves Parties”) regarding amounts the Reeves Parties claimed were owed to them by the Company under various agreements, all of which involve the Company’s and the Reeves Parties’ ownership interests in various oil and natural gas properties. In settlement of these claims: 1) the Company agreed to credit by $600,000 the balance owed by the Reeves Parties to the Company as joint interest partners; 2) the Reeves Parties paid the Company $400,000 against their joint interest accounts in December 2009 and agreed to bring their account balances current by May 2010; 3) the Company indemnified the Reeves Parties against claims arising prior to the settlement date of December 22, 2009 in regard to the properties in which the Reeves Parties share an interest with the Company; and 4) the Reeves Parties’ ownership in each property was clarified and listed, including those potential properties included in areas of study performed during Mr. Reeves’ tenure as an officer. Together with credits for the Reeves Parties’ share of fourth quarter revenues on the properties, these transactions brought the balance between the Company and Reeves Parties to the amount cited above, $76,000 owed by the Company to Reeves.

The Company also entered a settlement contract with Mr. Mayell and Sydson (together, “Mayell Parties”) on December 17, 2009, clarifying and listing the Mayell Parties’ ownership in each oil and natural gas property, including those potential properties included in areas of study performed during Mr. Mayell’s tenure as an officer. The Company provided the Mayell Parties with indemnifications as to claims arising before the date of settlement, with regard to the properties in which the Mayell Parties share an interest with the Company.

Mr. Joe Kares, a former Director of Meridian, is a partner in the public accounting firm of Kares & Cihlar, which provided the Company with accounting services for the years ended December 31, 2009, 2008, and 2007 and received fees of approximately $150,000, $216,000, and $231,000, respectively. Such fees exceeded 5% of the gross revenues of Kares & Cihlar for those respective years. Mr. Kares also participated in the Management Plan described in Note 11 above, pursuant to which he was paid approximately $101,000 during 2009, $335,000 during 2008, and $275,000 during 2007. Mr. Kares resigned from the Board of Directors effective October 13, 2009.

Mr. Gary A. Messersmith, a former Director of Meridian, is currently a member of the law firm of Looper, Reed & McGraw P.C. in Houston, Texas, which provided legal services for the Company for the years ended December 31, 2009, 2008, and 2007, and received fees of approximately $137,000, $118,000, and $73,000, respectively. In addition, during 2007, the Company paid Gary A. Messersmith, P.C. $8,333 per month relating to his services provided to the Company. The retainer was paid through March, 2008, then discontinued. Mr. Messersmith also participated in the Management Plan described in Note 11 above, pursuant to which he was paid approximately $159,000 during 2009, $527,000 during 2008, and $441,000 during 2007. Mr. Messersmith resigned from the Board of Directors effective October 13, 2009.

During 2008, both Mr. Kares and Mr. Messersmith requested the Company discontinue their participation in the Management Well Bonus Plan as to new wells drilled after mid-April 2008. Their participation as to wells previously drilled is unchanged.

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Mr. G. M. Larberg, a former Director of Meridian, is a petroleum industry consultant that provided the Company with services for the years ended December 31, 2009, 2008, and 2007, and received consulting fees of approximately $44,000, $210,000, and $223,000, respectively. Mr. Larberg resigned from the Board of Directors effective October 13, 2009.

Mr. J. Drew Reeves, the son of Mr. Joseph A. Reeves, Jr., is a staff member in the Land Department. Mr. Drew Reeves was paid $218,000, $227,000, and $168,000, for the years 2009, 2008, and 2007, respectively. Mr. Jeff Robinson is the son-in-law of Joseph A. Reeves, Jr. and is employed as the Manager of the Company’s Information Technology Department and has been paid $198,000, $193,000, and $164,000, for the years 2009, 2008, and 2007, respectively. Mr. J. Todd Reeves, the son of Joseph A. Reeves, Jr., is a partner in the law firm of J. Todd Reeves and Associates, which provides legal services to the Company and received fees of approximately $63,000 in 2009, $197,000 in 2008, and $371,000 in 2007. Such fees exceeded 5% of the gross revenues for the firm for those respective years.

Mr. Michael W. Mayell, the son of Mr. Michael J. Mayell, an officer until December 29, 2008 and a current Director of Meridian, is a staff member in the Production Department, and was paid $174,000, $169,000, and $129,000 for the years 2009, 2008, and 2007, respectively. Mr. James T. Bond, former Director of Meridian, was the father-in-law of Mr. Michael J. Mayell; he provided consulting services to the Company and received fees in the amount of $48,000 for the year 2007.

Earnings during 2008 and 2009 noted above for related party employees include the impact of the Retention Incentive Compensation Plan described in Note 12.

16.   EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings (loss) per share:

	Year Ended December 31,
	2009			2008			2007
	(In thousands, except per share)
Numerator:
Net earnings (loss) applicable to common stockholders	$	(72,636	)	$	(209,886	)	$	7,137
Denominator:
Denominator for basic earnings (loss) per share — weighted-average shares outstanding		92,465			91,382			89,307
Effect of potentially dilutive common shares:
Warrants and rights(a)		NA			NA			5,637
Employee and director stock options(b)		NA			NA			—
Denominator for diluted earnings (loss) per share — weighted-average shares outstanding and assumed conversions		92,465			91,382			94,944
Basic earnings (loss) per share	$	(0.79	)	$	(2.30	)	$	0.08
Diluted earnings (loss) per share	$	(0.79	)	$	(2.30	)	$	0.08

Warrants and stock options for which the exercise prices were greater than the average market price of the Company’s common stock are excluded from the computation of diluted earnings per share. Stock rights issued under the Company’s deferred compensation plan, which was discontinued in 2008, had no exercise price and are included in diluted earnings per share in all years during which they were outstanding, unless

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

there is a loss. All potentially dilutive shares, whether from options, warrants, or rights, are excluded when there is an operating loss, because inclusion of such shares would be anti-dilutive.

(a) The number of warrants excluded totaled approximately 1.9 million, 3.3 million, and 1.4 million, in 2009, 2008, and 2007, respectively.

(b) The number of stock options excluded totaled approximately 0.4 million, 0.5 million, and 3.6 million, in 2009, 2008, and 2007, respectively.

17.   ACCRUED LIABILITIES AND OTHER LIABILITIES

Below is the detail of accrued liabilities on the Company’s balance sheets as of December 31 (thousands of dollars):

	2009		2008
Capital expenditures	$	830	$	8,227
Operating expenses/taxes		4,072		4,452
Hurricane damage repairs		—		1,555
Compensation		918		2,478
Interest and accrued bank fees		353		261
General partner warrants		412		—
Shell settlement		1,003		—
Other		2,521		1,858
Total	$	10,109	$	18,831

The total Shell settlement obligation is $4,223,000, of which $3,220,000 is classified as “Other Liabilities” in the long-term section of the accompanying Consolidated Balance Sheets at December 31, 2009. See Note 7 for further information. The balance is to be paid over a five year period.

18.   QUARTERLY RESULTS OF OPERATIONS (Unaudited)

Results of operations by quarter for the year ended December 31, 2009 were (thousands of dollars, except per share):

	Quarter Ended
	March 31			June 30			Sept. 30			Dec. 31
2009
Revenues	$	22,109		$	22,710		$	21,950		$	22,476
Results of operations from exploration and production activities(1)(2)		(55,672	)		4,550			6,923			(851	)
Net (loss)	$	(60,961	)	$	(1,462	)	$	(768	)	$	(9,445	)
Net (loss) per share:
Basic	$	(0.66	)	$	(0.02	)	$	(0.01	)	$	(0.10	)
Diluted	$	(0.66	)	$	(0.02	)	$	(0.01	)	$	(0.10	)

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Results of operations by quarter for the year ended December 31, 2008 were (thousands of dollars, except per share):

	Quarter Ended
	March 31		June 30		Sept. 30		Dec. 31
2008
Revenues	$	38,448	$	46,534	$	36,806	$	26,846
Results of operations from exploration and production activities(1)(3)		11,586		18,136		10,595		(224,406	)
Net earnings (loss)	$	3,563	$	839	$	699	$	(214,987	)
Net earnings (loss) per share:
Basic	$	0.04	$	0.01	$	0.01	$	(2.33	)
Diluted	$	0.04	$	0.01	$	0.01	$	(2.33	)

(1)	Results of operations from exploration and production activities, which approximate gross profit, are computed as operating revenues less lease operating expenses, severance and ad valorem taxes, depletion, impairment of long-lived assets, accretion and hurricane damage repairs.
(2)	Includes impairments of long-lived assets of $59.5 million and $4.0 million in the first and fourth quarters, respectively.
(3)	Includes impairment of long-lived assets of $223.5 million in the fourth quarter.

19.   SUPPLEMENTAL OIL AND NATURAL GAS DISCLOSURES (Unaudited)

In December 2008, the SEC published a Final Rule, “Modernization of Oil and Gas Reporting.” The new rule permits the use of new technologies to determine proved reserves if those technologies have been demonstrated to lead to reliable conclusions about reserves volumes. The new requirements also allow companies to disclose their probable and possible reserves to investors. In addition, the new disclosure requirements require companies to: (a) report the independence and qualifications of its reserves preparer or auditor; (b) file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and (c) report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The use of average prices affects impairment and depletion calculations. The new rule became effective for reserve reports as of December 31, 2009; the FASB incorporated the new guidance into the Codification as Accounting Standards Update 2010-03, effective also on December 31, 2009, ASC Topic 932, “Extractive Activities — Oil and Gas.”

The Company adopted the new guidance effective December 31, 2009; information about the Company’s reserves has been prepared in accordance with the new guidance; management has chosen not to provide information on probable and possible reserves. The Company’s reserves were affected primarily by the use of the average price rather than the year-end price required under the prior rules. Under the new rules issued by the SEC, the estimated future net cash flows as of December 31, 2009, were determined using average prices for the most recent twelve months. The average is calculated using the first day of the month price for each of the twelve months that make up the reporting period. As of December 31, 2008 and 2007, previous rules required that estimated future net cash flows from proved reserves be based on period end prices. As a result of adopting the new guidance, we estimate that Meridian’s December 31, 2009 proven reserves decreased approximately 1.4 Bcfe and prices used in the calculation decreased approximately 30%. These changes in turn affected the results of the Company’s ceiling test for the fourth quarter, which was a write-down of $4.0 million. Had the new rule using average pricing not been implemented, the write-down in the fourth quarter of 2009 would not have been necessary. The change in total reserves had only a negligible effect on depletion expense in the fourth quarter of 2009; total proved reserves are the basis of depletion calculations.

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The reserve volumes and associated cash flows were prepared by T. J. Smith & Company, Inc., independent reservoir engineers. For further information on Mr. Smith’s qualifications and on the methods and controls used in the process of estimating reserves, please see Part I, Item 1, Business, Oil and Natural Gas Reserves.

The reserve information presented below is provided as supplemental information in accordance with the provisions of ASC Topic 932-235.

Costs Incurred in Oil and Natural Gas Acquisition, Exploration and Development Activities

	Year Ended December 31,
	2009			2008		2007
	(Thousands of dollars)
Costs incurred during the year:(1)(2)
Property acquisition costs
Unproved(3)	$	(2,136	)	$	21,879	$	9,589
Proved		—			—		—
Exploration		5,838			51,752		92,320
Development		10,765			38,159		9,026
	$	14,467		$	111,790	$	110,935

(1)	Costs incurred during the years ended December 31, 2009, 2008 and 2007 include general and administrative costs related to acquisition, exploration and development of oil and natural gas properties, net of third party reimbursements, of $2,567,000, $17,390,000, and $16,492,000, respectively.
(2)	Costs incurred during the years ended December 31, 2009 and 2008 include $180,000 and $1.1 million in net profit (loss) related to the lease of a drilling rig by TMRD. The rig was used to drill wells which the Company owns and operates. The amount transferred to the full cost pool represents the portion of profits (losses) on the lease related to services performed on behalf of others, primarily our joint interest partners. Profits from the rig reduce the costs incurred.
(3)	Property acquisition costs for unproved properties reflect a negative value for 2009, due to the reimbursement of costs upon the partial sale of interests in various unproven leaseholds. The Company retained an interest in the properties.

Capitalized Costs Relating to Oil and Natural Gas Producing Activities

	December 31,
	2009		2008
	(Thousands of dollars)
Capitalized costs	$	1,890,079	$	1,877,925
Accumulated depletion		1,732,112		1,632,622
Net capitalized costs	$	157,967	$	245,303

At December 31, 2009 and 2008, unevaluated costs of $1,647,000 and $39,927,000, respectively, were excluded from the depletion base. The costs excluded in 2009 are expected to be evaluated within the next three years. These costs consist primarily of acreage acquisition costs at December 31, 2009, and acreage acquisition costs and related geological and geophysical costs at December 31, 2008.

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Costs Not Being Amortized

The following table sets forth a summary of oil and natural gas property costs not being amortized at December 31, 2009, by the year in which such costs were incurred. All the costs not being amortized relate to one property, a group of leaseholds in south Texas under exploration with another operator, and include no exploratory well costs.

	Total		2009		2008		2007 & Prior
	(Thousands of dollars)
Leasehold acquisition costs	$	1,440	$	46	$	1,394	$	—
Capitalized general and administrative costs		207		—		207		—
Total	$	1,647	$	46	$	1,601	$	—

Results of Operations from Oil and Natural Gas Producing Activities

	Year Ended December 31,
	2009			2008			2007
	(Thousands of dollars)
Operating Revenues:
Oil	$	49,222		$	63,636		$	54,218
Natural Gas		40,023			84,998			96,491
		89,245			148,634			150,709
Less:
Oil and natural gas operating costs		17,550			24,280			28,338
Severance and ad valorem taxes		6,696			9,727			9,409
Depletion		35,994			71,647			76,660
Accretion expense		2,083			2,064			2,230
Impairment of long-lived assets(1)		63,495			223,543			—
Hurricane damage repairs		—			1,462			—
Rig operations, net		4,254			—			—
Indemnification settlement		4,223			—			—
Income tax expense (benefit)		(120	)		(8,462	)		14,992
		134,175			324,261			131,629
Results of operations from oil and natural gas producing activities		(44,930	)		(175,627	)	$	19,080
Depletion expense per Mcfe	$	2.87		$	5.13		$	4.20

(1) For 2008, includes impairment of oil and natural gas properties of $216.8 million and impairment of drilling rig of $6.7 million; for 2009, all impairments are to oil and natural gas properties.

Estimated Quantities of Proved Reserves

The following table sets forth the net proved reserves of the Company as of December 31, 2009, 2008, and 2007, and the changes therein during the years then ended. Proved oil and natural gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. The reserve

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

information was prepared by T. J. Smith & Company, Inc., independent reservoir engineers, for 2009, 2008, and 2007. Mr. T. J. Smith is the person primarily responsible for overseeing the preparation of our annual reserve estimates. Mr. Smith is a graduate of Mississippi State University with a Bachelor of Science degree in Petroleum Engineering. He has over 40 years’ experience with approximately 35 years focused on reserve evaluation. He is a member of the Society of Petroleum Engineers and is a Registered Professional Engineer in the states of Texas and Louisiana. All of the Company’s oil and natural gas producing activities are located in the United States.

	Oil			Gas
	(MBbls)			(MMcf)
Total Proved Reserves:
Balance at December 31, 2006		4,736			66,815
Production during 2007		(838	)		(13,239	)
Sale of reserves in-place		(3	)		(413	)
Discoveries and extensions		634			5,465
Revisions of previous quantity estimates and other		327			2,701
Balance at December 31, 2007		4,856			61,329
Production during 2008		(765	)		(9,369	)
Sale of reserves in-place		(3	)		(170	)
Discoveries and extensions		1,934			3,817
Revisions of previous quantity estimates and other		(1,119	)		(4,711	)
Balance at December 31, 2008		4,903			50,896
Production during 2009		(834	)		(7,549	)
Sale of reserves in-place		—			—
Discoveries and extensions		516			3,666
Revisions of previous quantity estimates and other		(817	)		5,350
Balance at December 31, 2009		3,768			52,363
Proved Developed Reserves:
Balance at December 31, 2006		3,151			49,253
Balance at December 31, 2007		2,892			42,555
Balance at December 31, 2008		2,732			35,054
Balance at December 31, 2009		2,571			32,560

Proved Undeveloped Reserves

The total of the Company’s proved undeveloped reserves (“PUD’s”) is 27 Bcfe, or approximately 36% of total proved reserves at December 31, 2009. The undeveloped properties are primarily in our East Texas area and in two of our mature fields in Louisiana and are the same or similar properties to those reported in 2008, which totaled 29 Bcfe. Reductions in PUD’s from the prior year include a decrease of 5.6 Bcfe at the outside operated East Cameron 331/332 field offshore. We have eliminated these non-operated reserves as there is substantial uncertainty as to their development as the field has undergone numerous operator changes (again in 2009) and we have no firm plans to develop them at this time. Other changes in PUD’s include a reduction of 3.7 Bcfe for several oil wells that had been candidates for updip oil development; however, there is no certainty that these updip locations will be oil. We have, for reserve purposes, estimated that the section will be natural gas, and hence, the reserves are uneconomic and have been eliminated.

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Increases to PUD’s were due primarily to upward revisions of estimates and the addition of several new locations in East Texas totaling 5.8 Bcfe, based on new drilling and production information for that area. Progress toward development of our portfolio of proved undeveloped reserves was necessarily minimal during 2009, as we minimized capital spending due to our Credit Facility defaults.

Approximately 11.5 Bcfe of our PUD’s at December 31, 2009 originated more than five years ago. Certain PUD’s in our mature fields in Louisiana have been included for more than five years, because they have been planned as sidetracks and cannot be developed until the current producing well bores have been depleted and abandoned. We have been exploring and developing our East Texas acreage since 2005, and now have a total of 14 producing wells in that area.

Standardized Measure of Discounted Future Net Cash Flows

The information that follows has been developed pursuant to ASC 932-235 and utilizes reserve and production data prepared by our independent petroleum consultants. Reserve estimates are inherently imprecise and estimates of new discoveries are less precise than those of producing oil and natural gas properties. Accordingly, these estimates are expected to change as future information becomes available.

The estimated discounted future net cash flows from estimated proved reserves are based on historical prices and costs as of the date of the estimate unless such prices or costs are contractually determined at such date. Actual future prices and costs may be materially higher or lower. Actual future net revenues also will be affected by factors such as actual production, supply and demand for oil and natural gas, curtailments or increases in consumption by natural gas purchasers, changes in governmental regulations or taxation and the impact of inflation on costs. Future income tax expense has been reduced for the effect of available net operating loss carryforwards.

The following table sets forth the components of the standardized measure of discounted future net cash flows for the years ended December 31, 2009, 2008, and 2007 (thousands of dollars):

	At December 31,
	2009			2008			2007
Future cash flows	$	414,043		$	490,602		$	842,986
Future production costs		(138,982	)		(168,160	)		(185,768	)
Future development costs		(85,898	)		(82,866	)		(80,656	)
Future taxes on income		—			—			(80,029	)
Future net cash flows		189,163			239,576			496,533
Discount to present value at 10 percent per annum		(50,208	)		(60,139	)		(105,069	)
Standardized measure of discounted future net cash flows	$	138,955		$	179,437		$	391,464

The average expected realized price for natural gas in the above computations was $3.97, $5.79, and $6.66 per Mcf at December 31, 2009, 2008, and 2007, respectively. The average expected realized price used for crude oil in the above computations was $59.94, $44.04, and $95.54, per Bbl at December 31, 2009, 2008, and 2007, respectively. No consideration was been given to the Company’s hedged transactions.

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THE MERIDIAN RESOURCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Changes in Standardized Measure of Discounted Future Net Cash Flows

The following table sets forth the changes in standardized measure of discounted future net cash flows for the years ended December 31, 2009, 2008, and 2007 (thousands of dollars):

	Year Ended December 31,
	2009			2008			2007
Balance at Beginning of Period	$	179,437		$	391,464		$	327,899
Sales of oil and natural gas, net of production costs		(65,000	)		(114,626	)		(112,962	)
Changes in sales & transfer prices, net of production costs		(12,019	)		(165,125	)		125,623
Revisions of previous quantity estimates		1,192			(32,842	)		25,751
Purchase of reserves-in-place		—			—			—
Sale of reserves in-place		—			177			(2,233	)
Current year discoveries, extensions and improved recovery		7,407			44,112			32,939
Changes in estimated future development costs		8,778			(1,417	)		(7,917	)
Development costs incurred during the period		979			8,298			8,526
Accretion of discount		17,944			39,146			32,790
Net change in income taxes		—			23,453			(14,451	)
Change in production rates (timing) and other		237			(13,203	)		(24,501	)
Net change		(40,482	)		(212,027	)		63,565
Balance at End of Period	$	138,955		$	179,437		$	391,464

F-113

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20.   Indemnification of Directors and Officers

Section 17-108 of the Delaware Revised Uniform Limited Partnership Act empowers a Delaware limited partnership to indemnify and hold harmless any partner or other person from and against all claims and demands whatsoever. Our amended and restated partnership agreement, as amended, provides that we will, to the fullest extent permitted by law, indemnify and advance expenses to any Covered Person (as defined therein) from and against any and all losses, claims, damages, liabilities, expenses, judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which the Covered Person may be involved, or threatened to be involved, as a party or otherwise, that relates to or arises out of our property, business or affairs; provided, however, that a Covered Person shall not be entitled to indemnification with respect to any claim in which it is ultimately determined that the Covered Person has engaged in fraud, willful misconduct, bad faith, gross negligence, material breach of the partnership agreement or knowing violation of law, any claim initiated by a Covered Person unless that claim (or part thereof) was brought to enforce that Covered Person’s rights to indemnification, or any claim by us or any of our partners against one of our partners or that partner’s officers, directors, shareholders, managers, members, employees, agents, subsidiaries and assigns unless the Covered Person is found not to be liable for such claim. In addition, each Covered Person would automatically be entitled to the advancement of expenses in connection with the foregoing indemnification. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to any Covered Person pursuant to the foregoing provisions, we acknowledge that we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Section 145 of the Delaware General Corporation Law (the “DGCL”) provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent to such corporation. Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise. Article VI of the Co-Issuer’s Bylaws provides for indemnification by the Co-Issuer of its directors, officers and employees to the fullest extent authorized by the DGCL.

Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper personal benefit. The Co-Issuer’s certificate of incorporation provides for such limitation of liability.

Any indemnification under these provisions will be provided only from our assets. Unless it otherwise agrees in its sole discretion, Alta Mesa GP and its affiliates will not be personally liable for, or have any obligation to contribute or loan funds or assets to us to enable us to effectuate indemnification. We may purchase insurance against liabilities asserted against and expenses incurred by persons in connection with our

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activities, regardless of whether we would have the power to indemnify the person against liabilities under our amended and restated partnership agreement, as amended.

We are authorized to purchase (or to reimburse Alta Mesa GP for the costs of) insurance against liabilities asserted against and expenses incurred by the persons described in the paragraph above in connection with their activities, whether or not they would have the power to indemnify such person against such liabilities under the provisions described in the paragraph above. Alta Mesa GP has purchased insurance, the cost of which is reimbursed by us subject to certain limitations, covering its officers and directors against liabilities asserted and expenses incurred in connection with their activities as officers and directors of Alta Mesa GP or any of its direct or indirect subsidiaries.

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Item 21.   Exhibits

Exhibit
Number			Description of Exhibit
	3	.1	Articles of Organization of Alta Mesa Holdings GP, LLC dated as of September 26, 2005.
	3	.2	Regulations of Alta Mesa Holdings GP, LLC, dated as of September 26, 2005.
	3	.3	Certificate of Limited Partnership of Alta Mesa Holdings, LP, dated as of September 26, 2005.
	3	.4	First Amended and Restated Agreement of Limited Partnership of Alta Mesa Holdings, LP, dated as of September 1, 2006.
	3	.5	Amendment Number One to the First Amended and Restated Agreement of Limited Partnership of Alta Mesa Holdings, LP, dated as of May 12, 2010.
	3	.6	Amendment Number Two to the First Amended and Restated Agreement of Limited Partnership of Alta Mesa Holdings, LP, dated as of October 7, 2010.
	3	.7	Certificate of Incorporation of Alta Mesa Finance Services Corp., dated September 27, 2010.
	3	.8	Bylaws of Alta Mesa Finance Services Corp., dated as of September 27, 2010.
	4	.1	Indenture by and among the Issuers, the Subsidiary Guarantors and Wells Fargo Bank, N.A., as Trustee, dated as of October 13, 2010.
	4	.2	Registration Rights Agreement by and among the Issuers, the Subsidiary Guarantors and Wells Fargo Securities, LLC, as representative of the Initial Purchasers, dated as of October 13, 2010.
	5	.1	Opinion of Haynes and Boone, LLP.
	10	.1	Sixth Amended and Restated Credit Agreement by and among Alta Mesa Holdings, LP, Wells Fargo Bank, N.A., as administrative agent, and the lenders parties thereto from time to time, dated as of May 13, 2010.
	10	.2	Amendment No. 1 to Sixth Amended and Restated Credit Agreement by and among Alta Mesa Holdings, LP, the guarantors parties thereto, Wells Fargo Bank, N.A., as administrative agent, and the lenders parties thereto from time to time, dated as of September 2, 2010.
	10	.3	Amendment No. 2 to Sixth Amended and Restated Credit Agreement by and among Alta Mesa Holdings, LP, the guarantors parties thereto, Wells Fargo Bank, N.A., as administrative agent, and the lenders parties thereto from time to time, dated as of December 6, 2010.
	10	.4	Employment Agreement, dated August 31, 2006, between Alta Mesa Services, LP and Harlan H. Chappelle.
	10	.5	Employment Agreement, dated August 31, 2006, between Alta Mesa Services, LP and Michael E. Ellis.
	10	.6	Employment Agreement, dated August 31, 2006, between Alta Mesa Services, LP and Michael A. McCabe.
	10	.7	Employment Agreement, dated October 1, 2006, between Alta Mesa Services, LP and F. David Murrell.
	10	.8	Agreement and Plan of Merger, dated December 22, 2009, by and among Alta Mesa Holdings, LP, Alta Mesa Acquisition Sub, LLC and The Meridian Resource Corporation.
	10	.9	First Amendment to Agreement and Plan of Merger, dated April 7, 2010, by and among Alta Mesa Holdings, LP, Alta Mesa Acquisition Sub, LLC and The Meridian Resource Corporation.
	10	.10	Amended and Restated Promissory Note, dated June 30, 2010, executed by Galveston Bay Resources, LP in favor of Michael E. Ellis.
	10	.11	Amended and Restated Promissory Note, dated June 30, 2010, executed by Alta Mesa Holdings, LP in favor of Michael E. Ellis.
	10	.12	Amended and Restated Promissory Note, dated June 30, 2010, executed by Petro Acquisitions, LP in favor of Michael E. Ellis.
	10	.13	The Meridian Resource & Exploration LLC Change in Control Severance Plan and Summary Plan Description, dated as of May 14, 2010.
	10	.14	The Meridian Resource Corporation Management Well Bonus Plan, dated as of November 5, 1997.
	10	.15	Amendment to The Meridian Resource Corporation Management Well Bonus Plan, dated as of May 13, 2010.
	10	.16	The Meridian Resource Corporation Geoscientist Well Bonus Plan, dated as of November 5, 1997.

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Exhibit
Number			Description of Exhibit
	10	.17	Amendment to The Meridian Resource Corporation Geoscientist Well Bonus Plan, dated as of May 13, 2010.
	10	.18	The Meridian Resource Corporation TMR Employees Trust Well Bonus Plan, dated as of November 5, 1997.
	10	.19	Amendment to The Meridian Resource Corporation TMR Employees Trust Well Bonus Plan, dated as of May 13, 2010.
	12	.1	Computation of Ratio of Earnings to Fixed Charges.
	21	.1	Subsidiaries of Alta Mesa Holdings, LP.
	23	.1	Consent of Haynes and Boone, LLP (included in Exhibit 5.1).
	23	.2	Consent of UHY LLP.
	23	.3	Consent of BDO USA, LLP (formerly known as BDO Seidman, LLP).
	23	.4	Consent of Netherland, Sewell & Associates, Inc.
	23	.5	Consent of T.J. Smith & Company, Inc.
	23	.6	Consent of W.D. Von Gonten & Co.
	25	.1	Statement of Eligibility on Form T-1 of Wells Fargo Bank, National Association.
	99	.1	Form of Letter of Transmittal.
	99	.2	Reserve Audit Report by Netherland, Sewell & Associates, Inc. dated as of March 28, 2011.
	99	.3	Reserve Report by T.J. Smith & Company, Inc. dated as of February 15, 2011.
	99	.4	Reserve Report by W. D. Von Gonten & Co. dated as of February 22, 2011.

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Item 22.   Undertakings

(a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(b) Each of the undersigned registrants hereby undertakes:

(A) To file, during any period during which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(B) Each of the undersigned registrants hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(C) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(c) Each of the undersigned registrants hereby undertakes that, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, if such registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(d) Each of the undersigned registrants hereby undertakes that, for the purpose of determining liability of such registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, in

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a primary offering of securities of such registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(A) any preliminary prospectus or prospectus of the undersigned registrants relating to the offering required to be filed pursuant to Rule 424;

(B) any free writing prospectus relating to the offering prepared by or on behalf of such registrant or used or referred to by the undersigned registrants;

(C) the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrants or their securities provided by or on behalf of such registrant; and

(D) any other communication that is an offer in the offering made by such registrant to the purchaser.

(e) Each of the undersigned registrants hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(f) Each of the undersigned registrants hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information.

(g) Each of the undersigned registrants hereby undertakes to respond to request for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of this Registration Statement through the date of responding to the request.

(h) Each of the undersigned registrants hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this registration statement when it became effective.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas on April 27, 2011.

Alta Mesa Holdings, LP

(Registrant)

By:	Alta Mesa Holdings GP, LLC, its general partner
By:	/s/  Harlan H. Chappelle

Harlan H. Chappelle

President and Chief Executive Officer

Date: April 27, 2011

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Harlan H. Chappelle and Michael A. McCabe, each with full power to act alone, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to execute any and all amendments (including post-effective amendments) to this Registration Statement, including, without limitation, additional registration statements filed pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same, as fully and to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their substitute or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and the dates indicated.

Signature	Title With Alta Mesa Holdings GP, LLC	Date
/s/  Harlan H. Chappelle Harlan H. Chappelle	President, Chief Executive Officer and Director (principal executive officer)	April 27, 2011
/s/  Michael A. McCabe Michael A. McCabe	Vice President and Chief Financial Officer (principal financial officer and principal accounting officer)	April 27, 2011
/s/  Michael E. Ellis Michael E. Ellis	Chairman, Chief Operating Officer and Director	April 27, 2011
/s/  Mickey Ellis Mickey Ellis	Director	April 27, 2011

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas on April 27, 2011.

Alta Mesa Finance Services Corp.

(Registrant)

By:  /s/  Harlan H. Chappelle

Harlan H. Chappelle

President and Chief Executive Officer

Date: April 27, 2011

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Harlan H. Chappelle and Michael A. McCabe, each with full power to act alone, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to execute any and all amendments (including post-effective amendments) to this Registration Statement, including, without limitation, additional registration statements filed pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same, as fully and to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their substitute or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and the dates indicated.

Signature	Title With Alta Mesa Finance Services Corp.	Date
/s/  Harlan H. Chappelle Harlan H. Chappelle	President, Chief Executive Officer and Director (principal executive officer)	April 27, 2011
/s/  Michael A. McCabe Michael A. McCabe	Vice President and Chief Financial Officer (principal financial officer and principal accounting officer)	April 27, 2011
/s/  Michael E. Ellis Michael E. Ellis	Chairman, Chief Operating Officer and Director	April 27, 2011
/s/  Mickey Ellis Mickey Ellis	Director	April 27, 2011

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas on April 27, 2011.

Alta Mesa GP, LLC

Louisiana Exploration & Acquisition Partnership, LLC

Virginia Oil and Gas, LLC

(Registrants)

By:  /s/  Harlan H. Chappelle

Harlan H. Chappelle

President and Chief Executive Officer

Date: April 27, 2011

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Harlan H. Chappelle and Michael A. McCabe, each with full power to act alone, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to execute any and all amendments (including post-effective amendments) to this Registration Statement, including, without limitation, additional registration statements filed pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same, as fully and to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their substitute or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and the dates indicated.

Signature	Title With Registrants	Date
/s/  Harlan H. Chappelle Harlan H. Chappelle	President, Chief Executive Officer and Director (principal executive officer)	April 27, 2011
/s/  Michael A. McCabe Michael A. McCabe	Vice President and Chief Financial Officer (principal financial officer and principal accounting officer)	April 27, 2011
/s/  Michael E. Ellis Michael E. Ellis	Chairman, Chief Operating Officer and Director	April 27, 2011
/s/  Mickey Ellis Mickey Ellis	Director	April 27, 2011

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas on April 27, 2011.

Alta Mesa Acquisition Sub, LLC

Alta Mesa Drilling, LLC

Alta Mesa Energy LLC

Cairn Energy USA, LLC

FBB Anadarko, LLC

Louisiana Onshore Properties LLC

New Exploration Technologies Company, L.L.C.

Sundance Acquisition, LLC

TE TMR, LLC

The Meridian Production, LLC

The Meridian Resource & Exploration LLC

The Meridian Resource, LLC

TMR Drilling, LLC

TMR Equipment, LLC

(Registrants)

By:  /s/  Harlan H. Chappelle

Harlan H. Chappelle

President and Chief Executive Officer

Date: April 27, 2011

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Harlan H. Chappelle and Michael A. McCabe, each with full power to act alone, as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to execute any and all amendments (including post-effective amendments) to this Registration Statement, including, without limitation, additional registration statements filed pursuant to Rule 462(b) under the Securities Act, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same, as fully and to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their substitute or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and the dates indicated.

Signature	Title With Registrants	Date
/s/  Harlan H. Chappelle Harlan H. Chappelle	President, Chief Executive Officer and Manager (principal executive officer)	April 27, 2011
/s/  Michael A. McCabe Michael A. McCabe	Chief Financial Officer (principal financial officer and principal accounting officer)	April 27, 2011

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas on April 27, 2011.

Alta Mesa Services, LP

Aransas Resources, L.P.

Buckeye Production Company, LP

Galveston Bay Resources, LP

Louisiana Exploration & Acquisitions, LP

Navasota Resources, Ltd., LLP

Nueces Resources, LP

Oklahoma Energy Acquisitions, LP

Petro Acquisitions, LP

Petro Operating Company, LP

Texas Energy Acquisitions, LP

(Registrants)

By:	Alta Mesa GP, LLC, its general partner
By:	/s/  Harlan H. Chappelle

Harlan H. Chappelle

President and Chief Executive Officer

Date: April 27, 2011

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas on April 27, 2011.

ARI Development, LLC

Brayton Management GP, LLC

Brayton Management GP II, LLC

(Registrants)

By:	Aransas Resources, LP, its member
By:	Alta Mesa GP, LLC, its general partner
By:	/s/  Harlan H. Chappelle

Harlan H. Chappelle

President and Chief Executive Officer

Date: April 27, 2011

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EXHIBIT INDEX

Exhibit
Number			Description of Exhibit
	3	.1	Articles of Organization of Alta Mesa Holdings GP, LLC dated as of September 26, 2005.
	3	.2	Regulations of Alta Mesa Holdings GP, LLC, dated as of September 26, 2005.
	3	.3	Certificate of Limited Partnership of Alta Mesa Holdings, LP, dated as of September 26, 2005.
	3	.4	First Amended and Restated Agreement of Limited Partnership of Alta Mesa Holdings, LP, dated as of September 1, 2006.
	3	.5	Amendment Number One to the First Amended and Restated Agreement of Limited Partnership of Alta Mesa Holdings, LP, dated as of May 12, 2010.
	3	.6	Amendment Number Two to the First Amended and Restated Agreement of Limited Partnership of Alta Mesa Holdings, LP, dated as of October 7, 2010.
	3	.7	Certificate of Incorporation of Alta Mesa Finance Services Corp., dated September 27, 2010.
	3	.8	Bylaws of Alta Mesa Finance Services Corp., dated as of September 27, 2010.
	4	.1	Indenture by and among the Issuers, the Subsidiary Guarantors and Wells Fargo Bank, N.A., as Trustee, dated as of October 13, 2010.
	4	.2	Registration Rights Agreement by and among the Issuers, the Subsidiary Guarantors and Wells Fargo Securities, LLC, as representative of the Initial Purchasers, dated as of October 13, 2010.
	5	.1	Opinion of Haynes and Boone, LLP.
	10	.1	Sixth Amended and Restated Credit Agreement by and among Alta Mesa Holdings, LP, Wells Fargo Bank, N.A., as administrative agent, and the lenders parties thereto from time to time, dated as of May 13, 2010.
	10	.2	Amendment No. 1 to Sixth Amended and Restated Credit Agreement by and among Alta Mesa Holdings, LP, the guarantors parties thereto, Wells Fargo Bank, N.A., as administrative agent, and the lenders parties thereto from time to time, dated as of September 2, 2010.
	10	.3	Amendment No. 2 to Sixth Amended and Restated Credit Agreement by and among Alta Mesa Holdings, LP, the guarantors parties thereto, Wells Fargo Bank, N.A., as administrative agent, and the lenders parties thereto from time to time, dated as of December 6, 2010.
	10	.4	Employment Agreement, dated August 31, 2006, between Alta Mesa Services, LP and Harlan H. Chappelle.
	10	.5	Employment Agreement, dated August 31, 2006, between Alta Mesa Services, LP and Michael E. Ellis.
	10	.6	Employment Agreement, dated August 31, 2006, between Alta Mesa Services, LP and Michael A. McCabe.
	10	.7	Employment Agreement, dated October 1, 2006, between Alta Mesa Services, LP and F. David Murrell.
	10	.8	Agreement and Plan of Merger, dated December 22, 2009, by and among Alta Mesa Holdings, LP, Alta Mesa Acquisition Sub, LLC and The Meridian Resource Corporation.
	10	.9	First Amendment to Agreement and Plan of Merger, dated April 7, 2010, by and among Alta Mesa Holdings, LP, Alta Mesa Acquisition Sub, LLC and The Meridian Resource Corporation.
	10	.10	Amended and Restated Promissory Note, dated June 30, 2010, executed by Galveston Bay Resources, LP in favor of Michael E. Ellis.
	10	.11	Amended and Restated Promissory Note, dated June 30, 2010, executed by Alta Mesa Holdings, LP in favor of Michael E. Ellis.
	10	.12	Amended and Restated Promissory Note, dated June 30, 2010, executed by Petro Acquisitions, LP in favor of Michael E. Ellis.
	10	.13	The Meridian Resource & Exploration LLC Change in Control Severance Plan and Summary Plan Description, dated as of May 14, 2010.
	10	.14	The Meridian Resource Corporation Management Well Bonus Plan, dated as of November 5, 1997.

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Exhibit
Number			Description of Exhibit
	10	.15	Amendment to The Meridian Resource Corporation Management Well Bonus Plan, dated as of May 13, 2010.
	10	.16	The Meridian Resource Corporation Geoscientist Well Bonus Plan, dated as of November 5, 1997.
	10	.17	Amendment to The Meridian Resource Corporation Geoscientist Well Bonus Plan, dated as of May 13, 2010.
	10	.18	The Meridian Resource Corporation TMR Employees Trust Well Bonus Plan, dated as of November 5, 1997.
	10	.19	Amendment to The Meridian Resource Corporation TMR Employees Trust Well Bonus Plan, dated as of May 13, 2010.
	12	.1	Computation of Ratio of Earnings to Fixed Charges.
	21	.1	Subsidiaries of Alta Mesa Holdings, LP.
	23	.1	Consent of Haynes and Boone, LLP (included in Exhibit 5.1).
	23	.2	Consent of UHY LLP.
	23	.3	Consent of BDO USA, LLP (formerly known as BDO Seidman, LLP).
	23	.4	Consent of Netherland, Sewell & Associates, Inc.
	23	.5	Consent of T.J. Smith & Company, Inc.
	23	.6	Consent of W.D. Von Gonten & Co.
	25	.1	Statement of Eligibility on Form T-1 of Wells Fargo Bank, National Association.
	99	.1	Form of Letter of Transmittal.
	99	.2	Reserve Audit Report by Netherland, Sewell & Associates, Inc. dated as of March 28, 2011.
	99	.3	Reserve Report by T.J. Smith & Company, Inc. dated as of February 15, 2011.
	99	.4	Reserve Report by W. D. Von Gonten & Co. dated as of February 22, 2011.

II-14

EX-3.1

Exhibit 3.1

ARTICLES OF ORGANIZATION
OF
ALTA MESA HOLDINGS GP, LLC

     I, the undersigned natural person of the age of eighteen (18) years or more, acting as the organizer of a limited liability company (the “Company”) under the Texas Limited Liability Company Act (the “Act”), do hereby adopt the following Articles of Organization for the Company:

ARTICLE I

     The name of the Company is Alta Mesa Holdings GP, LLC.

ARTICLE II

     The period of duration of the Company is perpetual from the date of filing of these Articles of Organization with the Secretary of State of Texas, unless earlier dissolved in accordance with either the Act or the provisions of the Regulations of the Company.

ARTICLE III

     The purpose for which the Company is organized is to transact any or all lawful business for which limited liability companies may be organized under the Act.

ARTICLE IV

     The name and address of the initial registered agent of the Company in the State of Texas are Harlan H. Chappelle, 6200 Highway 6 South, Suite 201, Houston, Texas 77083.

ARTICLE V

     The Company is to be managed by one or more managers. The number of initial managers, who shall serve as managers until the first annual meeting of members of the Company or until their successors are duly elected, shall be three (3). The names and addresses of such initial managers are as follows:

Michael E. Ellis
6200 Highway 6 South, Suite 201
Houston, Texas 77083

Mickey Ellis
6200 Highway 6 South, Suite 201
Houston, Texas 77083

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Harlan H. Chappelle
6200 Highway 6 South, Suite 201
Houston, Texas 77083

ARTICLE VI

     The name and address of the organizer of the Company are as follows:

Michael E. Ellis
6200 Highway 6 South, Suite 201
Houston, Texas 77083

     IN WITNESS WHEREOF, I have hereunto set my hand effective this 26 day of September, 2005.

/s/ Michael E. Ellis

Michael E. Ellis, Organizer 

2

EX-3.2

Exhibit 3.2

REGULATIONS

OF

ALTA MESA HOLDINGS GP, LLC

(A Texas Limited Liability Company)

THE MEMBERSHIP INTERESTS REFERENCED HEREIN HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. WITHOUT REGISTRATION, THESE SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED AT ANY TIME WHATSOEVER, EXCEPT ON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE MANAGERS OF THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR THE TRANSFER, OR THE SUBMISSION TO THE MANAGERS OF THE COMPANY OF OTHER EVIDENCE SATISFACTORY TO THE MANAGERS TO THE EFFECT THAT ANY TRANSFER WILL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATIONS PROMULGATED THEREUNDER. ADDITIONALLY, ANY SALE OR OTHER TRANSFER OF MEMBERSHIP INTERESTS IS SUBJECT TO CERTAIN RESTRICTIONS THAT ARE SET FORTH IN THESE REGULATIONS.

REGULATIONS

OF

ALTA MESA HOLDINGS GP, LLC

(A Texas Limited Liability Company)

TABLE OF CONTENTS

	Page
ARTICLE I DEFINITIONS		1
1.1. Definitions		1
1.2. Other Definitional Provisions		2
ARTICLE II FORMATION		2
2.1. Name and Formation		2
2.2. Principal Place of Business		2
2.3. Registered Office and Agent		2
2.4. Duration		2
2.5. Purposes and Powers		2
2.6. Taxation as a Disregarded Entity		2
ARTICLE III MEMBER MATTERS AND CAPITALIZATION		3
3.1. Number		3
3.2. Capital Contributions and Membership Interests		3
3.3. Liability of the Member		3
3.4. Annual and Special Meetings		3
3.5. Actions Without a Meeting		3
ARTICLE IV MANAGEMENT BY BOARD OF DIRECTORS		3
4.1 Delegation of Management By the Members to the Board		3
4.2 Board of Directors		4
4.3 Responsibility and Authority of the Board		4
4.4 Director Qualifications / Board Advisors		5
4.5 Term of Office		5
4.6 Meetings of the Board		6
4.7 Compensation		6
4.8. Officers		6
ARTICLE IV CAPITALIZATION		8
ARTICLE V DISTRIBUTIONS		8
5.1. Distributions		8
5.2. Limitation Upon Distribution		8
ARTICLE VI BOOKS AND ACCOUNTS		8
6.1. Records and Reports		8
6.2. Returns and Other Elections		8
ARTICLE VII DISSOLUTION AND TERMINATION		8
7.1. Dissolution		8

i

	Page
7.2. Distribution of Assets Upon Dissolution		9
7.3. Articles of Dissolution		9
ARTICLE VIII TRANSFERS OF MEMBERSHIP INTERESTS		9
ARTICLE IX MISCELLANEOUS PROVISIONS		9
9.1. Notices		9
9.2. Application of Texas Law		10
9.3. Headings and Sections		10
9.4. Amendments		10
9.5. Number and Gender		10
9.6. Binding Effect		10
9.7. Third Party Beneficiaries		10

Attachment: Exhibit A

ii

REGULATIONS

OF

ALTA MESA HOLDINGS GP, LLC

(A Texas Limited Liability Company)

     These REGULATIONS of ALTA MESA HOLDINGS GP, LLC, effective as of the 26 day of September, 2005, are hereby duly adopted as the Regulations of ALTA MESA HOLDINGS GP, LLC, a Texas limited liability company, by Alta Mesa Resources, Inc., a Texas corporation.

ARTICLE I
DEFINITIONS

     1.1. Definitions. The following terms used in these Regulations shall have the following meanings (unless otherwise expressly provided herein):

     “Act” means the Texas Limited Liability Company Act, as the same may be amended from time to time.

     “Applicable Laws” means any applicable law, statute, ordinance, rule, regulation, decision, order or determination of any governmental authority.

     “Articles” means the Articles of Organization of the Company.

     “Board” means the Board of Directors established pursuant to Article IV.

     “Business Day” means a day other than a Saturday, Sunday or other day which is a nationally recognized holiday.

     “Capital Contribution” means any contribution to the capital of the Company in cash or property by the Member whenever made.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Company” means Alta Mesa Holdings GP, LLC, a Texas limited liability company.

     “Directors” means those persons appointed to the Board of Directors pursuant to Article IV.

     “Member” means Alta Mesa Resources, Inc., a Texas corporation.

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     “Membership Interest” means the entire equity interest (or “limited liability company interest” as that term is used in the Act) of the Member in the Company and all rights and liabilities associated therewith, which shall be expressed as a percentage as set forth in Section 3.2.

     “Regulations” means these Regulations of the Company as originally adopted and as amended from time to time.

     1.2. Other Definitional Provisions. All terms used in these Regulations which are not defined in this Article I have the meanings contained elsewhere in these Regulations. Defined terms used herein in the singular shall import the plural and vice versa.

ARTICLE II
FORMATION

     2.1. Name and Formation. The name of the Company is “Alta Mesa Holdings GP, LLC.” The Company was formed as a limited liability company upon the issuance of the Certificate of Organization to the Company by the Texas Secretary of State pursuant to the Act.

     2.2. Principal Place of Business. The principal office and place of business of the Company are set forth on Exhibit A. The Company may locate its place of business and principal office at any other place or places as the Board or officers of the Company may from time to time deem necessary or advisable.

     2.3. Registered Office and Agent. The registered office and registered agent of the Company shall be the registered office and registered agent named in the Articles and set forth on Exhibit A. The Company may change the registered office and registered agent as the Member may from time to time deem necessary or advisable.

     2.4. Duration. The period of duration of the Company is perpetual from the date its Articles were filed with the Secretary of State of Texas, unless the Company is earlier dissolved in accordance with either the provisions of these Regulations or the Act.

     2.5. Purposes and Powers.

     (a) The purposes for which the Company is organized is to acquire and own a partnership interest in Alta Mesa Holdings, LP and to serve as the general partner thereof, and to transact any or all lawful business for which limited liability companies may be organized under the Act.

     (b) The Company shall have any and all powers which are necessary or desirable to carry out the purposes and business of the Company, to the extent the same may be legally exercised by limited liability companies under the Act.

     2.6. Taxation as a Disregarded Entity. Solely for federal income tax purposes, the Company shall be disregarded as an entity separate from its Member so long as the Company is

2

deemed to have a single Member under the Code. If necessary, the Board or appropriate officers of the Company shall make an election to that effect on behalf of the Company in accordance with the Code and the Treasury Regulations promulgated thereunder.

ARTICLE III
MEMBER MATTERS AND CAPITALIZATION

     3.1. Number. There shall be only one (1) Member of the Company.

     3.2. Capital Contributions and Membership Interests.

     (a) Upon the execution of these Regulations, the Member shall contribute cash or property to the Company in the amount set forth as the Capital Contribution of the Member on Exhibit A attached hereto. Such cash or property shall be the Capital Contribution of the Member. Upon making such Capital Contribution, the Member shall receive 100% of the Membership Interest.

     (b) If at any time the Member determines that the Company has insufficient funds to carry out the purposes of the Company, the Member may make additional Capital Contributions, but in no event shall the Member be obligated to make any additional Capital Contributions.

     3.3. Liability of the Member. The Member shall not be liable for the debts, liabilities or obligations of the Company beyond its Capital Contributions. Except as provided in Section 3.2(a) above, the Member shall not be required to make Capital Contributions or loans to the Company.

     3.4. Annual and Special Meetings. The annual and special meetings of the Member for the transaction of such business as may properly come before the meeting shall be held at such place, time and date as shall be designated by the Member from time to time.

     3.5. Actions Without a Meeting. Notwithstanding any provision contained in this Article III, all actions of the Member provided for herein may be taken by written consent without a meeting. Any such action which may be taken by the Member without a meeting shall be effective only if the consent is in writing, sets forth the action so taken, and is signed by the Member.

ARTICLE IV
MANAGEMENT BY BOARD OF DIRECTORS

     4.1 Delegation of Management By the Members to the Board. Except as otherwise provided by the Act and these Regulations, all rights and powers to manage the business and affairs of the Company shall be delegated by the Member to the Board and officers as set forth herein. The Directors shall serve in the same capacity as managers as that term is used in the Act, and shall have the same rights, powers and authority of managers.

3

     4.2 Board of Directors. The Member hereby establishes the Board and confers to the Board all rights and powers to manage the business and affairs of the Company, including the right to (i) delegate all rights and powers to manage the business and affairs of the Company to the officers and (ii) make distributions pursuant to Article V. The Member hereby consents to the exercise by the Board of all such rights and powers to manage the Company conferred to it pursuant to this Section 4.2(a), the Act or other Applicable Law. No Member, in his or her capacity as a Member, shall transact any business for the Company or have any power to act for or bind the Company. Notwithstanding anything contained in this Section 4.2 to the contrary, neither the Board nor the officers shall have the power or authority to take any actions requiring the consent of the Member under the Act or these Regulations, unless such Member consent is granted.

     4.3 Responsibility and Authority of the Board.

          (a) The Board may delegate to the officers certain of the Board’s rights and powers to manage and control the business and affairs of the Company. Notwithstanding the foregoing, the Board shall not delegate to any officer any rights or powers (i) that require the approval or other action of the Member or the Board under the Act or these Regulations; or (ii) customarily requiring the approval of the directors of a corporation. By way of illustration and not limitation, the Board cannot delegate to Officers and must directly exercise the following powers for both the Company and for any limited partnership for which the Company is a general partner, as if that partnership were substituted for the term Company throughout this Section 4.3:

     (i) Adoption of the Company’s annual budget;

     (ii) Company borrowings that exceed $1,000,000 in the aggregate;

     (iii) Sale of all or substantially all of the Company’s assets;

     (iv) Admission of new members to the Company;

     (v) Dissolution or liquidation of the Company;

     (vi) Payment of salaries to any officer of the Company;

     (vii) Incur on behalf of the Company any single financial obligation, be it for indebtedness for borrowed money or otherwise, that exceeds $1,000,000;

     (viii) Cause any asset of the Company to become encumbered as security for borrowed money;

     (ix) Cause the Company to file a petition for relief in bankruptcy under any Federal bankruptcy laws or under debtor relief laws of any jurisdiction;

4

     (x) Undertake any action for the purpose of, or with the intent of, making it impossible to carry on the business of the Company;

     (xi) Cause the Company to be a party to any merger, consolidation, an exchange, an issuance of equity, or conversion;

     (xii) Sell, lease, or otherwise dispose of any asset of the Company that has a value of $1,000,000 or more; or

     (xiii) Make any distribution from the Company.

     (b) It shall be the responsibility of the Board to provide advice to the officers of the Company regarding the overall operation and direction of the Company. To the fullest extent permitted by Applicable Law, each Director shall have such rights and duties as are applicable to directors of a corporation.

     (c) No Director, in his capacity as such, shall have any power to act for, sign for, or do any act that would bind the Company.

     (d) The Directors shall devote such time and effort to the affairs of the Company as they may deem appropriate for the oversight of the management and affairs of the Company.

     (e) The Board shall have the right and power to appoint the members of the board of directors of Alta Mesa Holdings, LP, and such right and power shall not be delegated to any officer of the Partnership.

     4.4 Director Qualifications / Board Advisors.

     (a) The Directors shall be appointed by the Member. The number of Directors shall be three (3), or such other number as determined by the Member. The initial Directors shall be Michael E. Ellis, Mickey Ellis, and Harlan H. Chappelle.

     (b) The Board may appoint one or more advisors (who need not be Members) to the Board, who shall be notified of, and have the right to attend, meetings of the Board in the same manner as Directors, but such advisors shall have no right to vote on any matter to be voted on by the Board.

     4.5 Term of Office A Director shall continue in office until the earlier of such Director’s death, removal or resignation from the Board, or until his successor shall have been duly elected and qualified. Any vacancy in a Director position may be filled by the Member. Any Director may resign from the Board at any time by giving written notice of such Director’s resignation to the Board. Any such resignation shall take effect at the time the Board receives such notice or at any later effective time specified in such notice. Unless otherwise specified in such notice, the acceptance by the Board of such Director’s resignation shall not be necessary to make such resignation effective. Notwithstanding anything herein or at law to the contrary, any Director may be removed at any time by the Member.

5

     4.6 Meetings of the Board.

     (a) The Board shall meet, at such time and at such place as the Board may designate. Special meetings of the Board shall be held at the request of the majority of the Directors upon at least five (5) days (if the meeting is to be held in person) or two (2) days (if the meeting is to be held telephonically or through other electronic communications medium) oral or written notice to the Directors or upon such shorter notice as may be approved by the Directors. Any Director may waive the requirement of such notice as to himself.

     (b) Any meeting of the Board may be held in person or telephonically or other electronic communications medium approved by the Board.

     (c) A majority of the Directors shall constitute a quorum for the transaction of business, but if at any meeting of the Board there be less than a quorum present, a majority of those present or any Director solely present may adjourn the meeting from time to time without further notice. The act of a majority of the Directors present at a meeting at which a quorum is in attendance shall be the act of the Board.

     (d) Any action required or permitted to be taken by the Board may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all Directors.

     4.7 Compensation. Directors as such shall not receive any stated salary for their services, provided that, by resolution of the Board, the Directors may be compensated for attending meetings of the Board and may be reimbursed for any expenses incurred in attending such meetings. Nothing contained herein shall be construed to preclude any Director from serving the Company in any other capacity or receiving compensation therefor.

     4.8. Officers.

     (a) The Board may appoint officers of the Company as it deems necessary. No officer need be a Member or Director. Each officer shall be appointed for such term and shall exercise such powers, perform such duties and have such authority as determined from time to time by the Board. The Board may appoint a President, Chairman, Chief Financial Officer, one or more Vice Presidents, a Secretary, a Treasurer and any other officer or assistant officer as it deems appropriate. Any two or more offices may be held by the same person.

     (b) Except as modified by the Board, officers will have such powers and duties generally pertaining to their offices and such powers and duties as conferred by the Board and by these Regulations.

          (i) Chief Executive Officer. The Chief Executive Officer shall preside at all meeting of the Board and exercise and perform such other powers and duties as may from time to time be assigned to the Chief Executive Officer by the Board or by this Agreement.

6

     (ii) President. The President of the Company, subject to the control of the Board, shall have the responsibility for the general direction of the affairs of the Company, and general supervision over its other officers, responsibility for the general direction of the operational affairs of the Company, and general overall responsibility for the day-to-day operations of the Company. The President may sign in the name of the Company (1) all contracts or other instruments authorized by the Board and (2) all contracts or instruments in the usual and regular course of business of the Company, except in cases where the signing thereof shall be expressly delegated by the Board or by these Regulations to some other officer or agent of the Company or when the Board shall have expressly provided that the President shall not have such authority. In addition, the President shall perform all duties incident to the office of chief executive officer and such other duties as from time to time may be assigned to him or her by the Board or as prescribed by these Regulations.

     (iii) Vice Presidents. At the request of the President, or in his or her absence or disability, the Vice Presidents, in the order of their election, shall perform the duties of the President, and, when so acting, shall have all the powers of, and be subject to all restrictions upon, the President. The Vice Presidents shall perform such duties as may from time to time be assigned to them by the Board or the President.

     (iv) Secretary. The Secretary shall keep the minutes of all meetings of the Board and shall have general charge of such books and records of the Company as the Board may direct, and in general shall perform all duties and exercise all powers incident to the office of Secretary and such other duties and powers as the Board or the President may from time to time assign to or confer on the Secretary.

     (v) Treasurer. The Treasurer shall have control of and shall be responsible for all matters pertaining to the accounts and finances of the Company and shall direct the manner of certifying the same, including, the manner of keeping all vouchers for payments by the Company and all other documents relating to such payments; all operating and financial statements of the Company and its various committees; the books of account of the Company, their arrangements and classification; the accounting and auditing practices of the Company; all matters relating to taxation; the care and custody of all monies, funds and securities of the Company; and the collection of all accounts and the maintenance of full and accurate accounts of all receipts, disbursements and contributions of the Company. The Treasurer shall have the power to endorse for deposit or collection or otherwise all checks, drafts, notes, bills of exchange or other commercial papers payable to the Company, and to give proper receipts or discharges for all payments to the Company, and shall generally perform all duties usually appertaining to the office of Treasurer.

7

     (vi) Chief Financial Officer. The Chief Financial Officer shall have the duty of oversight over all Company financial matters, including supervision over the duties of the Treasurer and controller of the Company. The Chief Financial Officer shall generally perform all duties usually appertaining to the office of Chief Financial Officer, including, but not limited to, those duties assigned by the Board and the President.

     (c) The compensation of all officers of the Company shall be fixed by the Board.

     (d) Each officer of the Company shall hold office until his successor is chosen and qualified or until his death, resignation or removal from office. Any officer appointed by the Board may be removed either with or without cause by the Board at any time, but such removal shall be without prejudice to the contract rights, if any, of the individual so removed. If for any reason an officer’s position becomes vacant, the vacancy may be filled by the Board.

ARTICLE V
DISTRIBUTIONS

     5.1. Distributions. Subject to Section 5.2, the Company shall make distributions to the Member at such times as determined by the Board.

     5.2. Limitation Upon Distribution. No distribution shall be declared and paid unless, if after the distribution is made, the value of assets of the Company would exceed the liabilities of the Company, except liabilities to the Member on account of its Capital Contributions.

ARTICLE VI
BOOKS AND ACCOUNTS

     6.1. Records and Reports. The Company shall maintain records and accounts of all operations and expenditures of the Company and all records required to be maintained pursuant to the Act.

     6.2. Returns and Other Elections. The Board shall cause the preparation and timely filing of all tax returns required to be filed by the Company pursuant to the Code and all other tax returns deemed necessary and required in each jurisdiction in which the Company does business. All elections permitted to be made by the Company under federal or state laws shall be made by the Board.

ARTICLE VII
DISSOLUTION AND TERMINATION

     7.1. Dissolution.

8

     (a) The Company shall be dissolved upon the first of the following to occur:

          (i) Upon the election to dissolve the Company by the Member; or

          (ii) As provided in the Act.

     (b) Upon dissolution of the Company, the business and affairs of the Company shall terminate, and the assets of the Company shall be liquidated under this Article VII.

     (c) Dissolution of the Company shall be effective as of the day on which the event occurs giving rise to the dissolution, but the Company shall not terminate until there has been a winding up of the Company’s business and affairs, and the assets of the Company have been distributed as provided in Section 7.2.

     (d) Upon dissolution of the Company, the Board may cause any part or all of the assets of the Company to be sold in such manner as the Board shall determine in an effort to obtain the best prices for such assets; provided, however that the Board may distribute assets of the Company in kind to the Member to the extent practicable.

     7.2. Distribution of Assets Upon Dissolution. In settling accounts after dissolution, the assets of the Company shall be paid in the following order:

     (a) First, to creditors, in the order of priority as provided by applicable law, except those to the Member on account of its Capital Contributions; and

     (b) Second, any remainder shall be distributed to the Member.

     7.3. Articles of Dissolution. When all liabilities and obligations of the Company have been paid or discharged, or adequate provision has been made therefor, and all of the remaining property and assets of the Company have been distributed to the Member, the Articles of Dissolution shall be executed on behalf of the Company by the Board or appropriate officer of the Company and shall be filed with the Secretary of State of Texas, and the Board or appropriate officer of the Company shall execute, acknowledge and file any and all other instruments necessary or appropriate to reflect the dissolution and termination of the Company.

ARTICLE VIII
TRANSFERS OF MEMBERSHIP INTERESTS

     The Member may sell, assign or otherwise transfer all or any portion of its Membership Interest at any time to any person.

ARTICLE IX
MISCELLANEOUS PROVISIONS

     9.1. Notices.

9

     (a) Any notice, notification, demand or request provided or permitted to be given under these Regulations must be in writing and shall have been deemed to have been properly given, unless explicitly stated otherwise, if sent by (i) Federal Express or other comparable overnight courier, (ii) registered or certified mail, postage prepaid, return receipt requested, or (iii) telecopy during normal business hours to the place of business of the recipient.

     (b) For purposes of all notices, the address and telecopy number of the Member are set forth on Exhibit A.

     (c) All notices, notifications, demands or requests so given shall be deemed given and received (i) if mailed, seven (7) days after being deposited in the mail; (ii) if sent via overnight courier, the next Business Day after being deposited; or (iii) if telecopied, the next Business Day after being telecopied.

     9.2. Application of Texas Law. These Regulations and the application or interpretation hereof, shall be governed exclusively by the laws of the State of Texas, and specifically the Act.

     9.3. Headings and Sections. The headings in these Regulations are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of these Regulations or any provision hereof. Unless the context requires otherwise, all references in these Regulations to Sections or Articles shall be deemed to mean and refer to Sections or Articles of these Regulations.

     9.4. Amendments. Except as otherwise expressly set forth in these Regulations, these Regulations and the Articles may be amended, supplemented or restated only upon the written consent of the Member. Upon obtaining the approval of any amendment to the Articles, the Board or appropriate officer of the Company shall cause Articles of Amendment to be prepared in accordance with the Act, and such Articles of Amendment shall be executed by the Board or appropriate officer of the Company and shall be filed in accordance with the Act.

     9.5. Number and Gender. Where the context so indicates, the masculine shall include the feminine, the neuter shall include the masculine and feminine, the singular shall include the plural and any reference to a “person” shall mean a natural person or a corporation, limited liability company, association, partnership, joint venture, estate, trust or any other entity.

     9.6. Binding Effect. Except as herein otherwise provided to the contrary, these Regulations shall be binding upon and inure to the benefit of the Member, its distributees, heirs, legal representatives, executors, administrators, successors and assigns.

     9.7. Third Party Beneficiaries. This Agreement shall be for the benefit of the Member and its permitted successors and assigns only, it being the intention of the Member that no one shall be deemed to be a third party beneficiary of this Agreement.

10

Remainder of Page Intentionally Left Blank.
Signature Page To Follow.

11

     The undersigned, being the sole Member of the Company, does hereby ratify, confirm and approve the adoption of these Regulations as the limited liability company agreement of the Company, and does hereby assume and agree to be bound by and to perform all of the terms and provisions set forth in these Regulations effective as of the date first written above.

Alta Mesa Resources, Inc., a Texas corporation
By:	/s/ Michael E. Ellis
	Michael E. Ellis,
	Chief Operating Officer

12

REGULATIONS
OF
ALTA MESA HOLDINGS GP, LLC

(A Texas Limited Liability Company)

EXHIBIT A

Company Information:
Name of Company:	Alta Mesa Holdings GP, LLC
Address of Company:	6200 Highway 6 South, Suite 201
	Houston, Texas 77083
Registered Agent & Registered Office:	Harlan H. Chappelle
	6200 Highway 6 South, Suite 201
	Houston, Texas 77083
Member Information:
Name of Member:	Alta Mesa Resources, Inc.,
	a Texas corporation
Address:	6200 Highway 6 South, Suite 201
	Houston, Texas 77083
Capital Contribution:	$10,000.00
Membership Interest:	100%
Date Became Member:	September 26, 2005

A-1

EX-3.3

Exhibit 3.3

CERTIFICATE OF LIMITED PARTNERSHIP
OF
ALTA MESA HOLDINGS, LP
a Texas limited partnership

1.	Name of Partnership:	Alta Mesa Holdings, LP
2.	Address of Principal Office:	6200 Highway 6 South, Suite 201
		Houston, Texas 77083
3.	Name and Address of
	Registered Agent and
	Registered Office:	Harlan H. Chappelle
		6200 Highway 6 South, Suite 201
		Houston, Texas 77083
4.	General Partner:
	Name:	Alta Mesa Holdings GP, LLC
	Mailing Address:	6200 Highway 6 South, Suite 201
		Houston, Texas 77083
	Street Address:	6200 Highway 6 South, Suite 201
		Houston, Texas 77083
5.	Other Matters:	The General Partner has determined not to include
		any other matters.

EXECUTED on the 26 day of September, 2005.

GENERAL PARTNER: Alta Mesa Holdings GP, LLC, a Texas limited liability company
By:	/s/ Michael E. Ellis
	Michael E. Ellis,
	Manager

EX-3.4

Exhibit 3.4

FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

OF

ALTA MESA HOLDINGS, LP
(A Texas Limited Partnership)

THE PARTNERSHIP INTERESTS OF ALTA MESA HOLDINGS, LP HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), THE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. SUCH INTERESTS MUST BE ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE OFFERED FOR SALE, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED AT ANY TIME EXCEPT IN COMPLIANCE WITH (A) THE SECURITIES ACT, ANY APPLICABLE STATE SECURITIES LAWS AND ANY OTHER APPLICABLE SECURITIES LAWS; AND (B) THE TERMS AND CONDITIONS OF THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP. SUCH INTERESTS MAY NOT BE TRANSFERRED OF RECORD EXCEPT IN COMPLIANCE WITH SUCH LAWS AND THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP. THEREFORE, PURCHASERS OF SUCH INTERESTS WILL BE REQUIRED TO BEAR THE RISK OF THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
ALTA MESA HOLDINGS, LP

TABLE OF CONTENTS

	Page
ARTICLE I GENERAL
1.1 Formation / Continuation	1
1.2 Name	1
1.3 Principal Office	2
1.4 Registered Agent and Office	2
1.5 Term	2
1.6 Purpose	2
ARTICLE II CERTAIN DEFINITIONS AND REFERENCES
2.1 Certain Defined Terms	2
2.2 References and Titles	2
ARTICLE III CAPITALIZATION AND PERCENTAGE INTERESTS
3.1 Initial Capital Contributions	2
3.2 Additional Capital Contributions	3
3.3 Default in Making Capital Contributions	4
3.4 Return of Capital Contributions	4
3.5 Percentage Interests	4
ARTICLE IV DISTRIBUTIONS, ALLOCATIONS, AND TAX MATTERS
4.1 Distributions of Net Cash From Operations	4
4.2 Distributions of Net Cash From a Liquidity Event	5
4.3 Tax Distributions	6
4.4 Distribution Limitations	6
4.5 Distribution Policy; Payment of Related Party Subordinated Debt and Indemnity Obligations under Contribution Agreement	6
4.6 Capital Accounts	7
4.7 Allocations to Capital Accounts	7
4.8 Tax Allocations	9
4.9 Restoration of Negative Capital Accounts	10
4.10 Withholding	10
4.11 Tax Elections	10
4.12 Tax Matters Partner	11
4.13 Maintain Status as a Tax Partnership	11
ARTICLE V MANAGEMENT OF THE PARTNERSHIP; OPERATIONS ON PARTNERSHIP PROPERTIES
5.1 Management by the General Partner	11
5.2 Specific Authority of the General Partner	11
5.3 Limitations on Power and Authority of the General Partner	12
5.4 Development Plan and Operating Budget	14
5.5 Subsidiaries	15
5.6 Class B Limited Partner Rights	15
5.7 Conflicts of Interest	17

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	Page
5.8 Meetings of Partners	17
5.9 Duties and Obligations of General Partner	18
5.10 Exculpation and Indemnification	18
5.11 Operations on Partnership Properties	20
5.12 Partnership Expenses and Reimbursement	21
5.13 Force Majeure	21
ARTICLE VI CERTAIN LIMITED PARTNER MATTERS
6.1 Rights of Limited Partners	21
6.2 Limitations on Limited Partners	21
6.3 Liability of Limited Partners	21
6.4 Agreements of the Partners	21
6.5 Limited Partner Not a Fiduciary	22
6.6 Outside Activities of Class B Limited Partner	22
6.7 Other Activities of Class A Limited Partners	23
ARTICLE VII TRANSFERS OF INTERESTS AND WITHDRAWALS; REMOVAL OF GENERAL PARTNER
7.1 General Transfer Provisions	23
7.2 Transfers by Class A Limited Partners	24
7.3 Right of First Offer	25
7.4 Assignee’s Rights	26
7.5 Withdrawal by Limited Partners	27
7.6 Withdrawal by General Partner	27
7.7 Removal of General Partner	27
ARTICLE VIII BOOKS, RECORDS, REPORTS, BANK ACCOUNTS
8.1 Books and Records	28
8.2 Annual Reports	28
8.3 Tax Returns	29
8.4 Bank Accounts	29
ARTICLE IX DISSOLUTION, LIQUIDATION AND TERMINATION
9.1 Dissolution	29
9.2 Continuation	30
9.3 Winding-Up	30
9.4 Distributions in Cash or in Kind	31
9.5 Time for Liquidation	31
9.6 Cancellation of Certificate	31
ARTICLE X MISCELLANEOUS
10.1 Notices	31
10.2 Amendments	32
10.3 Partition	32
10.4 Entire Agreement	32
10.5 No Waiver	32
10.6 Applicable Law; Submission to Jurisdiction	32
10.7 Successors and Assigns	32
10.8 Exhibits	32
10.9 Survival of Representations and Warranties	32
10.10 No Third Party Benefit	33
10.11 Filings	33

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	Page
10.12 Remedies	33
10.13 Title to Property	33
10.14 Expenses	33
EXHIBITS
Exhibit A            Defined Terms
Exhibit B            Partners
Exhibit C            Initial Development Plan and Budget
Schedule 3.1(b) Use of Initial Capital Contribution from Sowood
Schedule 5.3 Key Officers
Schedule 5.7 Contracts between General Partner and its Affiliates
Schedule 7.2

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FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
ALTA MESA HOLDINGS, LP

(A Texas Limited Partnership)

     THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF ALTA MESA HOLDINGS, LP (this “Agreement”) is made and entered into effective as of September 1, 2006, (the “Effective Date”) by and between Alta Mesa Holdings GP, LLC, a Texas limited liability company (“Alta Mesa GP”), as the sole general partner, those Persons listed on Exhibit B attached hereto as the Class A Limited Partners and Alta Mesa Investment Holdings Inc. (“Sowood”), as the Class B Limited Partner.

RECITALS

     WHEREAS, Alta Mesa Holdings, LP (the “Partnership”) has heretofore been formed as a limited partnership under the Texas Revised Limited Partnership Act pursuant to the Certificate of Limited Partnership of Alta Mesa Holdings, LP (“Certificate of Limited Partnership”) filed with the Secretary of State of Texas on September 26, 2005 and the Agreement of Limited Partnership of Alta Mesa Holdings, LP, dated September 26, 2005 by and among Alta Mesa GP and the Class A Limited Partners (the “Original Agreement”);

     WHEREAS, on the terms and conditions set forth herein and that certain Contribution Agreement, dated as of Effective Date and entered into by the Partnership and the Class B Limited Partner (the “Contribution Agreement”), Sowood desires to be admitted into the Partnership as a Class B Limited Partner upon the Effective Date, and Alta Mesa GP and the Class A Limited Partners desire to admit Sowood as a Class B Limited Partner upon the Effective Date; and

     WHEREAS, the Partners desire to provide for the governance of the Partnership and to set forth in detail their respective rights and duties relating to the Partnership and to amend and restate in its entirety the Original Agreement as set forth herein.

     NOW, THEREFORE, in consideration of the mutual promises and agreements made herein and in the Contribution Agreement, the parties, intending to be legally bound, hereby agree as follows:

ARTICLE I
GENERAL

1.1 Formation / Continuation. Effective September 26, 2005, the Partnership was formed pursuant to the Certificate of Limited Partnership and the Original Agreement. Effective September 26, 2005, Alta Mesa GP and the Class A Limited Partners were admitted to the Partnership as the sole general partner and the limited partners, respectively. Sowood is hereby admitted to the Partnership as a Class B Limited Partner effective as of the Effective Date. Except as otherwise provided in this Agreement, the rights and liabilities of the Partners are governed by the Act.

1.2 Name. The name of the Partnership shall be “Alta Mesa Holdings, LP”. Subject to all applicable laws, the business of the Partnership shall be conducted in the name of the Partnership unless under the law of some jurisdiction in which the Partnership does business that business must be conducted under another name. In such a case, the business of the Partnership in that jurisdiction may be conducted under such other name or names (except the name of any Partner or their Affiliates) as the General Partner shall determine in its sole discretion to be necessary so long as it does not affect adversely the limited liability of the Limited Partners hereunder or jeopardize in any manner the title to or ownership of any of the assets of the Partnership or result in liability to the Partnership it would otherwise not have had. The General Partner shall cause to be filed on behalf of the Partnership such partnership or assumed or fictitious name certificate or certificates or similar instruments as may from time to time be required by law.

     1.3 Principal Office. The principal office and place of business of the Partnership and its street address shall be 6200 Highway 6 South, Suite 201, Houston, Texas 77038. The General Partner, at any time and from time to time, may change the location of the Partnership’s principal office and place of business and may establish such additional place or places of business of the Partnership as the General Partner shall determine to be necessary or desirable, provided that notice thereof is given concurrently to the Limited Partners.

     1.4 Registered Agent and Office. The registered office of the Partnership is 6200 Highway 6 South, Suite 201, Houston, Texas 77038 and the registered agent for service of process on the Partnership is Harlan H. Chappelle. The General Partner, at any time and from time to time, may change the Partnership’s registered offices or registered agents or both by complying with the applicable provisions of the Act and giving concurrent notice thereof to the Limited Partners and may establish, appoint and change additional registered offices and registered agents of the Partnership in such other states as the General Partner shall determine to be necessary or advisable.

     1.5 Term. The Partnership shall continue until terminated following dissolution in accordance with Section 9.1.

     1.6 Purpose. Subject to the other provisions of this Agreement, the business of the Partnership shall be: (a) exploring, developing, operating, investing in, acquiring, expanding, selling, managing, and financing, directly or indirectly, oil and gas properties, including those properties held by the Partnership and its Subsidiaries as of the Effective Date and properties acquired after the Effective Date; and (b) taking all such other actions incidental to any of the foregoing as may be necessary or desirable and for which a Texas limited Partnership may legally engage.

ARTICLE II
CERTAIN DEFINITIONS AND REFERENCES

     2.1 Certain Defined Terms. When used in this Agreement, capitalized terms shall have the respective meanings assigned to them on Exhibit A.

     2.2 References and Titles. All references in this Agreement to articles, sections, subsections, and other subdivisions refer to corresponding articles, sections, subsections, and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any of such subdivisions are for convenience only, shall not constitute part of such subdivisions, and shall be disregarded in construing the language contained in such subdivisions. The words “this Agreement,” “this instrument,” “herein,” “hereof,” “hereby,” “hereunder,” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. No consideration shall be given to the fact or presumption that one party had a greater or lesser hand in drafting this Agreement. The word “includes” and its variants mean including, without limitation.

ARTICLE III
CAPITALIZATION AND PERCENTAGE INTERESTS

     3.1 Initial Capital Contributions.

          (a) Alta Mesa GP and the Class A Limited Partners have made such Capital Contributions to the Partnership as reflected in the Original Agreement and on the books and records of the Partnership.

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          (b) Pursuant to Section 2.3 of the Contribution Agreement, on the Effective Date, the Class B Limited Partner shall make a Capital Contribution in an amount equal to the sum of $25,000,000, which Capital Contributions shall be generally used by the Partnership as provided in Schedule 3.1(b).

     3.2 Additional Capital Contributions

          (a) The General Partner and the Class A Limited Partners shall have no obligation or liability to make any additional Capital Contributions.

          (b) In addition to the initial Capital Contribution as provided under Section 3.1 (b), the Class B Limited Partner shall make the following additional Capital Contributions at the times and subject to the conditions provided in this Agreement and the Contribution Agreement:

          (i) an amount not to exceed (A) $56,000,000, minus (B) the total amount contributed by the Class B Limited Partner pursuant to Section 3.1(b), which contribution shall be made in accordance with the initial Development Plan and Budget attached hereto as Exhibit C; plus

          (ii) an amount not to exceed $44,000,000, which amount shall be used by the Partnership solely for funding the acquisitions or for such as other uses as may be approved by the General Partner and the Class B Limited Partner pursuant to Section 5.3(f).

     The amounts to be contributed under subsections (i) and (ii) above are collectively referred to herein as the “Class B Commitment”. Notwithstanding anything to the contrary herein, the Class B Limited Partner shall not be required to make any Capital Contributions in excess of the Class B Commitment.

          (c) The Class B Limited Partner shall pay the Class B Commitment in separate Drawdowns, subject to the provisions of Section 3.2(b) and the following additional terms and conditions:

          (i) Drawdown Notices. The General Partner shall provide the Class B Limited Partner with a notice of each Drawdown (a “Drawdown Notice”) sent at least 15 Business Days prior to the date on which such Drawdown is due and payable to the Partnership (the “Funding Date”). Each Drawdown Notice shall include (A) a brief description of the transaction or purpose for which such Capital Contributions are required, (B) the aggregate amount of Capital Contributions required (which shall not be less than $1,000,000), (C) the Funding Date, (D) wire transfer or other remittance instructions, and (E) such other information with respect to the Drawdown as the General Partner shall determine is appropriate.

          (ii) Payment of Drawdown. The Class B Limited Partner shall pay to the Partnership the Capital Contribution in accordance with the funding instructions in the Drawdown Notice in immediately available funds in U.S. dollars to the account specified therein on or prior to the Funding Date.

          (d) No Third Party Beneficiary. Except as provided in Section 5.10 (with respect to Covered Persons), or as otherwise specifically agreed with any third party, the provisions of this Section 3.2 are intended solely to benefit the Partnership and the Partners (and their Affiliates and Covered Persons, where applicable), shall not be construed as conferring any benefit upon any creditor of the Partnership or a Subsidiary (and no such creditor shall be a third party beneficiary of this Agreement), and the Class B Limited Partner shall have no duty or obligation to any creditor of the Partnership or a Subsidiary to make any contributions to the capital of the Partnership pursuant to this Section 3.2.

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     3.3 Default in Making Capital Contributions

          (a) Remedies Upon Default. If the Class B Limited Partner fails to make, when due, all or any portion of the Capital Contribution required to be contributed by it to the Partnership pursuant to Section 3.2 and the Contribution Agreement, and such failure persists for a period of 15 Business Days after receipt by the Class B Limited Partner of a notice from the General Partner specifying such failure, then, during the period in which the Class B Limited Partner remains in default, the General Partner may cause the Partnership to exercise any one or more of the following remedies:

          (i) extinguish (A) the Class B Limited Partner’s rights set forth in Section 5.3, exclusive of subsections (h), (i), (j), (n), (o), (p) and (r) of such Section, and (B) subject to the provisos below in this Section 3.3(a), the Class B Limited Partner’s right to approve of certain actions to be taken by the Partnership as specified elsewhere in this Agreement; and/or

          (ii) extinguish the Class B Limited Partner’s rights to make a Liquidity Request pursuant to Section 5.6; and/or

          (iii) withhold any and all distributions that would otherwise be made to the Class B Limited Partner until the aggregate amount of such withheld distributions equals 300% of the Capital Contribution the Class B Limited Partner failed to make (with any such amounts withheld by the Partnership being allocated and distributed to the Class A Limited Partners, Pro Rata);

provided, however, that foregoing shall not be deemed to modify or limit (A) the Class B Limited Partner’s specific approval rights under Section 4.11(f), Section 4.12 or Section 10.2 or as a Limited Partner generally or (B) the General Partner’s duties and obligations to the Limited Partners (including the Class B Limited Partner) as set forth herein; and provided, further, that the General Partner shall not have the rights provided above in this Section 3.3 if, at the time of the Class B Limited Partner’s failure to pay all or a portion of a required Capital Contribution, the Class B Limited Partner has the right to remove the General Partner under Section 7.7(a).

          (b) Non-Exclusive Remedies. The remedies set forth in this Section 3.3 shall not be exclusive of any other remedy which the Partnership or the Partners may have at law or in equity or under this Agreement, it being agreed that the Class B Limited Partner shall be personally liable for the making of its required Capital Contributions. Each of the Partners agrees to the remedies set forth in this Section 3.3.

     3.4 Return of Capital Contributions. No interest shall accrue on any Capital Contributions, and no Partner shall have the right to withdraw or be repaid any Capital Contributions made by that Partner except as provided in ARTICLE IV and Section 9.3. No Partner shall be liable for the return of any other Partner’s Capital Contributions.

     3.5 Percentage Interests. The Percentage Interests of each of the Partners are set forth on Exhibit B.

ARTICLE IV
DISTRIBUTIONS, ALLOCATIONS, AND TAX MATTERS

     4.1 Distributions of Net Cash From Operations. Distributions of Net Cash From Operations shall be made in the following order of priority:

          (a) first, 65% to the Class B Limited Partner and 35% to the General Partner and the Class A Limited Partners until the Class B Limited Partner has received aggregate distributions from the

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Partnership since the Effective Date equal to the Class B Limited Partner’s aggregate Capital Contributions since the Effective Date (the “1x Return Amount”);

          (b) second, 65% to the Class B Limited Partner and 35% to the General Partner and the Class A Limited Partners until the cumulative amount of distributions to the Class B Limited Partner pursuant to this Agreement results in the Class B Limited Partner achieving a 15% IRR;

          (c) third, 45% to the Class B Limited Partner and 55% to the General Partner and the Class A Limited Partners until the cumulative amount of distributions to the Class B Limited Partner pursuant to this Agreement result in the Class B Limited Partner achieving a 27.5% IRR; and

          (d) thereafter, 20% to the Class B Limited Partner and 80% to the General Partner and the Class A Limited Partners.

All distributions made to the General Partner and the Class A Limited Partners under this Section 4.1 shall be made Pro Rata to such Partners.

     4.2 Distributions of Net Cash From a Liquidity Event. Net Cash From a Liquidity Event shall be distributed to the Partners as follows:

          (a) if the Liquidity Event occurs prior to the fourth anniversary date of the Effective Date, Net Cash From a Liquidity Event shall be distributed to the Partners in the same manner as Net Cash From Operations is distributed pursuant to Section 4.1; provided, however, that if such distributions will not provide the Class B Limited Partner aggregate distributions from the Partnership since the Effective Date equal to at least 200% of the Class B Limited Partner’s aggregate Capital Contributions since the Effective Date (the “2x Return Amount”), then the Net Cash From a Liquidity Event otherwise distributable to the General Partner and the Class A Limited Partner shall be distributed to the Class B Limited Partner until the Class B Limited Partner receives aggregate distributions from the Partnership equal to the 2x Return Amount; or

          (b) if the Liquidity Event occurs on or after the fourth anniversary date of the Effective Date, Net Cash From a Liquidity Event shall be distributed to the Partners as follows:

          (i) first, 100% to the Class B Limited Partner until the Class B Limited Partner receives aggregate distributions under this Agreement from the Partnership equal to the 1x Return Amount;

          (ii) second, 65% to the Class B Limited Partner and 35% to the General Partner and the Class A Limited Partners until the cumulative amount of distributions to the Class B Limited Partner pursuant to this Agreement result in the Class B Limited Partner achieving a 10% IRR;

          (iii) third, 100% to the General Partner and the Class A Limited Partners until the aggregate distributions pursuant to Sections 4.1, 4.2(b)(i), and 4.2(b)(ii) of this Agreement and this Section 4.2(b)(iii) have been distributed 65% to the Class B Limited Partner and 35% to the General Partner and Class A Limited Partners;

          (iv) fourth, 65% to the Class B Limited Partner and 35% to the General Partner and the Class A Limited Partners until the cumulative amount of distributions to the Class B Limited Partner pursuant to this Agreement result in the Class B Limited Partner achieving a 15% IRR;

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          (v) fifth, 45% to the Class B Limited Partner and 55% to the General Partner and the Class A Limited Partners until the cumulative amount of distributions to the Class B Limited Partner pursuant to this Agreement result in the Class B Limited Partner achieving a 27.5% IRR ; and

          (vi) thereafter, 20% to the Class B Limited Partner and 80% to the General Partner and the Class A Limited Partners.

All distributions made to the General Partner and the Class A Limited Partners under this Section 4.2 shall be made Pro Rata to such Partners.

     4.3 Tax Distributions. In each Fiscal Year, the General Partner shall distribute to the Partners, to the extent of Available Cash, in proportion to the taxable income allocated to them, such amount as the General Partner reasonably determines is necessary to enable the Partners who were allocated taxable income during that Fiscal Year to pay their income taxes on their distributive shares of the Partnership’s taxable income (including separately stated items). In making such determination, the General Partner shall assume that all Partners are (a) residents of the jurisdiction with the highest applicable state income tax rate of all the jurisdictions in which any Partner resides; (b) subject to the highest marginal federal, state, and local tax rates applicable to corporations, taking into account any allowable federal income tax deduction for state and local taxes; and (c) subject to such other reasonable assumptions as the General Partner may determine. The distributions pursuant to this Section 4.3 shall not be in addition to the distributions described in Sections 4.1 and 4.2, but shall be considered advance distributions of the amounts otherwise distributable pursuant to Sections 4.1 and 4.2 and shall reduce, to the extent not otherwise taken into account, the amounts that would subsequently otherwise be distributable pursuant to those Sections.

     4.4 Distribution Limitations. Notwithstanding anything to the contrary contained in this Agreement, the Partnership, and the General Partner on behalf of the Partnership, shall not be required to make a distribution to any Partner on account of its Interest if such distribution would violate the Act or other applicable law.

     4.5 Distribution Policy; Payment of Related Party Subordinated Debt and Indemnity Obligations under Contribution Agreement.

          (a) Except as provided in Section 4.3 and as the General Partner and the Class B Limited Partner may otherwise agree, prior to the fourth anniversary of the Effective Date, Net Cash Flow from Operations shall be retained by the Partnership to fund the activities of the Partnership and the Subsidiaries, including development, exploration and acquisition activities.

          (b) Except as provided in Section 4.3 and as the General Partner and the Class B Limited Partner may otherwise agree, after the fourth anniversary of the Effective Date, Net Cash Flow from Operations shall be distributed to the Partners, subject to the retention of Agreed Reserves.

          (c) Except as otherwise agreed upon by the General Partner and the Class B Limited Partners, Net Cash From a Liquidity Event shall be distributed to the Partners, subject to the retention of Agreed Reserves.

          (d) Notwithstanding anything to the contrary herein, all amounts due and owing by the Partnership in respect of (i) Related Party Subordinated Debt (including payments of principal and interest thereon) and (ii) Contribution Agreement Indemnity Obligations shall be made by the Partnership exclusively from the General Partner’s and the Class A Limited Partners’ allocable share hereunder (but excluding amounts allocable to any Class A Limited Partner that was previously a Warrant Holder) of Distributions of Net Cash From Operations and Distributions of Net Cash From a Liquidity Event. For example, if one dollar ($1.00) is available for distribution to the Class A Limited Partners, ten cents ($0.10) will be distributed, in

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the aggregate, to the Class A Limited Partners that were previously Warrant Holders (assuming that such Warrant Holders have, prior to the date on which such distribution is made, all exercised their rights under the Warrants to become a Class A Limited Partner and at the time of such distribution held an aggregate pro rata 10% of the Class A Limited Partners Interest), and the remaining ninety cents ($0.90) would be distributed pro rata to the General Partner and the remaining Class A Limited Partners or used to repay the Related Party Subordinated Debt.

     4.6 Capital Accounts. A capital account (a “Capital Account”) shall be established and maintained for each Partner to which shall be credited the Capital Contributions made by such Partner and such Partner’s allocable share of Net Income (and items thereof), and from which shall be deducted distributions to such Partner of cash or other property and such Partner’s allocable share of Net Loss (and items thereof). To the extent not provided for in the preceding sentence, the Capital Accounts of the Partners shall be adjusted and maintained in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv). The Partners’ Capital Accounts as of the Effective Date shall be as set forth opposite their respective names in Exhibit B.

     4.7 Allocations to Capital Accounts.

          (a) Net Loss. Except as provided in Section 4.7(c), Net Loss (and items thereof) shall be allocated in a manner such that the Capital Account of each Partner, immediately after giving effect to such allocation, is, as nearly as possible, equal (proportionately) to the amount of the distributions that would be made to such Partner pursuant to Section 4.2(b), if (i) the Partnership were dissolved and terminated; (ii) its affairs were wound up and each Partnership asset was sold for cash equal to its Book Value; (iii) all Partnership liabilities were satisfied (limited with respect to each nonrecourse liability to the Book Value of the assets securing such liability); and (iv) the net assets of the Partnership were distributed in accordance with Section 4.2 to the Partners immediately after giving effect to such allocation.

          (b) Net Income and Simulated Gain. Except as provided in Section 4.7(c), Net Income (and items thereof) and Simulated Gain shall be allocated (i) first to the Partners in proportion to and in an amount equal to the allocation of Net Loss under Section 4.7(a) and Simulated Depletion and Simulated Loss under Section 4.7(b) until the aggregate amount of Net Income and Simulated Gain allocated under this clause (i) equals the aggregate amount of Net Loss allocated under Section 4.7(a) and Simulated Depletion and Simulated Loss allocated under Section 4.7(b), and (ii) second in a manner such that the Capital Account of each Partner, immediately after giving effect to such allocation, is, as nearly as possible, equal (proportionately) to the amount of the distributions that would be made to such Partner pursuant to Section 4.2(b), if (A) the Partnership were dissolved and terminated; (B) its affairs were wound up and each Partnership asset was sold for cash equal to its Book Value; (C) all Partnership liabilities were satisfied (limited with respect to each nonrecourse liability to the Book Value of the assets securing such liability); and (D) the net assets of the Partnership were distributed in accordance with Section 4.2 to the Partners immediately after giving effect to such allocation.

          (c) Allocations Relating to Last Fiscal Year. Except as otherwise provided elsewhere in this Agreement, if upon the dissolution and termination of the Partnership pursuant to ARTICLE IX and after all other allocations provided for in Section 4.7 have been tentatively made as if this Section 4.7(c) were not in this Agreement, a distribution to the Partners under ARTICLE IX would be different from a distribution to the Partners under Section 4.2, then Net Income (and items thereof), Simulated Gain, Net Loss (and items thereof) Simulated Loss, and Simulated Depletion for the Fiscal Year in which the Partnership dissolves and terminates pursuant to ARTICLE IX shall be allocated among the Partners in a manner such that the Capital Account of each Partner, immediately after giving effect to such allocation, is, as nearly as possible, equal (proportionately) to the amount of the distributions that would be made to such Partner during such last Fiscal Year pursuant to Section 4.2. The General Partner with the agreement of the Class B Limited Partner, may apply the principles of this Section 4.7(c) to any Fiscal Year preceding the Fiscal Year in which the Partnership dissolves and terminates (including through application of Section 761(e) of the Code) if delaying

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application of the principles of this Section 4.7(c) would likely result in distributions under ARTICLE IX that are materially different from distributions under Section 4.2 in the Fiscal Year in which the Partnership dissolves and terminates.

          (d) The Simulated Basis in each oil and gas property owned by the Partnership on the date of this Agreement and any Simulated Depletion or Simulated Loss calculated with respect thereto shall be allocated among the Partners in proportion to their Capital Percentages as in effect on the date of this Agreement, or in the case of properties acquired by the Partnership after the date of this Agreement, in proportion to their Capital Percentages at the time of acquisition of such property. For purposes of this subsection (d), “Capital Percentage” means, initially, (i) for the Class B Limited Partner, a percentage of the Book Value of the oil and gas properties owned by the Partnership on the date of this Agreement sufficient to give to the Class B Limited Partner a Simulated Basis in such properties equal to the sum of $25 million plus the Class B Limited Partner’s allocable share of Partnership indebtedness, if any, and (ii) for the General Partner and the Class A Limited Partners together, a percentage equal to 100% minus the percentage determined under clause (i) above for the Class B Limited Partner. The Capital Percentages applicable at the time of acquisition of oil and gas property after the date of this Agreement shall be those percentages represented by the Partners’ percentages of the capital used to acquire such property (either in the form of Capital Contributions or other Partnership funds previously allocated to the Partners hereunder).

          (e) Allocations in Special Circumstances. The following special allocations shall be made in the following order:

          (i) Minimum Gain Chargeback. Notwithstanding any other provision of this ARTICLE IV, if there is a net decrease in partnership minimum gain (as defined in Treasury Regulations Section 1.704-2(b)(2) and (d)) during any Fiscal Year, the Partners shall be specially allocated items of Partnership income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to the portion of such Partner’s share of the net decrease in partnership minimum gain, determined in accordance with Treasury Regulations Section 1.704-2(f) and (g). This Section 4.7(e)(i) is intended to comply with the minimum gain chargeback requirement in such section of the Treasury Regulations and shall be interpreted consistently therewith.

          (ii) Partner Minimum Gain Chargeback. Notwithstanding any other provision of this ARTICLE IV, if there is a net decrease in Partner nonrecourse debt minimum gain attributable to a Partner nonrecourse debt (as defined in Treasury Regulations Section 1.704-2(i)) during any Fiscal Year, each Partner shall be specially allocated items of Partnership income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to the portion of such Partner’s share of the net decrease in Partner nonrecourse debt minimum gain attributable to such Partner’s nonrecourse debt, determined in accordance with Treasury Regulations Section 1.704-2(i). This Section 4.7(e)(ii) is intended to comply with the minimum gain chargeback requirement in such section of the Treasury Regulations and shall be interpreted consistently therewith.

          (iii) Qualified Income Offset. In the event any Limited Partner unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be specially allocated to each such Limited Partner in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the deficit, if any, in such Limited Partner’s Capital Account (as determined under Treasury Regulations Section 1.704-1 and after crediting such Capital Account for any amounts that such Limited Partner is obligated to restore or is deemed obligated to restore pursuant to Treasury Regulations Section 1.704-2) as quickly as possible; provided that an allocation pursuant to this Section 4.7(e)(iii) shall be made only if and to the extent that such Limited Partner would have such Capital Account deficit after all other allocations provided for in Section 4.7 have been tentatively made as if this Section 4.7(e)(iii) were not in this Agreement. This Section 4.7(e)(iii)

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is intended to comply with the qualified income offset provisions in Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

          (iv) Gross Income Allocation. In the event any Limited Partner has a deficit balance in such Limited Partner’s Capital Account (as determined after crediting such Capital Account for any amounts that such Limited Partner is obligated to restore or is deemed obligated to restore pursuant to Treasury Regulations Section 1.704-2), items of Partnership income and gain shall be specially allocated to such Limited Partner in an amount and manner sufficient to eliminate such deficit (as so determined) of such Limited Partner’s Capital Account as quickly as possible; provided that an allocation pursuant to this Section 4.7(e)(iv) shall be made only if and to the extent that such Limited Partner would have such Capital Account deficit (as so determined) after all other allocations provided for in Section 4.7 (other than Section 4.7(e)(iii)) have been tentatively made as if this Section 4.7(e)(iv) were not in this Agreement.

          (v) Loss Allocation Limitation. No allocation of Net Loss (or items thereof) or Simulated Loss shall be made to any Partner to the extent that such allocation would create or increase a deficit in such Partner’s Capital Account (as determined after debiting such Capital Account for the items described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4),(5) and (6) and crediting such Capital Account for any amounts that such Partner is obligated to restore or is deemed obligated to restore pursuant to Treasury Regulations Section 1.704-2).

          (f) Transfer of or Change in Interests. A transferee of an Interest in the Partnership shall succeed to the Capital Account of the transferor Partner to the extent it relates to the transferred Interest.

          (g) Syndication and Organization Expenses. Syndication and organization expenses (as defined in Section 709(a) of the Code) for any Fiscal Year shall be allocated to the Capital Accounts of the Partners so that, as nearly as possible, the cumulative amount of such expenses allocated with respect to such Partner corresponds to the amount paid by such Partner.

     4.8 Tax Allocations.

          (a) General Rules. Except as otherwise provided in Section 4.8(c), for each fiscal period, items of Partnership income, gain, loss, deduction and expense shall be allocated, for federal, state and local income tax purposes, among the Partners in the same manner as the Net Income (and items thereof) or Net Loss (and items thereof) of which such items are components were allocated pursuant to Section 4.7.

          (b) Section 613A(c)(7)(D) of the Code. The deduction for depletion with respect to each separate oil and gas property (as defined in Section 614 of the Code) shall in accordance with Section 613A(c)(7)(D) of the Code be computed separately by the Partners rather than the Partnership. For such purpose, except as provided in Section 4.8(c), the adjusted tax basis of each such property shall be allocated among the Partners in the same manner in which the Simulated Basis of such property is allocated. Each Partner shall separately keep records of its share of the adjusted tax basis in each separate oil and gas property, adjust such share of the adjusted tax basis for any cost or percentage depletion allowable with respect to such property and use such adjusted tax basis in the computation of its cost depletion or in the computation of its gain or loss on the disposition of such property by the Partnership.

          (c) Section 704(c) of the Code. Income, gains, losses and deductions with respect to any property (other than cash) contributed or deemed contributed to the capital of the Partnership shall, solely for income tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its Fair Market Value at the time of the contribution or deemed contribution in accordance with Section 704(c) of the Code and the Treasury Regulations promulgated thereunder. Such allocations shall be made in such manner and utilizing such permissible tax elections as the General Partner and Limited Partners shall mutually agree.

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     If there is a revaluation of Partnership property pursuant to the definition of Book Value (including upon execution of this Agreement), subsequent allocations of income, gains, losses or deductions with respect to such property shall be allocated among the Partners so as to take account of any variation between the adjusted tax basis of such property to the Partnership for federal income tax purposes and its Fair Market Value in accordance with Section 704(c) of the Code and the Treasury Regulations promulgated thereunder. Such allocations shall be made in such manner and utilizing such permissible tax elections as the General Partner and the Limited Partners shall mutually agree; provided, however, that in connection with the admission of the Class B Limited Partner to the Partnership, the General Partner shall elect to use the traditional method with curative allocations so that, to the maximum extent possible, the Class B Limited Partner will have tax basis or other deductions attributable to Partnership assets at least equal to the deductions that would be available to the Class B Limited Partner if the tax basis in oil and gas properties on the date of this Agreement were equal to the Simulated Basis allocated to the Class B Limited Partner under Section 4.7(d).

          (d) Capital Accounts Not Affected. Allocations pursuant to this Section 4.8 are solely for federal, state and local tax purposes and shall not affect, or in any way be taken into account in computing, any Partner’s Capital Account or allocable share of Net Income (or items thereof) or Net Loss (or items thereof).

          (e) Tax Allocations Binding. The Partners acknowledge that they are aware of the tax consequences of the allocations made by this Section 4.8 and hereby agree to be bound by the provisions of this Section 4.8 in reporting their respective shares of items of Partnership income, gain, loss, deduction and expense.

     4.9 Restoration of Negative Capital Accounts. Except as otherwise required by law, no Partner shall have any obligation to the Partnership or the other Partners or to any other Person, including creditors of the Partnership, to restore any negative balance in its Capital Account.

     4.10 Withholding. Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines to be necessary or appropriate to cause the Partnership to comply with any foreign or United States federal, state or local withholding or deduction requirement with respect to any allocation, payment or distribution by the Partnership to any Partner or other Person. All amounts so withheld, and, in the manner determined by the General Partner in its discretion, amounts withheld with respect to any allocation, payment or distribution by any Person to the Partnership, shall be treated as distributions to the applicable Partners under the applicable provisions of this Agreement. If any such withholding requirement with respect to any Partner exceeds the amount distributable to such Partner under the applicable provision of this Agreement, or if any such withholding requirement was not satisfied with respect to any amount previously allocated or distributed to such Partner, such Partner and any successor or assignee with respect to such Partner’s Interest hereby indemnifies and agrees to hold harmless the General Partner and the Partnership for such excess amount or such withholding requirement, as the case may be.

     4.11 Tax Elections. The General Partner shall make the following elections on behalf of the Partnership:

          (a) To elect, in accordance with Section 263(c) of the Code and applicable Treasury Regulations and comparable state law provisions, to deduct as an expense all intangible drilling and development costs with respect to productive and non-productive wells and the preparation of wells for the production of oil or gas;

          (b) To elect the calendar year as the Partnership’s fiscal year if permitted by applicable law;

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          (c) To elect the accrual method of accounting;

          (d) In consultation with the Class B Limited Partner, to elect, in accordance with Sections 734, 743, and 754 of the Code and applicable Treasury Regulations and comparable state law provisions, to adjust basis in the event any Partnership interest is transferred in accordance with this Agreement or any Partnership property is distributed to any Partner;

          (e) To elect to deduct all organizational and start-up costs of the Partnership to the extent permitted under Sections 195 and 709 of the Code; and

          (f) To elect with respect to such other federal, state and local tax matters as the General Partner and the Partners shall agree upon from time to time.

     4.12 Tax Matters Partner. The General Partner shall be designated the tax matters partner under Code Section 6231 and shall promptly notify the Partners if any tax return or report of the Partnership is audited or if any adjustments are proposed by any governmental body. In addition, the General Partner shall promptly furnish to the Partners all notices concerning administrative or judicial proceedings relating to federal income tax matters as required under the Code. During the pendency of any such administrative or judicial proceeding, the General Partner shall furnish to the Partners periodic reports, not less often than monthly, concerning the status of any such proceeding. Without the consent of the Class B Limited Partner, the General Partner shall not extend the statute of limitations, file a request for administrative adjustment, file suit concerning any tax refund or deficiency relating to any Partnership administrative adjustment or enter into any settlement agreement relating to any Partnership item of income, gain, loss, deduction or credit for any fiscal year of the Partnership.

     4.13 Maintain Status as a Tax Partnership. Without limiting Section 6.4(b), no Partner shall elect or cause the Partnership to elect to have the Partnership treated as an association taxable as a corporation.

ARTICLE V
MANAGEMENT OF THE PARTNERSHIP; OPERATIONS ON PARTNERSHIP PROPERTIES

     5.1 Management by the General Partner. The business and affairs of the Partnership will be managed by the General Partner. Except as provided in Section 5.3 and elsewhere in this Agreement and except as otherwise provided by applicable law, the General Partner shall have full and exclusive power and authority on behalf of the Partnership to manage, control, administer and operate the properties, business and affairs of the Partnership in accordance with this Agreement and to do or cause to be done any and all acts deemed by the General Partner to be necessary or appropriate thereto.

     5.2 Specific Authority of the General Partner. Without limiting the generality of Section 5.1, but subject to the limitations in Section 5.3 and elsewhere in this Agreement, the authority of the General Partner to manage the business and affairs of the Partnership will include authority to:

          (a) implement the Development Plan and Budget substantially in accordance with the terms contained therein in all material respects,

          (b) acquire, hold, maintain, improve, sell, transfer, exchange, pledge, and dispose of the Partnership’s assets and properties, and exercise all rights, powers, privileges, and other incidents of ownership or possession with respect to the Partnership’s assets and properties, including instituting, settling or compromising suits and administrative proceedings and other similar matters relating thereto in the name and on behalf of the Partnership;

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          (c) enter into, make, and perform contracts, agreements, and other undertakings by and on behalf of the Partnership that may be necessary, appropriate or advisable to further the purposes of the Partnership in accordance with this Agreement and make decisions and waivers thereunder; provided, however, any such contracts, agreements, or other undertakings entered into between or among the Partnership, on the one hand, and the General Partner and its Affiliates, on the other hand, must comply with Section 5.7;

          (d) open and maintain bank and investment accounts and arrangements, draw checks and other orders for the payment of money, and designate individuals with authority to sign or give instructions with respect to those accounts and arrangements;

          (e) hire for usual and customary payments and expenses consultants, brokers, attorneys, accountants and such other agents for the Partnership as it may deem necessary or advisable, and authorize any such agent to act for and on behalf of the Partnership;

          (f) maintain the assets of the Partnership in good order;

          (g) collect sums due the Partnership;

          (h) to the extent funds of the Partnership are available therefor, pay debts and obligations of the Partnership;

          (i) to the extent cash is available, pay, and cause the Partnership to pay, all taxes and royalties burdening the Oil and Gas Interests as and when due, and pay on a current basis all capital costs, operating expenses and other charges associated with the Oil and Gas Interests;

          (j) acquire any asset for the Partnership;

          (k) borrow money or otherwise commit the credit of the Partnership for Partnership activities;

          (l) incur obligations or otherwise commit the credit of the Partnership with respect to hedging agreements or other similar agreements;

          (m) obtain insurance for the Partnership and, to the extent appropriate, its Covered Persons in accordance with prudent industry practices and as required by Class B Partner, including D&O and E&O coverage; and

          (n) manage, directly and indirectly, the business and affairs of the Subsidiaries.

     5.3 Limitations on Power and Authority of the General Partner. Notwithstanding any other provision of this Agreement to the contrary, the General Partner shall have no right, power or authority to do, or cause the Partnership to do directly or indirectly, any of the following on behalf of the Partnership or the Subsidiaries without the written consent of the Class B Limited Partner:

          (a) any sale of any Property or asset of the Partnership or a Subsidiary (in a single transaction or a series of related transactions) having a value in each case in excess of $10,000,000 or any sales of Properties or assets of the Partnership or its Subsidiaries during any 12 month period having an aggregate value in excess of ten percent (10%) of the proved reserves value of the Properties as reflected under the most recent engineering report delivered under Section 8.2 (c);

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          (b) except in connection with the Senior Credit Facility, the incurrence by the Partnership or any Subsidiary of indebtedness for borrowed money in excess of amounts drawn under a Partnership credit facility that was approved by the Class B Limited Partner;

          (c) the guaranty by the Partnership or any Subsidiary of the payment of money or the performance of any contract or other obligation of any person other than the Partnership or any Subsidiary, except in connection with indebtedness permitted under Section 5.3(b);

          (d) the grant of liens on any assets of the Partnership or its Subsidiaries, except in connection with the indebtedness permitted under Section 5.3(b) or for customary liens contained in joint operating agreements;

          (e) the adoption of the Development Plan and Budget for the Partnership and its Subsidiaries pursuant to the terms of Section 5.4, and making any material amendments to thereto;

          (f) the acquisition of properties and other assets (whether in one or in a series of related transactions) having a purchase price or, if not a cash transaction, a Fair Market Value, which exceeds $10,000,000 and which acquisition is not expressly budgeted for in the approved Budget;

          (g) the appointment of any successor to the Chief Executive Officer or any other senior officer of the Partnership and the payment of any executive compensation to the senior officers of the Partnership and its Subsidiaries;

          (h) the approval of any policy of director and officers liability insurance;

          (i) entering into a partnership or joint venture with any other party for the purpose of carrying on any business other than in the ordinary course of business;

          (j) creating any Subsidiary other than in the ordinary course of business;

          (k) any amalgamation, reconstruction, liquidation, dissolution, commencement of bankruptcy, or similar proceedings with respect to the Partnership or any Subsidiary, or compromise with a creditor;

          (l) the merger or consolidation of the Partnership with any entity, the conversion of the Partnership into any other organizational form, or the exchange of interests with any other person or entity;

          (m) except for the issuance of the Warrants in connection with the Senior Credit Facility, any issuance of Interests, ownership interests, debentures, bonds or any other security by the Partnership or any Subsidiary, including issuances of securities in connection with any employee incentive plan or as consideration in any acquisition (whether by purchase of ownership interests, asset purchase or merger);

          (n) any transaction or series of related transactions (not otherwise expressly permitted) between the Partnership or any Subsidiary, on the one hand, and any Partner or Affiliate of any Partner, on the other hand;

          (o) pursuant to Section 10.2, any amendment to this Agreement, any adoption of or amendment to the partnership agreement, memorandum and articles of association, certificate and articles of incorporation, bylaws, or other organizational documents, of the Partnership or any Subsidiary;

          (p) except for the exercise of one or more of the Warrants in accordance with their terms (including the exercise of such rights by a designee of the Holder (as defined in the Warrant) as provided in

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          Section 2.1 of the Warrant), any redemption or other change in the Interests or ownership interest, or options or other rights to acquire such interests, in the Partnership or the Subsidiaries;

          (q) the initiation, compromise or settlement of any lawsuit, administrative matter or other dispute where the amount the Partnership may recover or might be obligated to pay, as applicable, is in excess of $100,000;

          (r) the extension of any loans by the Partnership to any third party (including the General Partner or any Affiliate thereof);

          (s) the grant of any approval by the Partnership under Section 6 of that certain Shared Services Agreement dated as of even date herewith by and among Alta Mesa Services, LP, on the one hand, and the General Partner, the Partnership and certain of the subsidiaries of the Partnership, on the other hand, or

          (t) the amendment or modification of the terms of any Warrant, the waiver of any material right of the Partnership under any Warrant or the making of any material determination or election by the Partnership under the Warrant.

     5.4 Development Plan and Operating Budget.

          (a) The General Partner shall prepare and submit to the Class B Limited Partner a proposed development plan (“Development Plan”) and budget (“Budget”) annually, on or before the 60^th day prior to the end of each Fiscal Year, which shall set forth, for the next following Fiscal Year, the proposed operations, time schedule for implementing operations, estimated revenues, operating expenditures, and capital expenditures for the Partnership and each of its Subsidiaries. The initial Development Plan and Budget for the Partnership and each of its Subsidiaries for the balance of the Fiscal Year 2006 and Fiscal Year 2007 is attached hereto as Exhibit C.

          (b) Except for the initial Development Plan and Budget set forth on Exhibit C, all Development Plans and Budgets shall be subject to the prior written approval of the Class B Limited Partner, and no Development Plan or Budget shall be deemed to be effective hereunder until such time as the General Partner has received prior written approval thereof from the Class B Limited Partner. The Class B Limited Partner shall respond in writing to each such proposed Development Plan and Budget within 20 days after receipt thereof. In any response, the Class B Limited Partner shall specify in detail its disapproval of any item or items therein or its disapproval of the whole, and any modification made by the Class B Limited Partner thereto and recommended changes therein. Within 20 days after receipt by the General Partner of the Class B Limited Partner’s disapproval of any proposed Development Plan or Budgeted item, the General Partner shall resubmit to the Class B Limited Partner a revised Development Plan and Budget. In the event that any Fiscal Year hereunder shall commence without a Development Plan or Budget approved in writing by the Class B Limited Partner pursuant to the terms of this Section 5.4(b), the General Partner shall be entitled to make expenditures for items specified in the Budget for the most recent Fiscal Year which has been approved in writing by the Class B Limited Partner for the actual amount of such items and for any expenditures which, in the General Partner’s good faith judgment, are necessary to protect and preserve the Properties and assets of the Partnership and its Subsidiaries.

          (c) During the first 12 months following the Effective Date, the General Partner and the Class B Limited Partner will review the Development Plan and Budget on a monthly basis, and make changes thereto as agreed by the General Partner and the Class B Limited Partner. Thereafter, the General Partner and the Class B Limited Partner will review the Development Plan and Budget on a quarterly basis, and make changes thereto as agreed by the General Partner and the Class B Limited Partner. The General Partner shall promptly report to the Partners any event, circumstance, condition or situation which will have a material

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effect on the Development Plan or Budget immediately upon learning of such event, circumstance, condition or situation.

          (d) To the extent funds of the Partnership and its Subsidiaries are sufficient therefor, the Partnership and the Subsidiaries shall maintain an adequate reserve for operating expenses and capital expenditures, in such amount as provided in the then applicable Budget or if not so provided, as deemed necessary by the General Partner for the proper conduct of the business of the Partnership and the Subsidiaries and the implementation of the Development Plan.

     5.5 Subsidiaries. The General Partner, on behalf of the Partnership, shall cause each of the Subsidiaries to be managed and operated consistent with the terms of this Agreement.

     5.6 Class B Limited Partner Rights.

          (a) Price Risk Mitigation. Subject to any restrictions contained in any credit facility of the Partnership or other agreement to which the Partnership or its Subsidiaries are parties or any of their respective properties are subject, the Class B Limited Partner may require the Partnership and its Subsidiaries to implement reasonable measures to mitigate commodity price risks (in which event the General Partner shall cause the Partnership and its Subsidiaries to enter into the applicable hedging or other similar transactions resulting therefrom).

          (b) Initiation of Liquidity Event. Following the fourth anniversary of the Effective Date, the Class B Limited Partner, may without consent of any other Partner, upon notice to the General Partner and Class A Partners (the “Liquidity Request”), request that the General Partner take such actions set forth below, to cause the Partnership and its Subsidiaries, or the Assets to be sold to one or more third parties, subject to the Class A Partners’ right of right of first offer as set forth below:

          (i) The Class A Limited Partners shall have the option, exercisable within 30 days after receipt of the Liquidity Request, within which to submit to the Class B Limited Partner a written offer to purchase the Class B Limited Partner’s Interest or, if requested by the Class B Limited Partner, Sowood’s equity interest (the “Sowood Equity”) in the Class B Limited Partner (“Class A Limited Partners Offer”). The terms of the Class A Limited Partners Offer shall be determined by a majority in interest of the Class A Limited Partners participating in the offer. If more than one of the Class A Limited Partners elect to participate in the Class A Limited Partners Offer (the “Participating Class A Limited Partners”), they shall participate in proportion to their pro-rata share of the Class A Limited Partnership Interests. The Class A Limited Partners Offer, to be effective, must: (i) specify (A) the proposed purchase price for the Class B Limited Partner’s Interest (or Sowood Equity, if applicable), (B) the proposed closing date, (C) the source of the Participating Class A Limited Partners’ funds to be used to pay the purchase price, (D) any material conditions precedent to the Participating Class A Limited Partners’ obligation to purchase, including any condition(s) regarding financing, and (E) any other terms which are material to the Class A Limited Partners Offer; (ii) provide that the purchase price be in the form of cash payable in full at closing; and (iii) provide that the sale will be effected on an “as is where is” basis with no representations and warranties from the Class B Limited Partner other than that it has good and marketable title to the Interest (or Sowood Equity), free and clear of liens and other encumbrances (except that if the purchase and sale is of the Sowood Equity, an additional representation and warranty that the Class B Limited Partner has not conducted any business other than to own and hold the Interest shall be included). If the Participating Class A Limited Partners propose to finance all or a portion of the proposed purchase price with third party debt or equity (or a combination of both), the Class A Limited Partners Offer, to be effective, must be accompanied by a written commitment (or commitments, as applicable) from such third party or parties (which third party or parties must have sufficient capital and a demonstrated capacity to close the transaction reasonably satisfactory to the

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Class B Limited Partner), that contain standard and customary conditions to close that are reasonably acceptable to the Class B Limited Partner.

          (ii) If the Participating Class A Limited Partners submit a Class A Limited Partners Offer that satisfies the terms of Section 5.6(b)(i) (a “Valid Offer”), the Class B Limited Partner shall, at its sole election by notice in writing to the General Partner and the Participating Class A Limited Partners within 10 Business Days after receipt of the Valid Offer, either (i) reject or (ii) subject to Section 5.6(b)(iii), accept the Valid Offer. If the transaction contemplated by the Valid Offer closes and the Participating Class A Limited Partners acquire the Interest of the Class B Limited Partner, the voting rights of the Class B Limited Partner thereafter shall be exercised as agreed to by a majority of the Participating Class A Limited Partners based upon the pro-rata share of the Class B Limited Partner Interest acquired by each of the Participating Class A Limited Partners.

          (iii) If the Class B Limited Partner accepts the Valid Offer, the Participating Class A Limited Partners and the Class B Limited Partner shall use their good faith efforts to promptly negotiate and execute definitive documentation governing the purchase and sale of the Class B Limited Partner’s Interest on the terms set forth in the Valid Offer and to close such transaction within 30 days after the Class B Limited Partner’s acceptance of the Valid Offer provided, that if the Participating Class A Limited Partners and the Class B Limited Partner, after the exercise of their good faith efforts, are unable to agree upon definitive documentation or to close the purchase and sale on a timely basis, the Class B Limited Partner shall have the right to revoke its acceptance of the Valid Offer and terminate further negotiations with the Participating Class A Limited Partners by notice in writing to the General Partner and Participating Class A Limited Partners (in which event the terms of Section 5.6(b)(iv) shall be applicable). Following the Class B Limited Partner’s acceptance of a Valid Offer, and unless the selling Class B Limited Partner subsequently revokes its acceptance of that Valid Offer in accordance with this Section 5.6 (b)(iii), the selling Class B Limited Partner shall not, without the prior written consent of a majority of the Participating Class A Limited Partners, vote in favor of any amendment to (or waiver of any provision of) this Agreement at any time prior to the closing of the transaction contemplated by the Valid Offer.

          (iv) If either (i) the Class A Limited Partners fail to submit a Valid Offer that satisfies the terms of Section 5.6(b)(i), (ii) the Class B Limited Partner rejects the Valid Offer, or (iii) the Class B Limited Partner revokes acceptance of the Valid Offer and terminates further negotiations with the Participating Class A Limited Partners pursuant to Section 5.6(b)(iii), then:

     (A) the General Partner shall promptly commence to take all steps reasonably necessary to market and sell the Partnership and its Subsidiaries, including (1) if requested by the Class B Limited Partner, selecting an investment banking or other similar divestiture firm acceptable to the Class B Limited Partner to assist with the sale on terms and conditions approved by the Class B Limited Partner; (2) selecting a petroleum engineering firm and law firm acceptable to the Class B Limited Partner, (3) formulating and organizing reserve and other pertinent data and information with respect to the Partnership and its Subsidiaries’ oil and gas assets and other assets; (4) organizing property and other files (including title information, production records, contracts and other agreements); (5) organizing (or assisting the investment banking or divestiture firm in organizing) a data or other similar room for use by potential third party buyers in which information of the type described in clauses (3) and (4) above (and other pertinent sales information) will be situated and made available; (6) analyzing any offers received from the third parties; and (7) negotiating the terms and conditions of a definitive purchase and sale agreement; in addition, if requested by the Class B Limited Partner, the General Partner shall use its reasonable best efforts to structure the proposed sale to provide for a sale by Sowood of the Sowood Equity to the buyer;

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     (B) if (1) the Partnership receives an offer from a third party (a “Third Party Offer”) to purchase the Partnership and its Subsidiaries (whether structured as a sale of Partnership or Subsidiary, a merger or other consolidation, or a sale of all or substantially all of the properties and assets of the Partnership and its Subsidiaries), and (2) the Class B Limited Partner directs the General Partner to accept, in the name and on behalf of the Partnership, the Third Party Offer, the General Partner shall cause the Partnership to accept the Third Party Offer and shall use its reasonable best efforts to negotiate with the applicable third party the terms and conditions of a definitive agreement acceptable to the Class B Limited Partner; provided, however, that if the Class B Limited Partner had theretofore received a Valid Offer which it rejected (pursuant to Section 5.6(b)(ii)) or revoked (pursuant to Section 5.6(b)(iii), followed by the Third Party Offer (pursuant to this Section 5.6(b)(iv)), then the Class B Limited Partner shall have the right to direct the General Partner to accept, in the name and on behalf of the Partnership, the Third Party Offer only if the sum of the cash and the Fair Market Value of any non-cash consideration to be received by the Class B Limited Partner pursuant to the Third Party Offer is greater than the purchase price specified in such Valid Offer.

          (v) Notwithstanding the foregoing, if a purchase and sale by the Partnership to a third party pursuant to a Third Party Offer is not consummated within the 180 day period commencing (1) if the Class A Limited Partners elect not to make a Class A Limited Partner Offer, the date on which the Class A Limited Partners notify the Class B Limited Partner of such election, (2) if the Participating Class A Limited Partners fail to make a Valid Offer, the expiration of the 30-day period commencing with the receipt by the General Partner of the Liquidity Request, (3) if the Participating Class A Limited Partners make a Valid Offer but the Class B Limited Partner rejects such Valid Offer, the date on which the Class B Limited Partner notifies the General Partner and the Participating Class A Limited Partners of such rejection, (4) if the Class B Limited Partner accepts a Valid Offer but subsequently revokes acceptance of such Valid Offer pursuant to Section 5.6 b(iii), the date on which the Class B Limited Partner notifies the General Partner and Participating Limited Partners of such revocation; then, unless the General Partner otherwise consents, the General Partner’s obligation to consummate any such sale shall terminate and any subsequent request by the Class B Limited Partner for a Liquidity Event shall require compliance with all of the terms and conditions of this Section 5.6(b).

     5.7 Conflicts of Interest. The General Partner and its Affiliates may transact business with the Partnership and the Subsidiaries; provided, however, the terms of such transaction are fair and reasonable to the Partnership and the Subsidiaries and no less favorable to the Partnership and the Subsidiaries than those the Partnership and the Subsidiaries could obtain from unrelated third parties; provided, further, that, in connection with any such transaction, the General Partner shall provide prompt written notice to the Class B Limited Partner of such transaction, which notice shall set forth (i) the parties thereto, (ii) the nature of the transaction, (iii) the salient terms of such transaction and (iv) reasonable support evidencing that the terms of such transaction comply with this Section 5.7; provided, further, that attached hereto as Schedule 5.7 is a list and summary description of all currently existing agreements or other arrangements between the General Partner or any Affiliate, on the one hand, and the Partnership, on the other hand.

     5.8 Meetings of Partners

          (a) The General Partner, by notice to all other Partners, may call a meeting of Partners at such times and places inside the State of Texas as the General Partner may determine upon not less than 10 Business Days prior to the date of such meeting.

          (b) The Class B Limited Partner, by notice to the other Partners, may call a meeting of Partners at such times and places inside the State of Texas as the Class B Limited Partner may determine upon not less than two Business Days prior to the date of such meeting.

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          (c) Any action of Limited Partners or any class of Limited Partners may be taken without a meeting by written consent executed by Limited Partners entitled to take that action as provided in this Agreement and delivered to the General Partner.

          (d) The Partners may hold meetings by means of conference telephone or similar communications equipments by means of which the Partners participating in the meeting can hear each other.

     5.9 Duties and Obligations of General Partner.

          (a) The General Partner shall comply in all material respects with the terms of this Agreement and shall use its reasonable best efforts (i) to cause its Affiliates to comply in all material respects with the terms of this Agreement and (ii) in the conduct of the business and operations of the Partnership to cause the Partnership and its Subsidiaries (A) to comply in all material respects with the terms and provisions of all agreements to which the Partnership or any Subsidiary is a party or to which its properties are subject, (B) to comply in all material respects with all applicable laws, ordinances or governmental rules and regulations to which the Partnership or any Subsidiary is subject (including, without limitation, all applicable federal, state and local Environmental Laws, ordinances, rules and regulations), and (C) to obtain and maintain all licenses, permits, franchises and other governmental authorizations necessary with respect to the ownership by the Partnership or any Subsidiary of its respective properties and the conduct of its business and operations. At the expense of the Partnership, the General Partner agrees to cause an ongoing program of environmental review of the Partnership’s properties (including site visits) to be conducted by a third party consultant (which consultant shall be Engelken & Associates, LP or such other environmental consulting firm designated by the General Partner and reasonably acceptable to the Class B Limited Partner).

          (b) With respect to the maintenance, exploration, development and operation of the properties of the Partnership or any Subsidiary with respect to which the General Partner (or an Affiliate thereof) serves as operator, the General Partner shall have the standard of care of a reasonably prudent operator. With respect to the Class B Limited Partner and its interests in the Partnership, the General Partner shall have the duties set forth in Section 4.04 of the Texas Revised Partnership Act and shall discharge such duties as provide in Section 4.04(d) of the Texas Revised Partnership Act. With respect to the maintenance and safekeeping of Partnership funds, the General Partner shall owe a fiduciary duty to the Partnership and the Class B Limited Partner.

          (c) During the existence of the Partnership, the General Partner shall devote substantially all of its business time and effort to the Partnership’s business and operations.

          (d) The General Partner covenants and agrees that it will at all times retain and have available to it and the Partnership and its Subsidiaries a professional staff and outside consultants which together will be reasonably adequate in size, experience and competency to discharge properly the duties and functions of the General Partner hereunder and under any applicable operating and other agreements, including, engineers, geologists and other technical personnel, attorneys, accountants and secretarial and clerical personnel.

     5.10 Exculpation and Indemnification.

          (a) Partnership Liabilities.

          (i) None of the Covered Persons will have any liability for the return of the Partners’ Capital Contributions. All liabilities of the Partnership, including, indemnity obligations under Section 5.10(b), will be liabilities of the Partnership as an entity, and will be paid or satisfied from Partnership assets. No liability of the Partnership will be payable, in whole or in part, by any Partner in his capacity as a Partner (other than the General Partner, and, then, only in its capacity as such).

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          (ii) The General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents. The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it and selected with reasonable care.

          (iii) Notwithstanding any other provision of this Agreement to the contrary, to the extent that, at law or in equity, the General Partner has any duties (fiduciary or otherwise) and liabilities relating thereto to the Partnership or a Partner, (A) the General Partner shall not be liable to the Partnership or the other Partners for actions taken in good faith by the General Partner or any of its Affiliates in reliance upon the provisions of this Agreement or advice from legal counsel selected by the General Partner with reasonable care and within such legal counsel’s area of expertise or competency, and (B) the General Partner’s duties (fiduciary or otherwise) and liabilities are intended, to the fullest extent permitted under the Act, to be modified and limited as expressly set forth in this Agreement.

          (b) Indemnity.

          (i) To the fullest extent permitted by law, the Partnership shall indemnify and hold harmless each Partner and the respective officers, directors, shareholders, managers, members, employees, agents, subsidiaries and assigns of each Partner (each, a “Covered Person”), from and against any and all losses, claims, demands, liabilities, expenses, judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative (each a “Claim”), in which the Covered Person may be involved, or threatened to be involved, as a party or otherwise, that relates to or arises out of the Partnership, the Subsidiaries or their respective property, business or affairs; provided, however, that a Covered Person shall not be entitled to indemnification under this Section 5.10(b) with respect to (A) any Claim in which it ultimately is determined that the Covered Person has engaged in fraud, willful misconduct, bad faith, gross negligence or, material breach of this Agreement, or knowing violation of law, (B) any Claim initiated by a Covered Person unless that Claim (or part thereof) was brought to enforce that Covered Person’s rights to indemnification under this Section 5.10(b), or (C) any Claim by the Partnership or any Partner against a Partner or that Partner’s officers, directors, shareholders, managers, members, employees, agents, subsidiaries and assigns unless the Covered Person is found not to be liable for such Claim.

          (ii) The Partnership shall pay in advance of the final disposition of any Claim for which a Covered Person is or may be entitled to indemnification under this Section 5.10(b) (other than those described in Section 5.9(b)(i)(C)) expenses incurred by that Covered Person in defending that Claim if, but only if, that Covered Person so requests and delivers to the Partnership an undertaking by or on behalf of that Covered Person to repay amounts so advanced if it ultimately is determined that the Covered Person is not entitled indemnification under this Section 5.10(b).

          (iii) Promptly after receipt by a Covered Person of notice of the commencement of any proceeding, such Covered Person shall, if a claim for indemnification in respect thereof is to be made against the Partnership, give written notice to the Partnership of the commencement of such proceeding, provided that the failure of any Covered Person to give such notice as provided herein shall not relieve the Partnership of its obligations under this Section 5.10(b) except to the extent the Partnership is actually prejudiced by such failure to give such notice. If any such proceeding is brought against a Covered Person (other than a derivative suit in right of the Partnership), the Partnership will be entitled to participate in and to assume, at its expense, the defense thereof to the extent the Partnership may wish, with counsel reasonably satisfactory to such Covered Person. After notice from the Partnership to such Covered Person of the Partnership’s election to assume the defense of such proceeding, the Partnership will not be liable for expenses subsequently incurred by

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such Covered Person in connection with the defense thereof, provided the Partnership diligently pursues such defense. The Partnership will not consent to entry of any judgment or enter into any settlement of such proceeding that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Covered Person of a release from all liability in respect to such proceeding and the related claim.

          (iv) The provisions of this Section 5.10 shall continue to afford protection to each Covered Person regardless of whether such Covered Person remains in the position or capacity pursuant to which such Covered Person became entitled to indemnification under this Section 5.10 and regardless of any subsequent amendment to this Agreement, and no amendment to this Agreement shall reduce or restrict the extent to which these indemnification provisions apply to actions taken or omissions made prior to the date of such amendment.

          (v) If the General Partner after reasonably considering the Partnership’s likely liability and the restrictions on distributions in the Act determines that it is appropriate or necessary to do so, the Partnership shall establish, with the prior approval of the Class B Limited Partner, reasonable reserves, escrow accounts or similar accounts to fund its obligations under this Section 5.10.

          (vi) The right of any Covered Person to the indemnification provided herein shall be cumulative with, and in addition to, any and all rights to which such Covered Person may otherwise be entitled by contract or as a matter of law or equity and shall extend to such Covered Person’s successors, assigns, heirs, and legal representatives. Notwithstanding anything else contained in this Agreement, the indemnity obligations of the Partnership under Section 5.10(b) shall:

          (A) be in addition to any liability that the Partnership may otherwise have;

     (B) extend upon the same terms and conditions to the officers, directors, members, managers, employees, Affiliates, stockholders, owners, agents, and representatives of each Covered Person;

     (C) be binding upon and inure to the benefit of any successors, assigns, heirs, and personal representatives of such Covered Person and any such Persons; and

     (D) be limited to the assets of the Partnership.

          (c) If any Covered Person or the Partnership itself is subject to any federal or state law, rule, or regulation which restricts the extent to which any Person may be exonerated or indemnified by the Partnership, the exoneration provisions set forth in Section 5.10(a) and the indemnification provisions set forth in Section 5.10(b) shall be deemed to be amended, automatically and without further action by the Partners, to the minimum extent necessary to conform to such restrictions.

     5.11 Operations on Partnership Properties. The General Partner or an Affiliate thereof, shall act as operator in connection with operations on the Properties and, subject to compliance with Section 5.7, receive compensation and reimbursement from the Partnership in connection therewith unless (i) another person is serving as operator under an agreement to which a Property is subject or (ii) any third party or third parties (not Affiliates of the General Partner) jointly owning such Property and with a controlling interest will not agree. As to those Properties with respect to which the General Partner is not the operator, the General Partner shall take such actions and exercise such rights and remedies that are reasonably available to it to cause the actual operator to properly develop, maintain and operate such Properties. As between the General Partner (or Affiliate) in its capacity as an operator, on the one hand, and the Partnership in its capacity as a non-operator, on the other hand, in no event shall the terms of any operating agreement to which the General Partner and the Partnership are parties vary or effect this Agreement or the duties and obligations of the

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General Partner hereunder (and in the event of any conflict between the terms and provisions of such operating agreement and this Agreement, the terms and provisions of this Agreement shall prevail).

     5.12 Partnership Expenses and Reimbursement. The Partnership will pay all direct, third party out-of-pocket costs and expenses related to the Partnership’s activities and operations, including legal, auditing, consulting and accounting expenses, and expenses incurred in connection with engineering reports prepared by third parties, and shall reimburse the General Partner for any of such costs and expenses of the Partnership that the General Partner funds.

     5.13 Force Majeure. If the General Partner is rendered unable, wholly or in part, by force majeure to carry out its obligations under this Agreement, other than its obligation to make money payments, the General Partner shall give prompt written notice to the Limited Partners of the force majeure with reasonably full particulars concerning it. Thereupon, the obligations of the General Partner hereunder, if and to the extent they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure. The General Partner shall use all reasonable diligence to remove the force majeure situation as quickly as practicable. As used herein, “force majeure” means an act of God, strike, lockout or other industrial disturbance, act of the public enemy, act of terrorism, war, blockade, public riot, lightening, fire, storm, flood, other act of nature, explosion, governmental action, governmental delay, or any other similar act or event which is not reasonably within the control of the General Partner.

ARTICLE VI
CERTAIN LIMITED PARTNER MATTERS

     6.1 Rights of Limited Partners. In addition to the other rights specifically set forth herein or by non-waivable provisions of applicable law, each Limited Partner shall have all rights of a limited partner under the Act (except to the extent otherwise specifically provided for herein).

     6.2 Limitations on Limited Partners. No Limited Partner shall have the authority or power in its capacity as a Limited Partner to act as agent for or on behalf of the Partnership or any other Partner, to do any act which would be binding on the Partnership or any other Partner, or to incur any expenditures on behalf of or with respect to the Partnership. The General Partner shall not hold out or represent to any third party that any Limited Partner has any such right or power or that a Limited Partner is anything other than a “limited partner” in the Partnership.

     6.3 Liability of Limited Partners. No Limited Partner shall be liable for the debts, liabilities, contracts, or other obligations of the Partnership except (i) in the instance of the Class B Limited Partner, to the extent of any unpaid Capital Contributions agreed to be made by it pursuant to Sections 3.1 and 3.2 and (ii) such Limited Partner’s share of the assets (including undistributed revenues) of the Partnership; and in all events, the Class B Limited Partner shall be liable and obligated to make payments of its Capital Contributions only as and when such payments are due in accordance with the terms of this Agreement, and no Limited Partner shall be required to make any loans to the Partnership. Except to the extent expressly provided in the preceding sentence, the Partnership shall indemnify and hold harmless each Limited Partner in the event it becomes liable for any debt, liability, contract, or other obligation of the Partnership.

     6.4 Agreements of the Partners. Each Partner hereby agrees as follows:

          (a) Further Cooperation. It will promptly execute all certificates and other instruments as shall be reasonably necessary for the Partnership to accomplish all filing, recording, publishing, and other acts appropriate to comply with all requirements for the operation of a limited partnership under the laws of the State of Texas and all other jurisdictions where the Partnership shall propose to conduct business.

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          (b) Tax Position. It will not adopt any position on its federal income tax returns as filed or amended which relate to the Partnership, or on any request for administrative adjustment, that is inconsistent with the Partnership’s Form 1065, Schedule K-1 as filed with the Internal Revenue Service.

          (c) Liens. Except in connection with the Senior Credit Facility, no Partner may grant a lien or otherwise pledge, hypothecate or grant a security interest or other encumbrance on any or all of its Interest.

          (d) Confidential Information. It agrees to hold in confidence and not disclose any Confidential Information. As used herein, the term “Confidential Information” shall mean any information that is obtained by that Partner from another Partner or the Partnership or in connection with an inspection or audit of the books and records or properties, including, any information regarding such Partner, the Partnership or any of their respective Affiliates, but shall not include information which (i) is or becomes generally available to the public other than as the result of a disclosure by that Partner, its Affiliates or any directors, officers, employees, or agents of that Partner or its Affiliates, or (ii) is or becomes available to that Partner on a non-confidential basis from a source other than another Partner, the Partnership, the General Partner or its Affiliates or any directors, officers, employees or agents of another Partner, the Partnership, the General Partner or its Affiliates; provided, however, such source is not known by that Partner after due inquiry to be bound by a confidentiality agreement with or other obligation of secrecy to or for the benefit of the Partnership, any Partner, the General Partner or any Affiliate thereof. Notwithstanding the foregoing or anything else herein to the contrary, it is specifically understood and agreed that a Partner may disclose Confidential Information to (A) that Partner’s (or that Partner’s Affiliates’) officers, directors, trustees, employees, legal counsel, accountants, or other professional consultants such information (with respect to whom the Partner shall remain responsible for the confidentiality of such Confidential Information); (B) any Person to which that Partner offers to sell its Interest or any part thereof, subject, however, to the prior receipt of a confidentiality agreement in favor of the Partnership and the other Partners from such proposed transferee that includes the terms embodied in this Section 6.4(d); (C) any governmental, administrative, or regulatory authority having or asserting jurisdiction over that Partner; or (D) any other Person to whom such delivery or disclosure may be necessary (1) in compliance with any law, rule, regulation, or order applicable to that Partner, (2) in response to any subpoena or other legal process, or (3) in connection with any proceeding, arbitration, case, or matter pending in any court or tribunal or any governmental agency, commission, authority, board, or similar entity. The General Partner shall maintain as confidential all Confidential information concerning the Partnership, expect as otherwise permitted above.

     6.5 Limited Partner Not a Fiduciary. No Limited Partner, in its capacity as such, shall owe any fiduciary or other similar duty to the other Partners or the Partnership. Without limiting the foregoing, the Class B Limited Partner shall not, in the exercise of its rights under Section 5.6, be deemed to be a fiduciary or to owe any fiduciary or other similar duty to the other Partners or the Partnership.

     6.6 Outside Activities of Class B Limited Partner.

          (a) The Partners recognize that the Class B Limited Partner, Affiliate thereof, and their respective employees and agents (collectively, the “Class B Partner Related Parties”) (i) have participated (directly or indirectly) and will continue to participate (directly or indirectly) in venture capital and other direct investments in corporations, joint ventures, limited liability companies and other entities (in this Section 6.6, “Other Investments”), including Other Investments engaged in various aspects of the oil and gas industry that may be competitive with the Partnership’s business, (B) may have interests in, participate with, aid and maintain seats on the board of directors or similar governing bodies of Other Investments and (C) may develop opportunities for Other Investments. In connection with their participation in Other Investments, the Class B Partner Related Parties and their respective representatives may become aware of business opportunities that could be suitable for the Partnership, but the Partners (and the Partners on behalf of the Partnership) expressly acknowledge that the Class B Partner Related Parties and their respective

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representatives will not have any duty to disclose to the Partnership any such business opportunities, whether or not competitive with the Partnership’s business and whether or not the Partnership might be interested in such business opportunity for itself. The Partners (and the Partners on behalf of the Partnership) also acknowledge that the Class B Partner Related Parties and their representatives have duties not to disclose confidential information of or related to the Other Investments.

          (b) The Partners (and the Partners on behalf of the Partnership) hereby:

          (i) agree that (A) the terms of this Section 6.6, to the extent that they modify or limit a duty, if any, that a Class B Partner Related Party may have to the Partnership or another Partner, are reasonable in form, scope and content; and (B) the terms of this Section 6.6 shall control to the fullest extent possible if it is in conflict with the duties, if any, with respect to a Class B Partner Related Party to the Partnership or another Partner, the Act or any other applicable law, rule or regulation; and

          (ii) waive, to the fullest extent possible, a duty, if any, that a Class B Partner Related Party may have to the Partnership or another Partner, pursuant to the Act or any other applicable law, rule or regulation to the extent necessary to give effect to the terms of this Section 6.6. It is expressly acknowledged and affirmed by the Partners (and the Partners on behalf of the Partnership) that the execution and delivery of this Agreement by the Class B Limited Partner is of material benefit to the Partnership and the Partners and that the Class B Limited Partner would not be willing to execute and deliver this Agreement without the benefit of this Section 6.6.

          (c) The terms of this Section 6.6 shall not, as to the Class B Limited Partner, limit or modify the terms of Section 6.5.

     6.7 Other Activities of Class A Limited Partners. Any Tag Along Partner (as defined in Section 7.2(b)) may engage or possess an interest in other business ventures of every nature and description, independently or with others, including, without limitation, businesses that are similar to the businesses of the Partnership, even if in competition with the Partnership (subject however in all respects with the covenant of confidentiality under Section 6.4(d)), and neither the Partnership nor any of the other Partners shall have any right by virtue of this Agreement in and to such other ventures or to the income of property derived therefrom.

ARTICLE VII
TRANSFERS OF INTERESTS AND WITHDRAWALS; REMOVAL OF GENERAL PARTNER

     7.1 General Transfer Provisions

          (a) In General. Notwithstanding any other provision of this Agreement, no Partner may Transfer in any manner whatsoever all or any part of its Interest, except for (i) Transfers made in accordance with the provisions of this ARTICLE VII or (ii) Transfers made with the prior written consent of all Partners, such consent not to be unreasonably withheld. Any purported Transfer by a Partner or any assignee that is not in compliance with this Agreement is hereby declared to be null and void and of no force or effect whatsoever.

          (b) It is hereby acknowledged and agreed to by all Partners of the Partnership, other than Partners who are individuals and Partners that were Warrant Holders, that any Transfer of any interest in a Partner shall be subject to this ARTICLE VII. All Partners, other than Partners who are individuals, and Partners that were Warrant Holders shall include appropriate provisions in their governing documents to restrict the Transfer of interests in the Partners pursuant to this ARTICLE VII.

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          (c) Record Owner. The Partnership shall be entitled to treat the record owner of any Limited Partner’s Interest as the absolute owner thereof in all respects and shall incur no liability for distributions of cash or other property made in good faith to such owner until such time as a written assignment of such Interest that complies with the terms of this Agreement has been received by the Partnership.

     7.2 Transfers by Class A Limited Partners

          (a) Transfers by Class A Limited Partners — Individuals. Notwithstanding the provisions of Section 7.1 above, a Class A Limited Partner who is an individual may Transfer all or any part of its Interest to its individual owners or to his (or an individual owner’s) spouse, his parents, his children, his grandchildren, his brothers, his sisters or to a trust for the benefit of any of the aforementioned parties (herein called an “Individual Permitted Transferee”). A Transfer to an Individual Permitted Transferee may be by will or intestate succession or by inter vivos Transfer. Any inter vivos Transfer made pursuant to this Section 7.2 shall not become effective until the other Partners have received from the Individual Permitted Transferee an irrevocable power of attorney appointing the Class A Limited Partner transferring such Interest or portion thereof as the attorney-in fact for said Individual Permitted Transferee with full power and authority to deal in any way with such Interest, or portion thereof, as the case may be. Further, the power of attorney shall provide that in the event of the death of the attorney-in-fact the Individual Permitted Transferee will within 90 days after said death appoint one person to deal with the Interest of all of the Individual Permitted Transferees and having failed to do so the General Partner shall have the right to appoint a substitute attorney-in-fact to deal with such Interest or portion thereof, as the case may be. Said power of attorney shall be binding upon the Individual Permitted Transferee, his heirs, successors and assigns. A Transfer pursuant to this Section 7.2 shall not relieve the transferor from any of its obligations to the Partnership under this Agreement.

          (b) Transfers by Class A Limited Partners — Other. Notwithstanding the provisions of Section 7.1 above, a Class A Limited Partner who was a Warrant Holder (or whose predecessor in interest was a Warrant Holder, herein called a “Tag Along Partner” ) may, upon prior written notice to each of the other Partners, Transfer all or any part of its Interest to an Affiliate (herein called an “Other Permitted Transferee”) without the consent of any of the other Partners.

          (c) Tag Along Partner Put Option.

          (i) In connection with any Class B Buyout (without regard to whether such purchase is in connection with a Liquidity Request or otherwise), each Tag Along Partner shall have the option (and may exercise such option independent of any other Tag Along Partner) to:

     (A) elect to participate as a Class B Buyout Participant in the Class B Buyout on a pro rata basis,

     (B) irrevocably elect to sell all but not less than all of its Interest to the Class B Buyout Participants and, in such case, the Class B Buyout Participants shall have an obligation to (or, in the case of a Class B Buyout Participant that is not a Class A Limited Partner, the Class A Limited Partner that is an Affiliate of such Person shall have an obligation to cause such Class B Buyout Participant to) purchase such Interest on the terms provided herein (the “Put Right”), or

     (C) take neither action.

     (ii) The Class B Buyout Participants shall (or, in the case of a Class B Buyout Participant that is not a Class A Limited Partner, the Class A Limited Partner that is an Affiliate of such Person shall cause such Class B Buyout Participant to) give each of the Tag Along Partners at least 15 days prior written notice of any Class B Buyout.

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     (iii) In the event that a Tag Along Partner elects to exercise its Put Right, such Tag Along Partner’s Interest shall be sold to the Class B Buyout Participants on substantially the same terms and Class B Interest Sale Price offered in connection with the Class B Buyout. The value of each Tag Along Partner’s Put Right shall be equal to (A) the Percentage Interest owned by such Tag Along Partner multiplied by (B) an amount equal to (1) the Implied Total Enterprise Equity Value minus (2) the Class B Interest Sale Price. The “Implied Total Enterprise Equity Value” shall be determined by grossing up, in accordance with Section 4.2(a) or (b), the Class B Interest Sale Price by taking into effect for timing and amounts the initial and future contributions by the Class B Partner(s) and the cash distributions to the Class B Partner(s) as described in Sections 4.1 or 4.2, as applicable. Schedule 7.2 provides examples of the determination of the Implied Total Enterprise Equity Value by grossing up, in accordance with Section 4.2(a) or (b), the Class B Interest Sale Price. For the avoidance of all doubt, no debt owed by the Partnership to any Person will impact the calculation of the Implied Total Enterprise Equity Value. The Put Right shall be binding upon the Tag Along Partner and the Class B Buyout Participants only in the event the Class B Limited Partner accepts the Class B Buyout and shall be subject to the condition of a simultaneous closing of the Class B Buyout. In such event, the purchase and sale of the Tag Along Partner’s Interest shall be subject to the provisions under Section 5.6(b)(iii) regarding the negotiation, documentation and closing of such purchase as if the Class B Buyout was a Valid Offer. If the Class B Limited Partner rejects the Class B Buyout or revokes its acceptance pursuant to Section 5.6(b)(iii) (as if the Class B Buyout had been a Valid Offer), the Class B Buyout Participants shall have no obligation to purchase the Tag Along Partner’s Interest. In the event the Class B Buyout is not consummated, each Tag Along Partner shall continue to hold a Put Right in the event of any subsequent Class B Buyout.

     (d) Drag Along of Class A Limited Partners Under Certain Circumstances. In the event that General Partner and a majority of the Class A Limited Partners elect to sell their Interests along with the Class B Limited Partner’s sale of its Interest to any Person, then the General Partner shall give written notice to the remaining Class A Limited Partners. Upon receipt of such written notice, each of the remaining Class A Limited Partners, including Limited Partners that were previously Warrant Holders (in the event they had not already elected to sell with the majority Class A Limited Partners), will abide by the same terms of sale negotiated by the General Partner and the majority Class A Limited Partners and sell their Interests for an amount equal to their pro rata share of the amount attributable to all of the Class A Limited Partner Interests, in the aggregate. For the avoidance of all doubt, each of the Class A Limited Partners agrees that, for purposes of allocating the sales proceeds attributable to all of the Class A Limited Partner Interests under this Section 7.2(d), the pro rata share of such sales proceeds attributable to the Interests of Class A Limited Partners that were previously Warrant Holders will not be reduced by (or otherwise bear any economic burden associated with) amounts used by the Partnership to repay any Related Party Subordinated Debt.

     7.3 Right of First Offer.

          (a) Notice. If any Limited Partner desires to sell or otherwise Transfer its Interests, or any portion thereof, such Limited Partner (the “Offering Partner”) shall give written notice (the “Offering Notice”) to the other Partners prior to offering its Interests , or any portion thereof, to other Persons. The Offering Notice shall set forth the Offering Partner’s Interests, or portion thereof, that it desires to sell (the “Offered Interest”)

          (b) Options of the Partners. The other Partners (or one or more but not all of the other Partners, as provided below) shall have the option, exercisable within 30 days after receipt of the Offering Notice (the “Offer Date”), to submit to the Offering Partner a written offer to purchase the Offered Interest

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(the “ROFO Offer”). Initially, each other Partner shall have the right to participate in a ROFO Offer on a Pro Rata basis. However, if a Partner does not wish to participate, the other Partners that wish to participate in such ROFO Offer (the “ROFO Partners”) may apportion the declining other Partner’s right to participate in a manner determined by the majority of them based upon their relative pro-rata Interests. To be effective (a “Valid ROFO Offer”), the ROFO Offer must specify substantially the same material terms and conditions including proposed purchase price and financing sources for the Offered Interest as required under Section 5.6(b)(i) for a “Valid Offer”. Upon receipt of a Valid ROFO Offer, the Offering Partner shall have the right to accept or decline the Valid ROFO Offer, which election must be made within 10 days of receipt of the Valid ROFO Offer.

          (c) Closing. If the Offering Partner accepts the Valid ROFO Offer, the ROFO Partners and the Offering Partner shall use their good faith efforts to promptly negotiate and execute definitive documentation governing the purchase and sale of the Offered Interest on terms set forth in the Valid ROFO Offer and to close such purchase and sale (the “ROFO Closing Date”) within 60 days after such acceptance. At such closing, (i) the Offering Partner shall assign its Interest being sold to the ROFO Partners, free and clear of all liens, claims, and encumbrances, and shall execute and deliver to the ROFO Partners all documents which may be reasonably required to give effect to such purchase and sale; and (ii) the ROFO Partners shall pay to the Offering Partner the purchase price as provided in the Offering Notice.

          (d) Right to Sell. If (i) the other Partners do not submit a Valid ROFO Offer, (ii) the other Partners submit a Valid ROFO Offer, but the Offering Partner rejects the ROFO Offer, or (iii) other Partners submit a Valid ROFO Offer, the Offering Partner accepts the ROFO Offer, but the purchase and sale contemplated thereby is not closed within the time period specified in Section 7.3(c) through no fault of the Offering Partner, the Offering Partner shall have the right, within 90 days from (A) in the instance of clause (i) or clause (ii) above, the Offer Date, or (B) in the instance of clause (iii) above, the ROFO Closing Date, to Transfer the Offered Interest to any Person without the consent of any of the other Partners and on terms and conditions and a price that are no more favorable to the purchaser, considered in the aggregate, than the terms and conditions and price stated in the Offering Notice, considered in the aggregate. The Offering Partner may not transfer the Offered Interest on or after the applicable 90-day period specified in the immediately preceding sentence without first again complying with the provisions of this Section 7.3.

          (e) This Section 7.3 (i) shall not apply to the sale of any Interests pursuant to any Liquidity Event approved pursuant to this Agreement and (ii) shall be superseded by the terms and provisions of Section 5.6.

     7.4 Assignee’s Rights.

          (a) Any transferee to whom all or any part of an Interest may be Transferred in accordance with this ARTICLE VII (“Assignee”) shall take such Interest subject to all of the terms and conditions of this Agreement and, subject to Section 7.4(d) below, shall not be considered to have title thereto and to have been admitted to the Partnership as a Partner until such Assignee’s admission to the Partnership shall have been approved by the other Limited Partners and such Assignee shall have accepted and assumed the terms and conditions of this Agreement by a written agreement to that effect delivered to the General Partner, at which time such Assignee shall be admitted as a substitute Partner and shall succeed to all rights and obligations of his transferor.

          (b) Unless an Assignee becomes a substitute Partner in accordance with the provisions of this ARTICLE VII, it shall not be entitled to any of the rights (including voting rights) granted to a Partner hereunder or under the Act, other than the right to receive the share of distributions and any other items attributable to a Partner’s Interest to which its assignor would otherwise be entitled.

          (c) Any Partner that Transfers all of its Interest shall cease to be a Partner.

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          (d) With respect to each Assignee that (i) is an Other Permitted Transferee or (ii) acquires its interest from an Offering Partner in accordance with Section 7.3 above, each of the other Partners agrees to execute, upon the written request of the Transferring Partner, such documents as may be reasonably necessary to admit such Assignee as a successor Partner.

     7.5 Withdrawal by Limited Partners. No Limited Partner shall be entitled to (a) withdraw from the Partnership except upon the Transfer by the Limited Partner of all of its Interest and the substitution of that Limited Partner’s assignee as a Limited Partner of the Partnership in accordance with this ARTICLE VII, or (b) the return of its Capital Contributions, except to the extent expressly provided for in this Agreement.

     7.6 Withdrawal by General Partner. The General Partner covenants and agrees not to withdraw voluntarily from the Partnership, either directly, by dissolution, by Transfer of its Interest or by any other voluntary act.

     7.7 Removal of General Partner.

          (a) Subject to the provisions hereof, the Class B Limited Partner may remove the General Partner with cause and select a new General Partner to operate and carry on the business and affairs of the Partnership. As used in this Section 7.7, “with cause” means the occurrence of any of the following: (i) the commission by the General Partner of fraud, willful or intentional misconduct or gross negligence in the performance of its duties hereunder; (ii) subject to Section 5.13, a default by the General Partner in the performance or observation of any material agreement, covenant, term, condition or obligation under this Agreement, which default is not cured within 30 days after notice in writing from the Class B Limited Partner to the General Partner or such greater number of days as is reasonably necessary to cure such default with reasonable diligence, (iii) a material representation or warranty made by the General Partner herein or by the General Partner or any of its officers in any writing furnished in connection with or pursuant to this Agreement shall be false in any respect on the date as of which made; (iv) the occurrence of any of the events described in Section 17-402(a)(4) or Section 17-402(a)(5) of the Act (except that with respect to Section 17-402(a)(5), the operative number of days shall be 60 instead of the numbers set forth in such section); (v) the dissolution (or other similar event) of the General Partner; and (vi) the death, insanity, legal disability, bankruptcy or insolvency of a Key Person or the resignation, retirement or removal of a Key Person a Key Person is not otherwise actively involved in the day-to-day management of the business and operations of the General Partner and the Partnership and such Key Person is not replaced by another officer reasonably acceptable to Class B Limited Partner within 90 days following such event.

          (b) In the event the Class B Limited Partner elects to remove the General Partner in accordance with the provisions of this Section 7.7(a), any successor General Partner will be named in, and its appointment as such will be effective as of a date specified in, a notice to the General Partner from the Class B Limited Partner exercising its right to remove the General Partner and select the successor General Partner. The removal of the General Partner shall be effective when the following conditions have been satisfied: (i) a successor General Partner shall have been selected and shall have agreed to accept the responsibilities of a General Partner; and (ii) this Agreement and the Certificate of Limited Partnership of the Partnership shall have been duly amended to name the new General Partner. To the extent required by the laws of any jurisdiction to which the Partnership or this Agreement is subject, the Partners hereby unanimously consent to the admission of such successor General Partner and hereby appoint such successor General Partner as the agent and attorney in fact for each Partner (including the retiring General Partner) for the purpose of signing, swearing to and filing an amendment to the certificate of limited partnership of the Partnership and all other necessary or appropriate documents in connection with the substitution of such successor General Partner.

          (c) The provisions of this Section 7.7 shall not be the sole remedy of the Class B Limited Partner and the other Limited Partners) in the event the General Partner is removed with cause, and in such event the Partnership or the Limited Partners shall have all other rights and remedies as shall be available to

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them pursuant to this Agreement, at law or in equity to redress any wrong or damage arising from the event or circumstances giving rise to the General Partner’s removal with cause.

          (d) In the event the General Partner is removed as provided in this Section 7.7(d), the removed General Partner’s Interest shall be converted to a limited partner interest in the Partnership and the removed General Partner shall continue as a limited partner of the Partnership, but without any right to vote, consent, approve or otherwise make any determination under this Agreement; provided, that after such conversion any amendment to this Agreement that would change (a) the status of the removed General Partner as a limited partner hereof, (b) the removed General Partner’s participation in the income, gain, loss, credits or distributions of the Partnership, (c) the removed General Partner’s obligation to contribute capital to the Partnership, or (d) this proviso, shall require the written consent of the removed General Partner.

ARTICLE VIII
BOOKS, RECORDS, REPORTS, BANK ACCOUNTS

     8.1 Books and Records. The Partnership shall keep books of account and records in accordance with GAAP. Such books and records shall be maintained at the principal office of the Partnership. Each Partner is entitled to all information to which that Partner is entitled to have access to pursuant to the Act, under the circumstances stated therein. Upon request, the General Partner shall supply to the Partners information reasonably requested regarding the Partnership or its activities. The Class B Limited Partner and any Class A Limited Partner shall have the right to audit any and all financial and operational records with respect to the Properties, the Partnership and its Subsidiaries and their respective operations. The Class B Limited Partner, any Class A Limited Partner and their respective representatives, during ordinary business hours, shall have reasonable access to all books, records, and materials in the Partnership’s office regarding the Properties, the Partnership and its Subsidiaries and their respective operations. The calendar year shall be the accounting year of the Partnership, and the books of account shall be maintained on an accrual basis.

     8.2 Annual Reports. The General Partner shall deliver to the Limited Partners the following financial information:

          (a) Accounting Reports. Unless otherwise approved by the Class B Limited Partner, within 120 days after the end of each Fiscal Year, the General Partner shall cause the Partnership’s independent certified public accountants to prepare and deliver to each Partner an audited financial report for such Fiscal Year, prepared in accordance with GAAP, setting forth: (i) a statement of assets, liabilities, and partners’ equity of the Partnership as of the end of such Fiscal Year, (ii) a statement of earnings for such Fiscal Year; and (iii) a statement of cash flows for such Fiscal Year, and any other information which the General Partner shall deem necessary, desirable, or appropriate, together with a statement of each Partner’s Capital Account. The independent certified public accountants for the Partnership shall be one of the firms of independent certified public accountants known as the “Big Four” or such other nationally recognized firm of independent certified public accountants approved by the Class B Limited Partner.

          (b) Tax Reports. Annual tax reporting information, as set forth in Section 8.3.

          (c) Engineering Reports.

          (i) Within 120 days after the end of each Fiscal Year, the General Partner shall cause to prepare and delivered to the Limited Partners an engineering report on the Properties in industry standard format setting forth estimates of future production and future cash flows from the Properties, prepared by an independent engineering firm approved by the Class B Limited Partner.

          (ii) Within 60 days after the end of each of the first three quarters of each Fiscal Year, the General Partner shall cause to be prepared and delivered to the Limited Partners an

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internally prepared engineering report on the Properties in industry standard format setting forth estimates of future production and future cash flows from the Properties.

          (d) Operating Reports. Within 20 days after the end of each calendar month, the General Partner shall cause to be prepared and delivered to each Limited Partner such information that is necessary to adequately inform the Limited Partners of the ongoing performance of the Partnership and its Subsidiaries and the Properties.

     8.3 Tax Returns. The General Partner shall prepare and timely file all federal, state and local income and other tax returns and reports as may be required as a result of the business of the Partnership. The General Partner shall use its commercially reasonable efforts to (a) provide the Partners a good faith estimate of the Partners’ allocable shares of taxable income, loss, gain, and credits on or before March 1 of each year, (b) provide to each Partner a copy of the federal income tax return it intends to file on or before June 15 of each year, and (c) furnish to each Partner its Schedule K-1 to Form 1065 on or before June 15 of each year, and (d) file the Partnership’s federal income tax return on or before June 15 of each year.

     8.4 Bank Accounts. The General Partner shall maintain one or more accounts in the name of the Partnership in one or more banks, which accounts shall be used for the payment of expenditures incurred by the Partnership in connection with the business of the Partnership and in which shall be deposited any and all receipts of the Partnership. All amounts shall be and remain the property of the Partnership and shall be received, held and disbursed by the General Partner only for the purposes specified in this Agreement. There shall not be deposited in any of such accounts any funds other than funds belonging to the Partnership, and no other funds shall in any way be commingled with such funds.

ARTICLE IX
DISSOLUTION, LIQUIDATION AND TERMINATION

     9.1 Dissolution. The Partnership shall be dissolved upon the occurrence of any of the following (each, an “Event of Dissolution”):

          (a) the consent in writing signed by all the Partners;

          (b) the sale or other disposition of all or substantially all of the Partnership’s assets;

          (c) the entry of a final judgment, order or decree of a court of competent jurisdiction adjudicating the Partnership to be bankrupt and the expiration without appeal of the period, if any, allowed by applicable law in which to appeal;

          (d) the entry of a judicial order dissolving the Partnership in accordance with Section 8.02 of the Act;

          (e) any withdrawal or retirement from the Partnership by the General Partner;

          (f) the election of the Class B Limited Partner by written notice to the General Partner if at the time such notice is given (i) the General Partner has committed fraud, willful or intentional misconduct or gross negligence in the performance of its duties hereunder, (ii) subject to Section 5.13, the General Partner is in default in the performance or observation of any material agreement, covenant, term, condition or obligation under this Agreement, which default is not cured within 30 days after notice in writing from the Class B Limited Partner to the General Partner or such greater number of days as is reasonably necessary to cure such default with reasonable diligence, or (iii) a material representation or warranty made by the General Partner herein or by the General Partner or any of its officers in any writing furnished in connection with or pursuant to this Agreement shall be false in any respect on the date as of which made; or

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          (g) the election of the Class B Limited Partner by written notice to the General Partner upon (i) the dissolution (or other similar event) of the General Partner; or (ii) the death, insanity, legal disability, bankruptcy or insolvency of a Key Person, or the resignation, retirement or removal of a Key Person or a Key Person is not otherwise actively involved in the day-to-day management of the business and operations of the General Partner and the Partnership and such Key Person is not replaced by another officer reasonably acceptable to Class B Limited Partner within 90 days following such event.

     9.2 Continuation. Upon the withdrawal or retirement from the Partnership of the General Partner, the business of the Partnership will be continued if within 90 calendar days the Class B Limited Partner elects by written action to continue the business of the Partnership and designate one or more Persons to be a General Partner of the Partnership. If the business of the Partnership is continued, the interest of the General Partner will be converted to that of a Limited Partner. If the Class B Limited Partner fail to continue the Partnership’s business as provided in this Section 9.2, the Partnership will be liquidated under Section 9.3.

     9.3 Winding-Up

          (a) Upon the happening of any of the events specified in Section 9.1 and, if applicable, the failure to continue the business of the Partnership under Section 9.2, the Partnership shall be dissolved and wound-up. In connection with the dissolution and winding-up of the Partnership, the General Partner, or in the event dissolution results from an event described in Section 9.1(e), Section 9.1(f) or Section 9.1(g), any liquidating trustee elected by the Class B Limited Partner (either, the “Liquidator”) shall proceed with the sale or liquidation of all of the assets of the Partnership (including the conversion to cash or cash equivalents of its notes or accounts receivable) and shall apply and distribute the proceeds of such sale or liquidation in the following order of priority, unless otherwise required by mandatory provisions of applicable law:

          (i) first, to pay (or to make provision for payment) in satisfaction of all obligations of the Partnership for all expenses of such liquidation;

          (ii) second, to pay (or to make provision for the payment of) all creditors of the Partnership (including Partners who are creditors of the Partnership but only to the extent the obligation owed to such Partner is not part of the Related Party Subordinated Debt) in the order of priority provided by law or otherwise, in satisfaction of all debts, liabilities or obligations of the Partnership due such creditors;

          (iii) third, to the establishment of any reserve which the Liquidator may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Partnership (such reserve may be paid over by the Liquidator to an escrow agent chosen by the Liquidator, to be held for disbursement in payment of any of the aforementioned liabilities and, at the expiration of such period as shall be deemed advisable by the Liquidator, for distribution of the balance in the manner hereinafter provided in this Section 9.3); and

          (iv) fourth, after the payment (or the provision for payment) of all debts, liabilities and obligations of the Partnership in accordance with each of the clauses above, to the Partners or their legal representatives in accordance with Section 4.2 (including the provisions of Section 4.5(d) with respect to payment of any Related Party Subordinated Debt), no later than the end of the Fiscal Year in which the Event of Dissolution occurs or, if later, within 90 days after the date of the liquidation of the Partnership.

          (b) If the Liquidator is someone appointed by the Class B Limited Partner as provided above, the General Partner shall act in good faith and cooperate in all respects with the Liquidator in connection with the liquidation and winding up of the Partnership, including the process of marketing and selling the Partnership’s assets to a third party or parties.

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          (c) In connection with the liquidation of the Partnership, the Liquidator shall determine if, as a result of tax distributions made by the Partnership to a Partner pursuant to Section 4.3, a Partner has received aggregate distributions from the Partnership since the formation of the Partnership in excess of the amount that such Partner would have otherwise received hereunder in the absence of Section 4.3 (the amount of such excess distributions, if any, as determined with reference to a Partner, being called “Excess Distributions”). If a Partner has received Excess Distributions, such Partner shall contribute to the Partnership cash equal to the Excess Distributions within 15 Business Days after request for same is received by the Liquidator. Any Capital Contribution made by a Partner pursuant to this Section 9.3(c) shall be distributed to the other Partners in such a manner so that each Partner has received the amount of distributions that such Partner would have received since the formation of the Partnership if distributions had been made in the absence of Section 4.3.

          (d) If a sale of the Partnership is structured as a sale of Interests (whether a direct sale, a merger, an exchange of interests, or other similar transaction), the amount of the aggregate purchase price to be allocated among the Partners shall be determined in a manner consistent with the amounts that would have been distributed to the Partners if the Partnership had been liquidated in accordance with this Section 9.3 and if the total liquidating distributions with respect to all Interests had equaled the aggregate purchase price being paid for all the Interests.

     9.4 Distributions in Cash or in Kind. Upon dissolution, the Liquidator may in its sole and absolute discretion (a) liquidate all or a portion of the Partnership assets and apply the proceeds of such liquidation in the manner set forth in Section 9.3 and/or (b) hire independent appraisers to appraise the value of Partnership assets not sold or otherwise disposed of or determine the Book Value of such assets, and allocate any unrealized gain or loss determined by such appraisal to the Partners’ respective Capital Accounts as though the properties in question had been sold on the date of distribution and, after giving effect to any such adjustment, distribute said assets in the manner set forth in Section 9.3; provided that the Liquidator shall in good faith attempt to liquidate sufficient Partnership assets to satisfy in cash the debts and liabilities described in Section 9.3.

     9.5 Time for Liquidation. A reasonable amount of time shall be allowed for the orderly liquidation of the assets of the Partnership and the discharge of liabilities to creditors so as to enable the Liquidator to minimize the losses attendant upon such liquidation.

     9.6 Cancellation of Certificate. Upon the completion of the distribution of Partnership assets as provided herein, the Partnership shall be terminated, and the Liquidator (or the Partners if necessary) shall cause the cancellation of the Certificate of Limited Partnership and shall take such other actions as may be necessary to terminate the Partnership.

ARTICLE X
MISCELLANEOUS

     10.1 Notices. All notices, elections, demands or other communications required or permitted to be made or given pursuant to this Agreement shall be in writing and shall be considered as properly given or made if given by (a) personal delivery, (b) overnight delivery service with proof of delivery, (c) facsimile (provided that such facsimile is confirmed), or (d) electronic transmission if acknowledgement thereof is received by the sender. When in this Agreement it is provided that a time period shall commence when a notice is received, such time period shall commence (i) upon actual receipt by the addressee if by personal delivery or overnight delivery service; (ii) at the time of the confirmation of receipt, if by facsimile; or (iii) upon telephone confirmation by the sender that an addressee has received an electronic transmission. Each Partner’s address for notices and other communications hereunder shall be that set forth on Exhibit B. A Partner may change its address by giving notice in writing to the other Partners and the Partnership of its new address.

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     10.2 Amendments. Except as otherwise provided herein, including without limitation, Section 5.6(b)(iii), this Agreement may be amended, or any provision hereof waived, only with the written consent of each of the General Partner, a Supermajority-in-Interest and the Class B Limited Partner; provided, however, that no such amendment or waiver shall materially and adversely affect disproportionately the rights hereunder of any Limited Partner when compared with its effect on any other Limited Partner without the prior written approval of such disadvantaged Limited Partner.

     10.3 Partition. Each of the Partners hereby irrevocably waives for the term of the Partnership any right that such Partner may have to maintain any action for partition with respect to any assets or properties of the Partnership.

     10.4 Entire Agreement. This Agreement constitutes the complete and exclusive statement of the agreement between and among the Partners and replaces and supersedes all prior agreements, except for any agreement executed contemporaneously herewith by and among the Partners, or any of them, including the Contribution Agreement. Except as otherwise provided herein, this Agreement supersedes all written and oral statements, and no representation, statement, condition, or warranty not contained in this Agreement or the Contribution Agreement shall be binding on the Partners or have any force or effect whatsoever.

     10.5 No Waiver. The failure of any Partner to insist upon strict performance of a covenant hereunder or of any obligation hereunder, irrespective of the length of time for which such failure continues, shall not be a waiver of that Partner’s right to demand strict compliance in the future. No consent or waiver, express or implied, to or of any breach or default in the performance of any obligation hereunder shall constitute a consent or waiver to or of any other breach or default in the performance of the same or any other obligation hereunder.

     10.6 Applicable Law; Submission to Jurisdiction. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED, CONSTRUED, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. EACH PARTNER IRREVOCABLY CONSENTS AND AGREES THAT (I) ANY ACTION BROUGHT TO COMPEL ARBITRATION OR IN AID OF ARBITRATION IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT, (II) ANY ACTION CONFIRMING AND ENTERING JUDGMENT UPON ANY ARBITRATION AWARD, AND (III) ANY ACTION FOR TEMPORARY INJUNCTIVE RELIEF TO MAINTAIN THE STATUS QUO OR PREVENT IRREPARABLE HARM, MAY BE BROUGHT IN THE STATE AND FEDERAL COURTS OF THE STATE OF TEXAS AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTNER HEREBY SUBMITS TO AND ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND APPELLATE COURTS THEREOF. EACH PARTNER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY CERTIFIED OR REGISTERED MAIL RETURN RECEIPT REQUESTED OR BY RECEIPTED COURIER SERVICE IN THE MANNER SET FORTH IN SECTION 10.1.

     10.7 Successors and Assigns. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

     10.8 Exhibits. All of Exhibits attached hereto are incorporated herein by reference and made a part hereof for all purposes, and references to this Agreement shall also include such Exhibits unless the context in which used shall otherwise require.

     10.9 Survival of Representations and Warranties. All representations, warranties and covenants made by any party to this Agreement or any other document contemplated thereby or hereby shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of

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this Agreement or such other document, regardless of any investigation made by or on behalf of any such party.

     10.10 No Third Party Benefit. Except for the rights of Covered Persons provided in this Agreement, nothing in this Agreement, either express or implied, is intended to or shall confer upon any Person other than the parties hereto, and their respective successors and permitted assigns, any rights, benefits, or remedies of any nature whatsoever under or by reason of this Agreement.

     10.11 Filings. Prior to conducting any business in any jurisdiction, the General Partner shall to the full extent necessary to establish limited liability for the Limited Partners under the laws of such jurisdiction and otherwise to comply with the laws of that jurisdiction, cause the Partnership to comply with all requirements for the registration or qualification of the Partnership to conduct business as a limited partnership (or a partnership in which the Limited Partners have limited liability) in that jurisdiction. Thereafter, the General Partner shall cause the Partnership to continue to comply with all such requirements and all other requirements necessary to maintain the limited liability of the Limited Partners in each jurisdiction where the Partnership does business.

     10.12 Remedies. Any remedies provided for in this Agreement shall be cumulative in nature and shall be in addition to any other remedies whatsoever (whether by operation of law, equity, contract or otherwise) which any party may otherwise have.

     10.13 Title to Property. All property owned by the Partnership, whether real or personal, tangible or intangible, shall be owned by the Partnership as an entity, and no Partner, individually, shall have any ownership of such Property owned by the Partnership. The Partnership shall hold all of its assets in the name of the Partnership.

     10.14 Expenses. On or promptly after the date hereof, the Partnership shall reimburse (i) the Class B Limited Partner for the reasonable fees, costs and expenses incurred by it and its Affiliates in connection with its determination to invest in, and become a limited partner of, the Partnership, including the fees, costs and expenses of (x) legal counsel in connection with the negotiation, preparation and execution of this Agreement and related documents or instruments, a due diligence investigation of the Partnership and its Properties and the closing of the transactions contemplated hereby and (y) environmental and other third party professionals and consultants and (ii) the General Partner for the reasonable fees, costs and expenses of legal counsel incurred by it in connection with the negotiation, preparation and execution of this Agreement and related documents or instruments and the closing of the transactions contemplated hereby. Thereafter, the Partnership shall also promptly reimburse the Class B Limited Partner for all out of pocket costs and expenses incurred by it in connection with its investment in the Partnership, subject to a per annum cap of $15,000.00.

     10.15. Publicity. Except as may be required by applicable law, neither the Partnership, on the one hand, nor any Partner , on the other hand, shall (and shall cause each of its Affiliates and its and their respective directors, officer, employees and agents not to), directly or indirectly, issue any press release or make any other public statement in any media (including any Internet-based medium) regarding the terms of , or the transactions contemplated by, this Agreement, or the identities of any of the Limited Partners, without having first received the prior written consent of the Partnership and the Partners.

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     IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the Effective Date.

GENERAL PARTNER:

ALTA MESA HOLDINGS GP, LLC
a Texas limited liability company  

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle, Chief Executive Officer

CLASS A LIMITED PARTNERS: ALTA MESA RESOURCES, LP, a Texas limited partnership
By:	Alta Mesa Resources GP, LLC, a Texas limited liability company, its sole general partner

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle, Chief Executive Officer

GALVESTON BAY RESOURCES HOLDINGS, LP, a Texas limited partnership
By:	Galveston Bay Resources Holdings GP, LLC, a Texas limited liability company, its sole general partner

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle, Chief Executive Officer

Signature Page 1
First Amended and Restated Agreement of Limited Partnership

     IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the Effective Date.

PETRO ACQUISITIONS HOLDINGS, LP, a Texas limited partnership
By:	Petro Acquisitions Holdings GP, LLC, a Texas limited liability company, its sole general partner

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle, Chief Executive Officer

PETRO OPERATING COMPANY HOLDINGS, INC., a Florida corporation
By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle, President

/s/ Harlan H. Chappelle

Harlan H. Chappelle 

/s/ Dale Hayes

Dale Hayes 

Signature Page 2
First Amended and Restated Agreement of Limited Partnership

     IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the Effective Date.

CLASS B LIMITED PARTNER: ALTA MESA INVESTMENT HOLDINGS INC.
By:	/s/ Carl J. Tricoli
	Carl J. Tricoli
	President

Signature Page 3
First Amended and Restated Agreement of Limited Partnership

EXHIBIT A

Defined Terms

     “Act” means the Texas Revised Limited Partnership Act, as amended from time to time, or any successor statute or statutes thereto.

     “Affiliate” means, with respect to any Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities of that Person, (b) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by that Person, (except, with respect to Section 7.2(c), the percentage ownership of outstanding securities shall be 15% or more), (c) any Person directly or indirectly controlling, controlled by, or under common control with that Person, and (d) any officer, director, partner, member, or manager of any Person described in subsections (a), (b), or (c) of this paragraph, and the term “control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management, activities or policies of any Person whether through the ownership of voting securities, by contract, employment, or otherwise.

     “Agreed Reserves” means a reserve of cash to pay reasonably anticipated future costs and liabilities of the Partnership, as agreed upon by the General Partner and the Class B Limited Partner.

     “Alta Mesa GP” has the meaning provided in the first paragraph of this Agreement.

     “Assignee” has the meaning provided in Section 7.4(a).

     “Available Cash” means all cash flow, receipts, and revenues generated by the Partnership of whatever source (including from financings) less the portion thereof used to pay Partnership costs and expenses and to fund Agreed Reserves.

     “Book Value” means with respect to any Partnership asset, the asset’s adjusted basis for federal income tax purposes, except that the Book Values of all Partnership assets shall be adjusted to equal their respective Fair Market Values, in accordance with the rules set forth in Section 1.704-1(b)(2)(iv)(f) of the Treasury Regulations, except as otherwise provided herein, immediately prior to: (a) the date of the acquisition of any additional Interest by any new or existing Partner in exchange for more than a de minimis Capital Contribution; (b) the date of the actual distribution of more than a de minimis amount of Partnership property (other than a pro rata distribution) to a Partner; or (c) the date of the actual liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury Regulations; provided that adjustments pursuant to clauses (a) and (b) above shall be made only if the General Partner determines in its sole discretion that such adjustments are necessary or appropriate to reflect the relative economic interests of the Partners. The Book Value of any Partnership asset distributed to any Partner shall be adjusted immediately prior to such distribution to equal its Fair Market Value. The Book Value of any Partnership asset shall be adjusted from time to time by the depreciation, amortization and cost recovery deductions calculated in the manner provided in the definition of Net Income and Net Loss and by Simulated Depletion, as applicable.

     “Budget” has the meaning provided in Section 5.4.

     “Business Day” means a day that is not a Saturday, Sunday, or a day on which banks in Houston, Texas are authorized or required by law to close.

     “Capital Account” has the meaning provided in Section 4.6.

Exhibit A-1

     “Capital Contributions” mean the cash and the fair market value of property other than cash (net of liabilities which the Partnership assumes or takes the property subject to) contributed to the capital of the Partnership by a Partner.

     “Certificate of Limited Partnership” has the meaning provided in the Recitals.

     “Claim” has the meaning provided in Section 5.10(b).

     “Class A Limited Partners” means the Limited Partners listed on Exhibit B as the Class A Limited Partners.

     “Class B Buyout” means any purchase at any time of the Class B Limited Partner Interest by any of the Class B Buyout Participants.

     “Class B Buyout Participants” means the Class A Limited Partners or one or more other Persons, any of whom is an Affiliate of any Class A Limited Partner that elect under Section 7.2(c) to participate in a Class B Buyout.

     “Class B Commitment” has the meaning provided in Section 3.2(b).

     “Class B Interest Sale Price” means, in connection with any Class B Buyout, the total consideration paid to the Class B Limited Partner without regard to the form(s) in which such consideration is paid.

     “Class B Limited Partner” means the Limited Partner listed on Exhibit B as the Class B Limited Partner, and in the event of the acquisition of the interest of the initial Class B Limited partner by one or more Class A Limited Partners in accordance with Section 5.6(b)(i) the term “Class B Limited Partner” will include, in the aggregate, the Class A Limited Partners that acquire such interest.

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

     “Confidential Information” has the meaning provided in Section 6.4(d).

     “Contribution Agreement Indemnity Obligation” shall mean any amount due and owing by the Partnership to an Investor Indemnified Party (as defined in the Contribution Agreement) pursuant to the terms and conditions of Article VI of the Contribution Agreement.

     “Contribution Amount” has the meaning provided in the Recitals.

     “Covered Person” has the meaning provided in Section 5.10(b).

     “Development Plan” has the meaning provided in Section 5.4.

     “Drawdown Notice” has the meaning provided in Section 3.2(c)(i).

     “Drawdowns” mean the Capital Contributions provided for in Section 3.2 and pursuant to the procedures set forth in Section 3.2 from time to time by the Class B Limited Partner pursuant to Drawdown Notices.

     “Effective Date” has the meaning provided in the first paragraph of this Agreement.

Exhibit A-2

     “Event of Dissolution” means any event set forth in Section 9.1.

     “Fair Market Value” means as to any other property on any date, the fair market value of such property on such date as determined in good faith by the General Partner and, in the instance of Section 5.6(b)(iv)(B), the Class B Limited Partner.

     “Fiscal Year” means the fiscal year of the Partnership, which shall be the calendar year.

     “Funding Date” has the meaning provided in Section 3.2.

     “GAAP” means those generally accepted accounting principles and practices consistently applied that are recognized in the United States of America as such by the Financial Accounting Standards Board (or any generally recognized successor thereto).

     “General Partner” means Alta Mesa GP, in its capacity as general partner of the Partnership, and any Person who becomes a replacement general partner of the Partnership pursuant to the terms hereof, but not any Person that has ceased to be a General Partner.

     “Implied Total Enterprise Equity Value” has the meaning given to that term in Section 7.2(c)(iii).

     “Individual Permitted Transferee” has the meaning given to that term in Section 7.2(a).

     “Interest” means, with respect to each Partner, a Partner’s entire ownership interest in the Partnership as a general partner or a limited partner (including, as a Class A Limited Partner or a Class B Limited Partner), as the case may be, and all rights and liabilities associated therewith, at any particular time, including, rights to distributions (liquidating or otherwise) and allocations.

     “IRR” means, when used with respect to the Class B Limited Partner, the aggregate internal rate of return of the Class B Limited Partner computed after all taxes imposed on the Partnership and its respective subsidiaries, but before any taxes imposed on the Class B Limited Partner. The internal rate of return is the discount rate that would set the Class B Limited Partner’s distributions from the Partnership equal to the Capital Contributions made by the Class B Limited Partner to the Partnership.

     “Key Person” means Mike Ellis and Harlan Chappelle.

     “Limited Partners” mean all Persons admitted as limited partners of the Partnership pursuant to this Agreement, including, all Class A Limited Partners or Class B Limited Partners, but not any Person who has ceased to be a Limited Partner pursuant to the terms hereof.

     “Liquidator” has the meaning provided in Section 9.3.

     “Liquidity Event” means any event in which the Partnership receives cash proceeds outside the ordinary course of the Partnership’s business, including (a) a sale of the Partnership and its Subsidiaries, whether structured as a merger or consolidation, share exchange, sale of Interests or the equity of the Subsidiaries, or a sale of all or substantially all of the assets of the Partnership and the Subsidiaries outside the normal course of business, (b) a public or private offering of the Interests or other public or private sale of debt or equity securities of the Partnership or a Subsidiary; and (c) a financing transaction or leveraged recapitalization of the Partnership or a Subsidiary.

     “Net Income and Net Loss” means for each Fiscal Year or other period, the taxable income or loss of the Partnership, or particular items thereof, determined in accordance with the accounting method used by the

Exhibit A-3

Partnership for federal income tax purposes with the following adjustments: (a) all items of income, gain, loss, deduction or expense specially allocated pursuant to Section 4.7(c) or Section 4.8 of this Agreement shall not be taken into account in computing such taxable income or loss; (b) any income of the Partnership that is exempt from federal income taxation and not otherwise taken into account in computing Net Income and Net Loss shall be added to such taxable income or loss; (c) if the Book Value of any asset differs from its adjusted tax basis for federal income tax purposes, any gain or loss resulting from a disposition of such asset shall be calculated with reference to such Book Value; (d) upon an adjustment to the Book Value of any asset pursuant to the definition of Book Value, the amount of the adjustment shall be included as gain or loss in computing such taxable income or loss; (e) if the Book Value of any asset differs from its adjusted tax basis for federal income tax purposes the amount of depreciation, amortization or cost recovery deductions with respect to such asset for purposes of determining Net Income and Net Loss shall be an amount which bears the same ratio to such Book Value as the federal income tax depreciation, amortization or other cost recovery deductions bears to such adjusted tax basis (provided that if the federal income tax depreciation, amortization or other cost recovery deduction is zero, the General Partner may use any reasonable method for purposes of determining depreciation, amortization or other cost recovery deductions in calculating Net Income and Net Loss); and (f) except for items in (a) above, any expenditures of the Partnership not deductible in computing taxable income or loss, not properly capitalizable and not otherwise taken into account in computing Net Income and Net Loss pursuant to this definition, shall be treated as deductible items. Simulated Depletion, Simulated Gain and Simulated Loss shall not be taken into account in computing Net Income and Net Loss.

     “Net Cash From a Liquidity Event” means the cash proceeds received by the Partnership from a Liquidity Event, minus all costs and expenses paid or incurred by the Partnership, and Agreed Reserves established, in connection with such Liquidity Event. “Net Cash From a Liquidity Event” shall be increased by any reductions of Agreed Reserves previously established.

     “Net Cash From Operations” means the gross cash proceeds from Partnership operations (including sales and dispositions of property in the ordinary course of business) less the portion thereof used to pay or fund Partnership costs, expenses, contract operating costs (including operators’ general and administrative expenses), marketing costs, debt payments, capital improvements, replacements, tax distributions to the Partners and Agreed Reserves. “Net Cash From Operations” shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of Agreed Reserves previously established. In addition, “Net Cash From Operations” shall not include any proceeds from Liquidity Events and shall not be reduced by any costs or expenses or reserves included in the calculation of Net Cash From a Liquidity Event.

     “Offering Interest” has the meaning provided in Section 7.3(a).

     “Offering Notice” has the meaning provided in Section 7.3(a).

     “Offering Partner” has the meaning provided in Section 7.3(a).

     “1x Return Amount” has the meaning provided in Section 4.1(a).

     “Original Agreement” has the meaning provided in the Recitals.

     “Other Permitted Transferee” has the meaning given to that term in Section 7.2(b).

     “Partners” means all General Partners and all Limited Partners, where no distinction is required by the context in which the term is used.

     “Partner” means the General Partner or any Limited Partner.

Exhibit A-4

     “Partnership” has the meaning provided in the Recitals.

     “Percentage Interest” means, with respect to any Class A Limited Partner, a Partner’s Interest expressed as a percentage of the total Interests held by all of the Class A Limited Partners as set forth on Exhibit B which percentages shall be adjusted, and which Exhibit B shall be amended, by the General Partner, as appropriated to reflect the exercise of the Warrants, if any.

     “Permitted Transferee” has the meaning provided in Section 7.2.

     “Person” means an individual, an estate, a corporation, a company, a partnership, a limited partnership, a limited liability company, an association, a joint stock company, a trust or other legal entity.

     “Pro Rata” means the ratio determined by dividing the Percentage Interest of the General Partner or a Class A Limited Partner to whom a particular provision of this Agreement is stated to apply by the aggregate Percentage Interest of the General Partner or all of the Class A Limited Partners.

     “Properties” means all of the oil and gas properties owned by the Partnership or the Subsidiaries as of the Effective Date or acquired thereafter.

     “Related Party Subordinate Debt” shall mean that certain indebtedness described in Source of Payment, Limited Recourse and Subordination Agreement between Michael E. Ellis, as Noteholder, the Partnership, Class A Partners and Class B Partners.

     “Sowood” has the meaning provided in the first paragraph of this Agreement.

     “Shortfall Amount” has the meaning provided in Section 4.5.

     “Simulated Basis” shall mean the Book Value of any oil and gas property (as defined in Section 614 of the Code) as adjusted from time to time for Simulated Depletion.

     “Simulated Depletion” shall mean, with respect to each oil and gas property, a depletion allowance computed in accordance with federal income tax principles and in the manner specified in Treasury Regulation Section 1.704-1(b)(2)(iv)(k)(2). For purposes of computing Simulated Depletion with respect to any property, the Simulated Basis of such property shall be deemed to be the Book Value of such property, and in no event shall such allowance, in the aggregate, exceed such Simulated Basis.

     “Simulated Gain” shall mean the excess of the amount realized from the sale or other disposition of an oil or gas property over the Book Value of such property. If the Book Value of any property the sale of which would result in Simulated Gain is adjusted as provided in this Agreement, the amount of such adjustment shall be taken into account as gain from the disposition of such property for purposes of computing Simulated Gain.

     “Simulated Loss” shall mean the excess of the Book Value of an oil or gas property over the amount realized from the sale or other disposition of such property. If the Book Value of any property the sale of which would result in Simulated Loss is adjusted as provided in this Agreement, the amount of such adjustment shall be taken into account as loss from the disposition of such property for purposes of computing Simulated Loss.

     “Subsidiary” or “Subsidiaries” means any Person directly or indirectly controlled by the Partnership, and the term “controlled by” shall mean the possession, directly or indirectly, of the power to direct or cause

Exhibit A-5

the direction of the management, activities or policies of such Person whether through the ownership of voting securities, by contract, employment, or otherwise.

     “Supermajority-in-Interest” means those Class A Limited Partners holding Percentage Interests in the aggregate equal to or greater than 66-2/3% of Percentage Interests held by all Class A Limited Partners.

     “Transfer” means, with respect to an Interest, a direct sale, exchange, transfer, assignment, hypothecation, mortgage, pledge, or other disposition, granting of a security interest in, encumbering, or permitting any encumbrance, of the Interest in question by a Person or an indirect Transfer of the Interest by transferring all or a portion of the equity in such Person to a third Person.

     “Treasury Regulations” means the Income Tax Regulations promulgated under the Code, as the same may be hereafter amended from time to time.

     “2x Return Amount” has the meaning provided in Section 4.2(a).

     “Warrants” means each Replacement Warrant to Acquire Class A Percentage Interests of Alta Mesa Holdings, LP dated September 1, 2006, Warrant No. 7 and 8, to The Royal Bank of Scotland plc and Macquarie Americas Corp.

     “Warrant Holder” means each of The Royal Bank of Scotland plc and Macquarie Americas Corp. and any other Holder (as defined in the Warrants) permitted under the terms and conditions of the Warrants.

Exhibit A-6

EX-3.5

Exhibit 3.5

Execution Version

AMENDMENT NUMBER ONE TO THE FIRST AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP
OF
ALTA MESA HOLDINGS, LP
(A Texas Limited Partnership)

     THIS AMENDMENT NUMBER ONE TO THE FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF ALTA MESA HOLDINGS, LP (this “Agreement”) is made and entered into effective as of May 12, 2010, (the “Funding Date”) by and between Alta Mesa Holdings GP, LLC, a Texas limited liability company (“Alta Mesa GP”), as the sole general partner, the Class A Limited Partners and Alta Mesa Investment Holdings Inc. (“Sowood”), as the Class B Limited Partner.

RECITALS

     WHEREAS, Alta Mesa Holdings, LP (the “Partnership”) has heretofore been formed as a limited partnership under the Texas Revised Limited Partnership Act pursuant to the Certificate of Limited Partnership of Alta Mesa Holdings, LP filed with the Secretary of State of Texas on September 26, 2005 and the Agreement of Limited Partnership of Alta Mesa Holdings, LP, dated September 26, 2005 by and among Alta Mesa GP and the Class A Limited Partners (the “Original Agreement”);

     WHEREAS, on September 1, 2006, the Original Agreement was amended and restated (the “Amended and Restated Agreement”) to provide for the admission of Sowood as the Class B Limited Partner;

     WHEREAS, Sowood and the Partnership have entered into that certain Contribution Agreement, dated as of December 22, 2009, as amended and restated as of the date hereof (the “Contribution Agreement”), pursuant to which Sowood has agreed to make an additional capital contribution to the Partnership as of the Funding Date, for the consideration and on the other terms and conditions set forth in the Contribution Agreement; and

     WHEREAS, the Contribution Agreement contemplates the amendment of the Amended and Restated Agreement as provided herein.

     NOW, THEREFORE, in consideration of the mutual promises and agreements made herein and in the Contribution Agreement, the parties, intending to be legally bound, hereby agree as follows. Any initially capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Amended and Restated Agreement.

ARTICLE 1

     1.1 Amendment of ARTICLE III and Section 3.5 of the Amended and Restated Agreement: The title of ARTICLE III of the Amended and Restated Agreement is hereby amended to be “CAPITALIZATION AND INTERESTS” and Section 3.5 of the Amended and Restated Agreement is hereby amended to read in its entirety as follows:

     “3.5 Interests. The Interest of each of the Partners, expressed as a percentage of all Interests, are as set forth on Exhibit B.”

     1.2 Amendment of Section 4.1 of the Amended and Restated Agreement. Section 4.1 of the Amended and Restated Agreement is hereby amended to read in its entirety as follows:

“4.1 Distributions of Net Cash From Operations. Distributions of Net Cash From Operations shall be made in the following order of priority:

          (a) first, 85% to the Class B Limited Partner and 15% to the General Partner and the Class A Limited Partners until the Class B Limited Partner has received aggregate distributions from the Partnership since the Effective Date equal to the Class B Limited Partner’s aggregate Capital Contributions since the Effective Date (the “1x Return Amount”);

          (b) second, 85% to the Class B Limited Partner and 15% to the General Partner and the Class A Limited Partners until the cumulative amount of distributions to the Class B Limited Partner pursuant to this Agreement results in the Class B Limited Partner achieving a 15% IRR;

          (c) third, 65% to the Class B Limited Partner and 35% to the General Partner and the Class A Limited Partners until the cumulative amount of distributions to the Class B Limited Partner pursuant to this Agreement result in the Class B Limited Partner achieving a 27.5% IRR; and

          (d) thereafter, 25% to the Class B Limited Partner and 75% to the General Partner and the Class A Limited Partners.

All distributions made to the General Partner and the Class A Limited Partners under this Section 4.1 shall be made Pro Rata to such Partners.”

     1.3 Amendment of Section 4.2 of the Amended and Restated Agreement. Section 4.2 of the Amended and Restated Agreement is hereby amended to read in its entirety as follows:

     “4.2 Distributions of Net Cash From a Liquidity Event. Net Cash From a Liquidity Event shall be distributed to the Partners as follows:

          (a) if the Liquidity Event occurs prior to January 1, 2012, Net Cash From a Liquidity Event shall be distributed to the Partners in the same manner as Net Cash From Operations is distributed pursuant to Section 4.1; provided, however, that if such distributions will not provide the Class B Limited Partner aggregate distributions from the Partnership since the Effective Date equal to at least 200% of the Class B Limited Partner’s aggregate Capital Contributions since the Effective Date (the “2x Return Amount”), then the Net Cash From a Liquidity Event otherwise distributable to the General Partner and the Class A Limited Partner shall be distributed to the Class B Limited Partner until the Class B Limited Partner receives aggregate distributions from the Partnership equal to the 2x Return Amount; or

          (b) if the Liquidity Event occurs on or after January 1, 2012, Net Cash From a Liquidity Event shall be distributed to the Partners as follows:

               (i) first, 100% to the Class B Limited Partner until the Class B Limited Partner receives aggregate distributions under this Agreement from the Partnership equal to the 1x Return Amount;

               (ii) second, 85% to the Class B Limited Partner and 15% to the General Partner and the Class A Limited Partners until the cumulative amount of distributions to the Class B Limited Partner pursuant to this Agreement result in the Class B Limited Partner achieving a 10% IRR;

               (iii) third, 100% to the General Partner and the Class A Limited Partners until the aggregate distributions pursuant to Sections 4.1, 4.2(b)(i) and 4.2(b)(ii) of this Agreement and this

Section 4.2(b)(iii) have been distributed 85% to the Class B Limited Partner and 15% to the General Partner and Class A Limited Partners;

               (iv) fourth, 85% to the Class B Limited Partner and 15% to the General Partner and the Class A Limited Partners until the cumulative amount of distributions to the Class B Limited Partner pursuant to this Agreement result in the Class B Limited Partner achieving a 15% IRR;

               (v) fifth, 65% to the Class B Limited Partner and 35% to the General Partner and the Class A Limited Partners until the cumulative amount of distributions to the Class B Limited Partner pursuant to this Agreement result in the Class B Limited Partner achieving a 27.5% IRR ; and

               (vi) thereafter, 25% to the Class B Limited Partner and 75% to the General Partner and the Class A Limited Partners.

All distributions made to the General Partner and the Class A Limited Partners under this Section 4.2 shall be made Pro Rata to such Partners.”

     1.4 Amendment to Section 4.7(b) of the Amended and Restated Agreement. The two references in the text of Section 4.7(b) of the Amended and Restated Agreement shall be amended to refer to Section 4.7(d).

     1.5 Amendment of Section 5.2(i) of the Amended and Restated Agreement. The two incidents of the term “Oil and Gas Interests” in the text of Section 5.2(i) of the Amended and Restated Agreement shall be amended to read “Properties”.

     1.6 Amendment of Section 5.6(b) of the Amended and Restated Agreement. Section 5.6(b) of the Amended and Restated Agreement is hereby amended to read in its entirety as follows. The provisions of Sections 5.6(b)(i), (ii), (iii), (iv) and (v) shall remain in full force and effect and are not amended hereby.

          “(b) Initiation of Liquidity Event. Following the earlier of (i) January 1, 2012, and (b) a breach of or default by the Partnership under any representation, warranty, covenant or agreement contained in any loan or credit agreement to which the Partnership is a party or by which its assets are bound, following the expiration of any cure periods contained in such instruments with respect thereto, provided notice is timely provided to the appropriate parties thereto, and irrespective of whether Sowood has received the notice required to be sent to it by the Partnership pursuant to Section 5.3 of the Contribution Agreement, the Class B Limited Partner, may without consent of any other Partner, upon notice to the General Partner and Class A Partners (the “Liquidity Request”), request that the General Partner take such actions set forth below, to cause the Partnership and its Subsidiaries, or the Assets to be sold to one or more third parties, subject to the Class A Partners’ right of right of first offer as set forth below:”

     1.7 Amendment of Section 6.4(d) of the Amended and Restated Agreement. Clause (A) of the third sentence of Section 6.4(d) of the Amended and Restated Agreement is hereby amended to read in its entirety as follows:

“(A) that Partner’s (or that Partner’s Affiliates’) officers, directors, trustees, employees, legal counsel, accountants, current and potential investors and lenders, or other professional consultants (with respect to whom the Partner shall remain responsible for the confidentiality of such Confidential Information);”

     1.8 Amendment to Defined Term on Exhibit A. Exhibit A of the Amended and Restated Agreement is hereby amended by deleting the current definition of “Pro Rata,” and replacing it to read in its entirety as follows:

“Pro Rata” means the ratio determined by dividing the Interest as reflected on Exhibit B of each Partner to whom a particular provision of this Agreement is stated to apply by the aggregate of the Interests as reflected on Exhibit B of all Partners to whom that provision is stated to apply.”

     1.9 Amendment to Exhibit B. The term “Percentage Interest” in the heading of the center column of Exhibit B shall be amended to read “Interest”.

     1.10 Table of Contents. To the extent an amendment is made to the Amended and Restated Agreement that requires a conforming change to the Table of Contents thereof, such conforming change shall be made hereby.

ARTICLE 2

CONSENTS

     2.1 The Class B Partner hereby consents to the transactions contemplated by the Contribution Agreement and this Agreement as required by Sections 5.3(n) and (o) of the Amended and Restated Agreement.

ARTICLE 3

MISCELLANEOUS

     3.1 Except as amended herein, all of the provisions of the Amended and Restated Agreement remain in full force and effect.

     3.2 This Agreement has been consented to in writing by the General Partner, a Supermajority-in-Interest and the Class B Limited Partner.

     IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the Funding Date.

GENERAL PARTNER:

ALTA MESA HOLDINGS GP, LLC
a Texas limited liability company 

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle, Chief Executive Officer

CLASS A LIMITED PARTNERS: ALTA MESA RESOURCES, LP, a Texas limited partnership
By:	Alta Mesa Resources GP, LLC,
	a Texas limited liability company,
	its sole general partner

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle, Chief Executive Officer

GALVESTON BAY RESOURCES HOLDINGS, LP, a Texas limited partnership
By:	Galveston Bay Resources Holdings GP, LLC,
	a Texas limited liability company,
	its sole general partner

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle, Chief Executive Officer

PETRO ACQUISITIONS HOLDINGS, LP, a Texas limited partnership
By:	Petro Acquisitions Holdings GP, LLC,
	a Texas limited liability company,
	its sole general partner

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle, Chief Executive Officer

PETRO OPERATING COMPANY HOLDINGS, INC., a Florida corporation
By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle, President

CLASS B LIMITED PARTNER: ALTA MESA INVESTMENT HOLDINGS INC.
By:	/s/ Brent Willson
	Brent Willson
	President

EX-3.6

Exhibit 3.6

AMENDMENT NUMBER TWO TO THE FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
ALTA MESA HOLDINGS, LP,
(A Texas Limited Partnership)

     THIS AMENDMENT NUMBER TWO TO THE FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF ALTA MESA HOLDINGS, LP, (this “Agreement”) is made and entered into effective as of October 7, 2010, (the “Effective Date”) by and between Alta Mesa Holdings GP, LLC, a Texas limited liability company (“Alta Mesa GP”) as the sole general partner, Alta Mesa Investment Holdings, Inc. (“Sowood”), as the Class B Limited Partner, and a Supermajority in Interest of the Class A Limited Partners.

RECITALS

     WHEREAS, Alta Mesa Holdings, LP (the “Partnership”) has heretofore been formed as a limited partnership under the Texas Revised Limited Partnership Act pursuant to the Certificate of Limited Partnership of Alta Mesa Holdings, LP filed with the Secretary of State of Texas on September 26, 2005, and the Agreement of Limited Partnership of Alta Mesa Holdings, LP dated September 26, 2005 by and among Alta Mesa GP and the Class A Limited Partners (the “Original Agreement”);

     WHEREAS, on September 1, 2006, the Original Agreement was amended and restated (the “Amended and Restated Agreement”) to provide for the admission of Sowood as the Class B Limited Partner;

     WHEREAS, on May 12, 2010, the Amended and Restated Agreement was further amended (the “First Amendment”) upon the additional contribution of capital by the Class B Limited Partner (the Amended and Restated Agreement and the First Amendment being together referred to herein as the “Partnership Agreement”);

     WHEREAS, Alta Mesa GP requests the consent and agreement of the Class B Limited Partner pursuant to Section 5.3 and Section 4.2(a) and 4.5(c) of the Partnership Agreement; and

     WHEREAS, Alta Mesa GP and the Class B Limited Partner and the Class A Limited Partners desire amend certain provisions of the Partnership Agreement as set forth below;

     NOW, THEREFORE, in consideration of the mutual promises and agreements made herein, the parties, intending to be legally bound, hereby agree as follows. Any initially capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Partnership Agreement.

ARTICLE I. CONSENT AND AGREEMENT

1.1

Consent Pursuant to Section 5.3 of the Partnership Agreement. The Class B Limited Partner hereby consents, for purposes of Section 5.3 of the Partnership Agreement, to the offer, issuance and sale by the Partnership and Alta Mesa Finance Services Corp., a Delaware corporation and wholly owned subsidiary of the Partnership, of senior notes due 2018 in an aggregate principal amount of up to $300,000,000, (the “Notes”) in a private placement offering (the “Offering") on the terms and conditions set forth in the preliminary offering memorandum dated September 30, 2010, as supplemented by the summary pricing term sheet dated the date hereof attached hereto as Exhibit A (collectively, the “Offering Memorandum”).

1.2

Agreement regarding Sections 4.2(a) and 4.5(c) of the Partnership Agreement. The Offering will constitute a “Liquidity Event” under the Partnership Agreement. Notwithstanding the provisions of Sections 4.2(a) and 4.5(c) of the Partnership Agreement, the General Partner and the Class B Limited Partner hereby agree that the proceeds from the Offering shall be distributed as described under the caption entitled “Use of Proceeds” in the Offering Memorandum, and any amount distributed to the Class B Limited Partner thereby shall be counted in determining the Class B Limited Partner’s aggregate distributions for purposes of Article IV of the Partnership Agreement.

ARTICLE II. AMENDMENT TO PARTNERSHIP AGREEMENT

2.1	Amendment to Section 4.5(b) of the Partnership Agreement. Section 4.5(b) of the Partnership Agreement is hereby amended to read in its entirety:
	“Except as provided in Section 4.3 and as the General Partner and the Class B Limited Partner may otherwise agree, after January 1, 2012, the Class B Limited Partner may require the General Partner to make distributions of Net Cash from Operations upon notice to the General Partner; provided, however, that the Class B Limited Partner acknowledges that such distributions shall be subject to the Partnership’s compliance with the covenants set forth in any senior debt or bank credit facility consented to by the Class B Limited Partner pursuant to Section 5.3 of the Partnership Agreement.”
2.2	Amendment of Defined Term on Exhibit A. Exhibit A of the Partnership Agreement is hereby amended by deleting the first sentence of the current definition of “Net Cash from Operations” and replacing such first sentence to read in its entirety as follows, so that the term “capital improvements” shall be replaced with the term “capital expenditures” and the term “replacements” shall be replaced with the term with “reserve replacements”:
	“Net Cash from Operations” means the gross cash proceeds from Partnership operations (including sales and dispositions of properties in the ordinary course of business) less the portion thereof used to pay or fund Partnership costs, expenses, contract operating costs (including operators’ general and administrative expenses), marketing costs, debt payments, capital expenditures, reserve replacements, tax distributions to the Partners and Agreed Reserves.”

- 2 -

2.3 Revocation of Amendments. Notwithstanding any provision of this Agreement to the contrary, if the purchase and sale of the Notes as described in the Offering Memorandum does not occur by November 15, 2010, the amendments set forth in Section 2.1 and Section 2.2 above shall be of no further force and effect.

ARTICLE III. MISCELLANEOUS

3.1 Except as amended herein, all of the provisions of the Partnership Agreement remain in full force and effect.

3.2 This Agreement has been consented to in writing by the General Partner, a Supermajority-in-Interest, and the Class B Limited Partner.

(signature page follows)

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the Effective Date.

GENERAL PARTNER: ALTA MESA HOLDINGS GP, LLC a Texas limited liability company
By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Chief Executive Officer

CLASS A LIMITED PARTNERS: ALTA MESA RESOURCES LP, a Texas limited partnership
By:	Alta Mesa Holdings GP, LLC, a Texas limited liability company, its sole general partner

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Chief Executive Officer

GALVESTON BAY RESOURCES HOLDINGS, LP a Texas limited partnership
By:	Galveston Bay Resources Holdings GP, LLC, a Texas limited liability company, its sole general partner

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Chief Executive Officer

AMENDMENT NUMBER TWO TO THE FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF ALTA MESA HOLDINGS, LP

PETRO ACQUISITION HOLDINGS, LP, a Texas limited partnership
By:	Petro Acquisitions Holdings GP, LLC, a Texas limited liability company, its sole general partner

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Chief Executive Officer

PETRO OPERATING COMPANY HOLDINGS INC., a Florida corporation
By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Chief Executive Officer

CLASS B LIMITED PARTNER: ALTA MESA INVESTMENT HOLDINGS INC.
By:	/s/ Brent Willson
	Brent Willson
	President

AMENDMENT NUMBER TWO TO THE FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF ALTA MESA HOLDINGS, LP

EX-3.7

Exhibit 3.7

CERTIFICATE OF INCORPORATION

OF

ALTA MESA FINANCE SERVICES CORP.

     FIRST: The name of the corporation is Alta Mesa Finance Services Corp. (the “Corporation”).

     SECOND: The address of its registered office and the name of the registered agent for service of process on the Company in the State of Delaware is:

The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
New Castle County, Delaware

     THIRD: The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law.

     FOURTH: The total number of shares of all classes of capital stock which the corporation shall have authority to issue is One Thousand (1,000) shares of common stock at a par value of One Cent ($0.01) per share.

     FIFTH: The name of the incorporator is Joshua S. Chaffin, c/o Haynes and Boone, LLP, 1221 McKinney Street, Suite 2000, Houston, Texas 77010.

     SIXTH: The name and mailing address of the initial director, who shall serve until the first annual meeting of stockholders or until his successor is elected and qualified, is as follows:

Name	Address
Joshua S. Chaffin	1221 McKinney Street, Suite 2100
	Houston, Texas 77010

The number of directors of the Corporation shall be as specified in, or determined in the manner provided in, the bylaws of the Corporation. Election of directors need not be by written ballot.

     SEVENTH: In furtherance of, and not in limitation of, the powers conferred by statute, the Board is expressly authorized to adopt, amend or repeal the bylaws of the corporation.

     EIGHTH: Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of

Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing at least three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the corporation.

     NINTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. In addition to the circumstances in which a director of the Corporation is not personally liable as set forth in the preceding sentence, a director of the Corporation shall not be liable to the fullest extent permitted by any amendment to the Delaware General Corporation Law hereafter enacted that further limits the liability of a director.

     TENTH: The Corporation shall indemnify any person who was, is, or is threatened to be made a party to a proceeding (as hereinafter defined) by reason of the fact that he or she (i) is or was a director or officer of the Corporation or (ii) while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan, or other enterprise, to the fullest extent permitted under the Delaware General Corporation Law, as the same exists or may hereafter be amended. Such right shall be a contract right and as such shall inure to the benefit of any director or officer who is elected and accepts the position of director or officer of the Corporation or elects to continue to serve as a director or officer of the Corporation while this Article Tenth is in effect. Any repeal or amendment of this Article Tenth shall be prospective only and shall not limit the rights of any such director or officer or the obligations of the Corporation with respect to any claim arising from or related to the services of such director or officer in any of the foregoing capacities prior to any such repeal or amendment to this Article Tenth. Such right shall include the right to be paid by the Corporation expenses (including without limitation attorneys’ fees) actually and reasonably incurred by him in defending any such proceeding in advance of its final disposition to the maximum extent permitted under the Delaware General Corporation Law, as the same exists or may hereafter be amended. If a claim for indemnification or advancement of expenses hereunder is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, the claimant shall also be entitled to be paid the expenses of prosecuting such claim. It shall be a defense to any such

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action that such indemnification or advancement of costs of defense is not permitted under the Delaware General Corporation Law, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to have made its determination prior to the commencement of such action that indemnification of, or advancement of costs of defense to, the claimant is permissible in the circumstances nor any actual determination by the Corporation (including its Board or any committee thereof, independent legal counsel, or stockholders) that such indemnification or advancement is not permissible shall be a defense to the action or create a presumption that such indemnification or advance is not permissible. In the event of the death of any person having a right of indemnification under the foregoing provisions, such right shall inure to the benefit of his or her heirs, executors, administrators, and personal representatives. The rights conferred above shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, bylaw, resolution of stockholders or directors, agreement, or otherwise.

     The Corporation may also indemnify any employee or agent of the corporation to the fullest extent permitted by law.

     As used herein, the term “proceeding” means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative, or investigative, any appeal in such an action, suit, or proceeding, any inquiry or investigation that could lead to such an action, suit or proceeding.

     ELEVENTH: No contract or transaction between the Corporation and one or more of its directors, officers, or stockholders or between the Corporation and any person (as used herein, “person” means other corporation, partnership, association, firm, trust, joint venture, political subdivision, or instrumentality) or other organization in which one or more of its directors, officers, or stockholders are directors, officers, or stockholders, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee which authorizes the contract or transaction, or solely because his, her, or their votes are counted for such purpose, if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board of directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved, or ratified by the board of directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction.

     TWELFTH: The Corporation shall have the right, subject to any express provisions or restrictions contained in this certificate of incorporation or bylaws of the Corporation, from time to time, to amend this certificate of incorporation or any provision hereof in any manner now or hereafter provided by law, and all rights and powers of any kind conferred upon a director or stockholder of the Corporation by this certificate of incorporation or any amendment hereof are subject to such right of the Corporation.

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     I, the undersigned, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the Delaware General Corporation Law, do make this certificate, hereby declaring that this is my act and deed and that the facts herein stated are true, and accordingly have hereunto set my hand this 27^th day of September, 2010.

/s/ Joshua S. Chaffin

Joshua S. Chaffin 

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EX-3.8

Exhibit 3.8

BYLAWS

OF

ALTA MESA FINANCE SERVICES CORP.

ARTICLE I
OFFICES

     Section 1.01 Registered Office. The registered office of the Corporation required by the General Corporation Law of the State of Delaware to be maintained in the State of Delaware, shall be the registered office named in the original Certificate of Incorporation of the Corporation, or such other office as may be designated from time to time by the Board of Directors in the manner provided by law. Should the Corporation maintain a principal office within the State of Delaware such registered office need not be identical to such principal office of the Corporation.

     Section 1.02 Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II
STOCKHOLDERS

     Section 2.01 Place of Meetings. All meetings of the stockholders shall be held at the principal office of the Corporation, or at such other place within or without the State of Delaware as shall be specified or fixed in the notices or waivers of notice thereof.

     Section 2.02 Quorum; Adjournment of Meetings. Unless otherwise required by law or provided in the Certificate of Incorporation or these bylaws, the holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders for the transaction of business and the act of a majority of such stock so represented at any meeting of stockholders at which a quorum is present shall constitute the act of the meeting of stockholders. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

     Notwithstanding the other provisions of the Certificate of Incorporation or these bylaws, the chairman of the meeting or the holders of a majority of the issued and outstanding stock, present in person or represented by proxy, at any meeting of stockholders, whether or not a quorum is present, shall have the power to adjourn such meeting from time to time, without any notice other than announcement at the meeting of the time and place of the holding of the adjourned meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at such meeting. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally called.

     Section 2.03 Annual Meetings. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, within or without the State of Delaware, on such date, and at such time as the Board of Directors shall fix and set forth in the notice of the meeting, which date shall be within thirteen (13) months subsequent to the later of the date of incorporation or the last annual meeting of stockholders.

     Section 2.04 Special Meetings. Unless otherwise provided in the Certificate of Incorporation, special meetings of the stockholders for any purpose or purposes may be called at any time by the Chairman of the Board (if any), by the President or by a majority of the Board of Directors, or by a majority of the executive committee (if any), and shall be called by the Chairman of the Board (if any), by the President or the Secretary upon the written

request therefore, stating the purpose or purposes of the meeting, delivered to such officer, signed by the holder(s) of at least ten percent (l0%) of the issued and outstanding stock entitled to vote at such meeting.

     Section 2.05 Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders, or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors of the Corporation may fix, in advance, a date as the record date for any such determination of stockholders, which date shall not be more than sixty (60) days nor less than ten (l0) days before the date of such meeting, nor more than sixty (60) days prior to any other action.

     If the Board of Directors does not fix a record date for any meeting of the stockholders, the record date for determining stockholders entitled to notice of or to vote at such meeting shall be at the close of business on the day next preceding the day on which notice is given, or, if in accordance with Article VIII, Section 3 of these bylaws notice is waived, at the close of business on the day next preceding the day on which the meeting is held. If, in accordance with Section 12 of this Article II, corporate action without a meeting of stockholders is to be taken, the record date for determining stockholders entitled to express consent to such corporate action in writing, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

     A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

     Section 2.06 Notice of Meetings. Written notice of the place, date and hour of all meetings, and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by or at the direction of the Chairman of the Board (if any) or the President, the Secretary or the other person(s) calling the meeting to each stockholder entitled to vote thereat not less than ten (10) nor more than sixty (60) days before the date of the meeting. Such notice may be delivered personally by mail or by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation.

     Section 2.07 Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of such stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

     Section 2.08 Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to a corporate action in writing without a meeting may authorize another person or persons to act for him by proxy. Proxies for use at any meeting of stockholders shall be filed with the Secretary, or such other officer as the Board of Directors may from time to time determine by resolution, before or at the time of the meeting. All proxies shall be received and taken charge of and all ballots shall be received and canvassed by the secretary of the meeting who shall decide all questions touching upon the qualification of voters, the validity of the proxies, and the acceptance or rejection of votes, unless an inspector or inspectors shall have been appointed by the chairman of the meeting, in which event such inspector or inspectors shall decide all such questions.

     No proxy shall be valid after three (3) years from its date, unless the proxy provides for a longer period. Each proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power.

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     Should a proxy designate two or more persons to act as proxies, unless such instrument shall provide the contrary, a majority of such persons present at any meeting at which their powers thereunder are to be exercised shall have and may exercise all the powers of voting or giving consents thereby conferred, or if only one be present, then such powers may be exercised by that one; or, if an even number attend and a majority do not agree on any particular issue, each proxy so attending shall be entitled to exercise such powers in respect of the same portion of the shares as he is of the proxies representing such shares.

     Section 2.09 Voting; Elections; Inspectors. Unless otherwise required by law or provided in the Certificate of Incorporation, each stockholder shall have one vote for each share of stock entitled to vote which is registered in his name on the record date for the meeting. Shares registered in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the bylaw (or comparable instrument) of such corporation may prescribe, or in the absence of such provision, as the Board of Directors (or comparable body) of such corporation may determine. Shares registered in the name of a deceased person may be voted by his executor or administrator, either in person or by proxy.

     All voting, except as required by the Certificate of Incorporation or where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by stockholders holding a majority of the issued and outstanding stock present in person or by proxy at any meeting a stock vote shall be taken. Every stock vote shall be taken by written ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. All elections of directors shall be by ballot, unless otherwise provided in the Certificate of Incorporation.

     At any meeting at which a vote is taken by ballots, the chairman of the meeting may appoint one or more inspectors, each of whom shall subscribe an oath or affirmation to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of his ability. Such inspector shall receive the ballots, count the votes and make and sign a certificate of the result thereof. The chairman of the meeting may appoint any person to serve as inspector, except no candidate for the office of director shall be appointed as an inspector.

     Unless otherwise provided in the Certificate of Incorporation, cumulative voting for the election of directors shall be prohibited.

     Section 2.10 Order of Business. At each meeting of the stockholders, one of the following persons, in the order in which they are listed (and in the absence of the first, the next, and so on), shall serve as chairman of the meeting: president, chairman of the board, vice presidents (in the order of their seniority if more than one), and secretary. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations, and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the corporation, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the voting polls.

     Section 2.11 Treasury Stock. The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it and such shares shall not be counted for quorum purposes.

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     Section 2.12 Action Without Meeting. Unless otherwise provided in the Certificate of Incorporation, any action permitted or required by law, the Certificate of Incorporation or these bylaws to be taken at a meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than a unanimous written consent shall be given by the Secretary to those stockholders who have not consented in writing.

ARTICLE III
BOARD OF DIRECTORS

     Section 3.01 Power; Number; Term of Office. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, and subject to the restrictions imposed by law or the Certificate of Incorporation, they may exercise all the powers of the Corporation.

     The number of directors which shall constitute the whole Board of Directors, shall be determined from time to time by resolution of the Board of Directors (provided that no decrease in the number of directors which would have the effect of shortening the term of an incumbent director may be made by the Board of Directors). If the Board of Directors makes no such determination, the number of directors shall be the number set forth in the Certificate of Incorporation. Each director shall hold office for the term for which he is elected, and until his successor shall have been elected and qualified or until his earlier death, resignation or removal.

     Unless otherwise provided in the Certificate of Incorporation, directors need not be stockholders nor residents of the State of Delaware.

     Section 3.02 Quorum. Unless otherwise provided in the Certificate of Incorporation, a majority of the total number of directors shall constitute a quorum for the transaction of business of the Board of Directors and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

     Section 3.03 Place of Meetings; Order of Business. The directors may hold their meetings and may have an office and keep the books of the Corporation, except as otherwise provided by law, in such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine by resolution. At all meetings of the Board of Directors business shall be transacted in such order as shall from time to time be determined by the Chairman of the Board (if any), or in his absence by the President, or by resolution of the Board of Directors.

     Section 3.04 First Meeting. Each newly elected Board of Directors may hold its first meeting for the purpose of organization and the transaction of business, if a quorum is present, immediately after and at the same place as the annual meeting of the stockholders. Notice of such meeting shall not be required. At the first meeting of the Board of Directors in each year at which a quorum shall be present, held next after the annual meeting of stockholders, the Board of Directors shall proceed to the election of the officers of the Corporation.

     Section 3.05 Regular Meetings. Regular meetings of the Board of Directors shall be held at such times and places as shall be designated from time to time by resolution of the Board of Directors. Notice of such regular meetings shall not be required.

     Section 3.06 Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board (if any), the President or, on the written request of any two directors, by the Secretary, in each case on at least twenty-four (24) hours personal, written, telegraphic, cable, telephonic or e-mail notice to each director. Such notice, or any waiver thereof pursuant to Article VIII, Section 3 hereof, need not state the purpose or purposes of such meeting, except as may otherwise be required by law or provided for in the Certificate of Incorporation or these bylaws.

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     Section 3.07 Removal. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided that, unless the Certificate of Incorporation otherwise provides, if the Board of Directors is classified, then the stockholders may effect such removal only for cause; and provided further that, if the Certificate of Incorporation expressly grants to stockholders the right to cumulate votes for the election of directors and if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors, or, if there be classes of directors, at an election of the class of directors of which such director is a part.

     Section 3.08 Vacancies; Increases in the Number of Directors. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or a sole remaining director; and any director so chosen shall hold office until the next annual election and until his successor shall be duly elected and shall qualify, unless sooner displaced.

     If the directors of the Corporation are divided into classes, any directors elected to fill vacancies or newly created directorships shall hold office until the next election of the class for which such directors shall have been chosen, and until their successors shall be duly elected and shall qualify.

     Section 3.09 Compensation. Unless otherwise restricted by the Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation of directors.

     Section 3.10 Action Without a Meeting; Telephone Conference Meeting. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors, or any committee designated by the Board of Directors, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such consent shall have the same force and effect as a unanimous vote at a meeting, and may be stated as such in any document or instrument filed with the Secretary of State of Delaware.

     Unless otherwise restricted by the Certificate of Incorporation, subject to the requirement for notice of meetings, members of the Board of Directors, or members of any committee designated by the Board of Directors, may participate in a meeting of such Board of Directors or committee, as the case may be, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

     Section 3.11 Approval or Ratification of Acts or Contracts by Stockholders. The Board of Directors in its discretion may submit any act or contract for approval or ratification at any annual meeting of the stockholders, or at any special meeting of the stockholders called for the purpose of considering any such act or contract, and any act or contract that shall be approved or be ratified by the vote of the stockholders holding a majority of the issued and outstanding shares of stock of the Corporation entitled to vote and present in person or by proxy at such meeting (provided that a quorum is present), shall be as valid and as binding upon the Corporation and upon all the stockholders as if it has been approved or ratified by every stockholder of the Corporation. In addition, any such act or contract may be approved or ratified by the written consent of stockholders holding a majority of the issued and outstanding shares of capital stock of the Corporation entitled to vote and such consent shall be as valid and as binding upon the Corporation and upon all the stockholders as if it had been approved or ratified by every stockholder of the Corporation.

ARTICLE IV
COMMITTEES

     Section 4.01 Designation; Powers. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, including, if they shall so determine, an executive committee, each such committee to consist of one or more of the directors of the Corporation. Any such designated committee shall

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have and may exercise such of the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation as may be provided in such resolution, except that no such committee shall have the power or authority of the Board of Directors in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution of the Corporation, or amending, altering or repealing the bylaws or adopting new bylaws for the Corporation and, unless such resolution or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Any such designated committee may authorize the seal of the Corporation to be affixed to all papers which may require it. In addition to the above such committee or committees shall have such other powers and limitations of authority as may be determined from time to time by resolution adopted by the Board of Directors.

     Section 4.02 Procedure; Meetings; Quorum. Any committee designated pursuant to Section 1 of this Article shall choose its own chairman, shall keep regular minutes of its proceedings and report the same to the Board of Directors when requested, shall fix its own rules or procedures, and shall meet at such times and at such place or places as may be provided by such rules, or by resolution of such committee or resolution of the Board of Directors. At every meeting of any such committee, the presence of a majority of all the members thereof shall constitute a quorum and the affirmative vote of a majority of the members present shall be necessary for the adoption by it of any resolution.

     Section 4.03 Substitution of Members. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.

ARTICLE V
OFFICERS

     Section 5.01 Number, Titles and Term of Office. The officers of the Corporation shall be a Chief Executive Officer, a President, one or more Vice Presidents (any one or more of whom may be designated Executive Vice President or Senior Vice President), a Treasurer, a Secretary and, if the Board of Directors so elects, a Chairman of the Board and such other officers as the Board of Directors may from time to time elect or appoint. Each officer shall hold office until his successor shall be duly elected and shall qualify or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Any number of offices may be held by the same person, unless the Certificate of Incorporation provides otherwise. Except for the Chairman of the Board, if any, no officer need be a director.

     Section 5.02 Salaries. The salaries or other compensation of the officers and agents of the Corporation shall be fixed from time to time by the Board of Directors.

     Section 5.03 Removal. Any officer or agent elected or appointed by the Board of Directors may be removed, either with or without cause, by the vote of a majority of the whole Board of Directors at a special meeting called for the purpose, or at any regular meeting of the Board of Directors, provided the notice for such meeting shall specify that the matter of any such proposed removal will be considered at the meeting but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights.

     Section 5.04 Vacancies. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors.

     Section 5.05 Powers and Duties of the Chief Executive Officer. The President shall be the chief executive officer of the Corporation unless the Board of Directors designates the Chairman of the Board as chief executive officer. Subject to the control of the Board of Directors and the executive committee (if any), the chief executive officer shall have general executive charge, management and control of the properties, business and operations of the Corporation with all such powers as may be reasonably incident to such responsibilities; he may agree upon and

6

execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation and may sign all certificates for shares of capital stock of the Corporation; and shall have such other powers and duties as designated in accordance with these bylaws and as from time to time may be assigned to him by the Board of Directors.

     Section 5.06 Powers and Duties of the Chairman of the Board. If elected, the Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors; and he shall have such other powers and duties as designated in these bylaws and as from time to time may be assigned to him by the Board of Directors.

     Section 5.07 Powers and Duties of the President. Unless the Board of Directors otherwise determines, the President shall have the authority to agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation; and, unless the Board of Directors otherwise determines, he shall, in the absence of the Chairman of the Board or if there be no Chairman of the Board, preside at all meetings of the stockholders and (should he be a director) of the Board of Directors; and he shall have such other powers and duties as designated in accordance with these bylaws and as from time to time may be assigned to him by the Board of Directors.

     Section 5.08 Vice Presidents. In the absence of the President, or in the event of his inability or refusal to act, a Vice President designated by the Board of Directors shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. In the absence of a designation by the Board of Directors of a Vice President to perform the duties of the President, or in the event of his absence or inability or refusal to act, the Vice President who is present and who is senior in terms of time as a Vice President of the Corporation shall so act. The Vice Presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.

     Section 5.09 Treasurer. The Treasurer shall have responsibility for the custody and control of all the funds and securities of the Corporation, and he shall have such other powers and duties as designated in these bylaws and as from time to time may be assigned to him by the Board of Directors. He shall perform all acts incident to the position of Treasurer, subject to the control of the chief executive officer and the Board of Directors; and he shall, if required by the Board of Directors, give such bond for the faithful discharge of his duties in such form as the Board of Directors may require.

     Section 5.10 Assistant Treasurers. Each Assistant Treasurer shall have the usual powers and duties pertaining to his office, together with such other powers and duties as designated in these bylaws and as from time to time may be assigned to him by the chief executive officer or the Board of Directors. The Assistant Treasurers shall exercise the powers of the Treasurer during that officer’s absence or inability or refusal to act.

     Section 5.11 Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors, committees of directors and the stockholders, in books provided for that purpose; he shall attend to the giving and serving of all notices; he may in the name of the Corporation affix the seal of the Corporation to all contracts of the Corporation and attest the affixation of the seal of the Corporation thereto; he may sign with the other appointed officers all certificates for shares of capital stock of the Corporation; he shall have charge of the certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors may direct, all of which shall at all reasonable times be open to inspection of any director upon application at the office of the Corporation during business hours; he shall have such other powers and duties as designated in these bylaws and as from time to time may be assigned to him by the Board of Directors; and he shall in general perform all acts incident to the office of Secretary, subject to the control of the chief executive officer and the Board of Directors.

     Section 5.12 Assistant Secretaries. Each Assistant Secretary shall have the usual powers and duties pertaining to his office, together with such other powers and duties as designated in these bylaws and as from time to time may be assigned to him by the chief executive officer or the Board of Directors. The Assistant Secretaries shall exercise the powers of the Secretary during that officer’s absence or inability or refusal to act.

     Section 5.13 Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the chief executive officer shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of security holders of or with respect to any action of security

7

holders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.

ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS

     Section 6.01 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was or has agreed to become a director or officer of the Corporation or is or was serving or has agreed to serve at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving or having agreed to serve as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) against all expense, liability and loss (including without limitation, attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to serve in the capacity which initially entitled such person to indemnity hereunder and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the board of directors of the Corporation. The right to indemnification conferred in this Article VI shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a current, former or proposed director or officer in his or her capacity as a director or officer or proposed director or officer (and not in any other capacity in which service was or is or has been agreed to be rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such indemnified person, to repay all amounts so advanced if it shall ultimately be determined that such indemnified person is not entitled to be indemnified under this Section or otherwise.

     Section 6.02 Indemnification of Employees and Agents. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation, individually or as a group, with the same scope and effect as the indemnification of directors and officers provided for in this Article.

     Section 6.03 Right of Claimant to Bring Suit. If a written claim received by the Corporation from or on behalf of an indemnified party under this Article VI is not paid in full by the Corporation within ninety days after such receipt, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

8

     Section 6.04 Nonexclusivity of Rights. The right to indemnification and the advancement and payment of expenses conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any law (common or statutory), provision of the Certificate of Incorporation of the Corporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

     Section 6.05 Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any person who is or was serving as a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

     Section 6.06 Savings Clause. If this Article VI or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and hold harmless each director and officer of the Corporation, as to costs, charges and expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative to the full extent permitted by any applicable portion of this Article VI that shall not have been invalidated and to the fullest extent permitted by applicable law.

     Section 6.07 Definitions. For purposes of this Article, reference to the “Corporation” shall include, in addition to the Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger prior to (or, in the case of an entity specifically designated in a resolution of the Board of Directors, after) the adoption hereof and which, if its separate existence had continued, would have had the power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

ARTICLE VII
CAPITAL STOCK

     Section 7.01 Certificates of Stock. The certificates for shares of the capital stock of the Corporation shall be in such form, not inconsistent with that required by law and the Certificate of Incorporation, as shall be approved by the Board of Directors. The Chairman of the Board (if any), President or a Vice President shall cause to be issued to each stockholder one or more certificates, under the seal of the Corporation or a facsimile thereof if the Board of Directors shall have provided for such seal, and signed by the Chairman of the Board (if any), President or a Vice President and the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer certifying the number of shares (and, if the stock of the Corporation shall be divided into classes or series, the class and series of such shares) owned by such stockholder in the Corporation; provided, however, that any of or all the signatures on the certificate may be facsimile. The stock record books and the blank stock certificate books shall be kept by the Secretary, or at the office of such transfer agent or transfer agents as the Board of Directors may from time to time by resolution determine. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature or signatures shall have been placed upon any such certificate or certificates shall have ceased to be such officer, transfer agent or registrar before such certificate is issued by the Corporation, such certificate may nevertheless be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The stock certificates shall be consecutively numbered and shall be entered in the books of the Corporation as they are issued and shall exhibit the holder’s name and number of shares.

     Section 7.02 Transfer of Shares. The shares of stock of the Corporation shall be transferable only on the books of the Corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives upon surrender and cancellation of certificates for a like number of shares. Upon surrender to the Corporation or a transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

9

     Section 7.03 Ownership of Shares. The Corporation shall be entitled to treat the holder of record of any share or shares of capital stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.

     Section 7.04 Regulations Regarding Certificates. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares of capital stock of the Corporation.

     Section 7.05 Lost or Destroyed Certificates. The Board of Directors may determine the conditions upon which a new certificate of stock may be issued in place of a certificate which is alleged to have been lost, stolen or destroyed; and may, in their discretion, require the owner of such certificate or his legal representative to give bond, with sufficient surety, to indemnify the Corporation and each transfer agent and registrar against any and all losses or claims which may arise by reason of the issue of a new certificate in the place of the one so lost, stolen or destroyed.

ARTICLE VIII
MISCELLANEOUS PROVISIONS

     Section 8.01 Fiscal Year. The fiscal year of the Corporation shall be such as established from time to time by the Board of Directors.

     Section 8.02 Notice and Waiver of Notice. Whenever any notice is required to be given by law, the Certificate of Incorporation or under the provisions of these bylaws, said notice shall be deemed to be sufficient if given (i) by telegraphic, cable or wireless transmission or (ii) by deposit of the same in a post office box in a sealed prepaid wrapper addressed to the person entitled thereto at his post office address, as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such transmission or mailing, as the case may be.

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     Whenever notice is required to be given by law, the Certificate of Incorporation or under any of the provisions of these bylaws, a written waiver thereof, signed by the person entitled to notice or waiver by electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or the bylaws.

     Section 8.03 Resignations. Any director, member of a committee or officer may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or if no time be specified, at the time of its receipt by the chief executive officer or Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation.

     Section 8.04 Facsimile Signatures. In addition to the provisions for the use of facsimile signatures elsewhere specifically authorized in these bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors.

     Section 8.05 Reliance upon Books, Reports and Records. Each director and each member of any committee designated by the Board of Directors shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or reports made to the Corporation by any of its officers, or by an independent certified public accountant, or by an appraiser selected with reasonable care by the Board of Directors or by any such committee, or in relying in good faith upon other records of the Corporation.

ARTICLE IX
AMENDMENTS

     If provided in the Certificate of Incorporation of the Corporation, the Board of Directors shall have the power to adopt, amend and repeal from time to time bylaws of the Corporation, subject to the right of the stockholders entitled to vote with respect thereto to amend or repeal such bylaws as adopted or amended by the Board of Directors.

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EX-4.1

Exhibit 4.1

Execution Version

ALTA MESA HOLDINGS, LP,

ALTA MESA FINANCE SERVICES CORP.

EACH OF THE SUBSIDIARY GUARANTORS PARTY HERETO

AND

WELLS FARGO BANK, NATIONAL ASSOCIATION

AS TRUSTEE

INDENTURE

Dated as of October 13, 2010

9 5/8% Senior Notes due 2018

TABLE OF CONTENTS

	Page
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions		1
SECTION 1.2. Other Definitions		35
SECTION 1.3. Incorporation by Reference of Trust Indenture Act		37
SECTION 1.4. Rules of Construction		38
ARTICLE II THE SECURITIES
SECTION 2.1. Form, Dating and Terms		38
SECTION 2.2. Execution and Authentication		46
SECTION 2.3. Registrar and Paying Agent		47
SECTION 2.4. Paying Agent to Hold Money in Trust		48
SECTION 2.5. Securityholder Lists		49
SECTION 2.6. Transfer and Exchange		49
SECTION 2.7. Form of Certificate to be Delivered upon Termination of Restricted Period		53
SECTION 2.8. Form of Certificate to be Delivered in Connection with Transfers to Institutional Accredited Investors		54
SECTION 2.9. Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S		55
SECTION 2.10. Mutilated, Destroyed, Lost or Stolen Securities		56
SECTION 2.11. Outstanding Securities		57
SECTION 2.12. Temporary Securities		58
SECTION 2.13. Cancellation		58
SECTION 2.14. Payment of Interest; Defaulted Interest		59
SECTION 2.15. Computation of Interest		60
SECTION 2.16. CUSIP, Common Code and ISIN Numbers		60
ARTICLE III COVENANTS
SECTION 3.1. Payment of Securities		60
SECTION 3.2. Limitation on Indebtedness and Preferred Stock		61
SECTION 3.3. Limitation on Restricted Payments		64
SECTION 3.4. Limitation on Restrictions on Distributions from Restricted Subsidiaries		68
SECTION 3.5. Limitation on Sales of Assets and Subsidiary Stock		71
SECTION 3.6. Limitation on Liens		74
SECTION 3.7. Statement by Officers as to Default		74
SECTION 3.8. Limitation on Affiliate Transactions		74

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	Page
SECTION 3.9. Purchase of Securities Upon a Change of Control		76
SECTION 3.10. Provision of Financial Information		78
SECTION 3.11. Future Subsidiary Guarantors		79
SECTION 3.12. Maintenance of Office or Agency		79
SECTION 3.13. Corporate Existence		80
SECTION 3.14. Payment of Taxes		80
SECTION 3.15. Payments for Consent		80
SECTION 3.16. Compliance Certificate		80
SECTION 3.17. Business Activities		81
ARTICLE IV SUCCESSOR COMPANY
SECTION 4.1. Merger and Consolidation		81
ARTICLE V REDEMPTION OF SECURITIES
SECTION 5.1. Redemption		83
SECTION 5.2. Applicability of Article		83
SECTION 5.3. Election to Redeem; Notice to Trustee		83
SECTION 5.4. Selection by Trustee of Securities to Be Redeemed		83
SECTION 5.5. Notice of Redemption		83
SECTION 5.6. Deposit of Redemption Price		85
SECTION 5.7. Securities Payable on Redemption Date		85
SECTION 5.8. Securities Redeemed in Part		85
ARTICLE VI DEFAULTS AND REMEDIES
SECTION 6.1. Events of Default		85
SECTION 6.2. Acceleration		88
SECTION 6.3. Other Remedies		88
SECTION 6.4. Waiver of Past Defaults		89
SECTION 6.5. Control by Majority		89
SECTION 6.6. Limitation on Suits		89
SECTION 6.7. Rights of Holders to Receive Payment		90
SECTION 6.8. Collection Suit by Trustee		90
SECTION 6.9. Trustee May File Proofs of Claim		90
SECTION 6.10. Priorities		90
SECTION 6.11. Undertaking for Costs		91
ARTICLE VII TRUSTEE
SECTION 7.1. Duties of Trustee		91
SECTION 7.2. Rights of Trustee		92
SECTION 7.3. Individual Rights of Trustee		94

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	Page
SECTION 7.4. Trustee’s Disclaimer		94
SECTION 7.5. Notice of Defaults		94
SECTION 7.6. Reports by Trustee to Holders		94
SECTION 7.7. Compensation and Indemnity		95
SECTION 7.8. Replacement of Trustee		96
SECTION 7.9. Successor Trustee by Merger		96
SECTION 7.10. Eligibility; Disqualification		97
SECTION 7.11. Preferential Collection of Claims Against the Issuers		97
SECTION 7.12. Trustee’s Application for Instruction from the Issuers		97
ARTICLE VIII DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.1. Discharge of Liability on Securities; Defeasance		97
SECTION 8.2. Conditions to Defeasance		99
SECTION 8.3. Application of Trust Money		100
SECTION 8.4. Repayment to the Issuers		100
SECTION 8.5. Indemnity for U.S. Government Obligations		100
SECTION 8.6. Reinstatement		101
ARTICLE IX AMENDMENTS
SECTION 9.1. Without Consent of Holders		101
SECTION 9.2. With Consent of Holders		102
SECTION 9.3. Compliance with Trust Indenture Act		103
SECTION 9.4. Revocation and Effect of Consents and Waivers		103
SECTION 9.5. Notation on or Exchange of Securities		104
SECTION 9.6. Trustee to Sign Amendments		104
ARTICLE X GUARANTEE
SECTION 10.1. Guarantee		104
SECTION 10.2. Limitation on Liability; Termination, Release and Discharge		106
SECTION 10.3. Right of Contribution		107
SECTION 10.4. No Subrogation		107
ARTICLE XI MISCELLANEOUS
SECTION 11.1. Trust Indenture Act Controls		107
SECTION 11.2. Notices		108
SECTION 11.3. Communication by Holders with other Holders		109
SECTION 11.4. Certificate and Opinion as to Conditions Precedent		109
SECTION 11.5. Statements Required in Certificate or Opinion		109
SECTION 11.6. When Securities Disregarded		109
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar		110

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	Page
SECTION 11.8. Legal Holidays		110
SECTION 11.9. GOVERNING LAW		110
SECTION 11.10. No Personal Liability of Directors, Officers, Employees and Stockholders		110
SECTION 11.11. Successors		110
SECTION 11.12. Multiple Originals		110
SECTION 11.13. Table of Contents; Headings		110
SECTION 11.14. Waiver of Jury Trial		110
SECTION 11.15. Force Majeure		110

EXHIBIT A	Form of the Note
EXHIBIT B	Form of Indenture Supplement to Add Subsidiary Guarantors

-iv-

          This INDENTURE dated as of October 13, 2010, among Alta Mesa Holdings, LP, a Delaware limited partnership (the “Company”), and Alta Mesa Finance Services Corp., a Delaware corporation (the “Co-Issuer” and, together with the Company, the “Issuers”), the Subsidiary Guarantors (as defined herein) and Wells Fargo Bank, National Association (the “Trustee”), as trustee.

          Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Issuers’ 9 5/8% Senior Notes due 2018 issued on the date hereof (the “Initial Securities”), the Holders of any Additional Securities (as defined herein) issued hereafter and, if and when issued in exchange for the Initial Securities or any Additional Securities as provided in a Registration Rights Agreement (as hereinafter defined), the Exchange Securities (as hereinafter defined):

ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE

     SECTION 1.1. Definitions.

          “Acquired Indebtedness” means Indebtedness (i) of a Person or any of its Subsidiaries existing at the time such Person becomes or is merged with and into a Restricted Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case whether or not Incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to have been Incurred, with respect to clause (i) of the preceding sentence, on the date such Person becomes or is merged with and into a Restricted Subsidiary and, with respect to clause (ii) of the preceding sentence, on the date of consummation of such acquisition of assets.

          “Additional Assets” means:

          (1) any properties or assets (other than current assets) to be used by the Company or a Restricted Subsidiary in the Oil and Gas Business; or

          (2) the Capital Stock of a Person that is or becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or a Restricted Subsidiary; provided, however, that such Restricted Subsidiary is primarily engaged in the Oil and Gas Business.

          “Additional Interest” means the interest payable as a consequence of the failure to effectuate in a timely manner the exchange offer and/or shelf registration procedures set forth in the Registration Rights Agreement.

          “Additional Securities” means any Securities (other than the Initial Securities or the Exchange Securities) issued under this Indenture in accordance with Section 2.2, as part of the same series as the Initial Securities to the extent outstanding and any Exchange Securities then outstanding.

          “Adjusted Consolidated Net Tangible Assets” of the Company means (without duplication), as of the date of determination, the remainder of:

          (a) the sum of:

          (i) discounted future net revenues from proved oil and gas reserves of the Company and its Restricted Subsidiaries calculated in accordance with SEC guidelines before any state or federal income taxes, as estimated by the Company in a reserve report prepared as of the end of the Company’s most recently completed fiscal year for which audited financial statements are available, which reserve report is prepared, reviewed or audited by independent petroleum engineers, as increased by, as of the date of determination, the estimated discounted future net revenues from

          (A) estimated proved oil and gas reserves acquired since such year end, which reserves were not reflected in such year end reserve report, and

          (B) estimated oil and gas reserves attributable to extensions, discoveries and other additions and upward revisions of estimates of proved oil and gas reserves since such year end due to exploration, development or exploitation, production or other activities, which would, in accordance with standard industry practice, cause such revisions (including the impact to proved reserves and future net revenues from estimated development costs incurred and the accretion of discount since such year end),

and decreased by, as of the date of determination, the estimated discounted future net revenues from

          (C) estimated proved oil and gas reserves produced or disposed of since such year end, and

          (D) estimated oil and gas reserves attributable to downward revisions of estimates of proved oil and gas reserves since such year end due to changes in geological conditions or other factors which would, in accordance with standard industry practice, cause such revisions, in each case calculated on a pre-tax basis and substantially in accordance with SEC guidelines,

in the case of clauses (A) through (D) utilizing prices and costs calculated in accordance with SEC guidelines as if the end of the most recent fiscal quarter preceding the date of determination for which such information is available to the Company were year end; provided, however, that in the case of each of the determinations made pursuant to clauses (A) through (D), such increases and decreases shall be as estimated by the Company’s petroleum engineers;

          (ii) the capitalized costs that are attributable to Oil and Gas Properties of the Company and its Restricted Subsidiaries to which no proved oil and gas reserves are attributable, based on the Company’s books and records as of a date no earlier than the date of the Company’s latest available annual or quarterly financial statements;

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          (iii) the Net Working Capital of the Company and its Restricted Subsidiaries on a date no earlier than the date of the Company’s latest annual or quarterly financial statements; and

          (iv) the greater of

          (A) the net book value of other tangible assets of the Company and its Restricted Subsidiaries, as of a date no earlier than the date of the Company’s latest annual or quarterly financial statements, and

          (B) the appraised value, as estimated by independent appraisers, of other tangible assets of the Company and its Restricted Subsidiaries, as of a date no earlier than the date of the Company’s latest audited financial statements; provided, that, if no such appraisal has been performed the Company shall not be required to obtain such an appraisal and only clause (iv)(A) of this definition shall apply;

minus

          (b) the sum of:

          (i) Minority Interests;

          (ii) any net gas balancing liabilities of the Company and its Restricted Subsidiaries reflected in the Company’s latest annual or quarterly balance sheet (to the extent not deducted in calculating Net Working Capital of the Company in accordance with clause (a)(iii) above of this definition);

          (iii) to the extent included in (a)(i) above, the discounted future net revenues, calculated in accordance with SEC guidelines (but utilizing prices and costs calculated in accordance with SEC guidelines as if the end of the most recent fiscal quarter preceding the date of determination for which such information is available to the Company were year end), attributable to reserves which are required to be delivered to third parties to fully satisfy the obligations of the Company and its Restricted Subsidiaries with respect to Volumetric Production Payments (determined, if applicable, using the schedules specified with respect thereto); and

          (iv) the discounted future net revenues, calculated in accordance with SEC guidelines, attributable to reserves subject to Dollar-Denominated Production Payments which, based on the estimates of production and price assumptions included in determining the discounted future net revenues specified in (a)(i) above, would be necessary to fully satisfy the payment obligations of the Company and its Subsidiaries with respect to Dollar-Denominated Production Payments (determined, if applicable, using the schedules specified with respect thereto).

          If the Company changes its method of accounting from the successful efforts method of accounting to the full cost or a similar method, “Adjusted Consolidated Net Tangible

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Assets” will continue to be calculated as if the Company were still using the successful efforts method of accounting.

          “Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

          “Asset Disposition” means any direct or indirect sale, lease (including by means of Production Payments and Reserve Sales and a Sale/Leaseback Transaction but excluding an operating lease entered into in the ordinary course of the Oil and Gas Business), transfer, issuance or other disposition, or a series of related sales, leases, transfers, issuances or dispositions that are part of a common plan, of (A) any Capital Stock of a Restricted Subsidiary (other than directors’ qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary) or (B) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary (each referred to for the purposes of this definition as a “disposition”), in each case by the Company or any of its Restricted Subsidiaries, including any disposition by means of a merger, consolidation or similar transaction.

Notwithstanding the preceding, the following items shall not be deemed to be Asset Dispositions:

          (1) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary;

          (2) a disposition of cash, Cash Equivalents or other financial assets in the ordinary course of business;

          (3) a disposition of Hydrocarbons in the ordinary course of business;

          (4) a disposition of damaged, unserviceable, obsolete or worn out equipment or equipment that is no longer necessary for the proper conduct of the business of the Company and its Restricted Subsidiaries and that is disposed of in each case in the ordinary course of business;

          (5) transactions in accordance with Section 4.1;

          (6) an issuance of Capital Stock by a Restricted Subsidiary to the Company or to a Restricted Subsidiary;

          (7) the making of a Permitted Investment or a Restricted Payment (or a disposition that would constitute a Restricted Payment but for the exclusions from the definition thereof) permitted by Section 3.3;

          (8) an Asset Swap;

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          (9) dispositions of assets with a Fair Market Value of less than $10.0 million in any single transaction or series of related transactions;

          (10) Permitted Liens;

          (11) dispositions of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or similar arrangements;

          (12) the licensing or sublicensing of intellectual property (including the licensing of seismic data or rights to access and use seismic data libraries);

          (13) any Production Payments and Reserve Sales pursuant to incentive compensation programs on terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists and other providers of technical or management services to the Company or a Restricted Subsidiary;

          (14) surrender or waiver of contract rights, oil and gas leases, or the settlement, release or surrender of contract, tort or other claims of any kind; and

          (15) the abandonment, assignment, farmout, lease, sublease, forfeiture or other disposition of developed or undeveloped Oil and Gas Properties in the ordinary course of business.

          “Asset Swap” means any substantially contemporaneous (and in any event occurring within 180 days of each other) purchase and sale or exchange of any Oil and Gas Assets between the Company or any of its Restricted Subsidiaries and another Person; provided, that any cash received must be applied in accordance with Section 3.5 as if the Asset Swap were an Asset Disposition.

          “Attributable Debt” in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, however, that if such sale and leaseback transaction results in a Capitalized Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of “Capitalized Lease Obligation.”

          “Average Life” means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (2) the sum of all such payments.

          “Bankruptcy Law” means Title 11 of the United States Code or similar federal or state or foreign law for the relief of debtors.

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          “Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

          “Board of Directors” means, as to any Person that is a corporation, the board of directors of such Person or any duly authorized committee thereof or as to any Person that is not a corporation, the board of managers or such other individual or group serving a similar function. For long as the Company is a limited partnership, the board of directors of the General Partner shall be deemed to be the Board of Directors of the Company.

          “Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of a Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification.

          “Business Day” means each day that is not a Saturday, Sunday or other day on which commercial banking institutions in New York, New York are authorized or required by law to close.

          “Capital Stock” of any Person means any and all shares, units, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) the equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into, or exchangeable for, such equity.

          “Capitalized Lease Obligation” means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation will be the capitalized amount of such obligation at the time any determination thereof is to be made as determined in accordance with GAAP, and the Stated Maturity thereof will be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty.

          “Cash Equivalents” means:

          (1) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality of the United States (provided that the full faith and credit of the United States is pledged in support thereof), having maturities of not more than one year from the date of acquisition;

          (2) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s;

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          (3) certificates of deposit, time deposits, eurodollar time deposits, overnight bank deposits or bankers’ acceptances having maturities of not more than one year from the date of acquisition thereof issued by any commercial bank the short-term deposit of which is rated at the time of acquisition thereof at least “A-2” or the equivalent thereof by S&P, or “P-2” or the equivalent thereof by Moody’s, and having combined capital and surplus in excess of $500.0 million;

          (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (1), (2) and (3) entered into with any bank meeting the qualifications specified in clause (3) above;

          (5) commercial paper rated at the time of acquisition thereof at least “A-2” by S&P or “P-2” by Moody’s, and in either case maturing within nine months after the date of acquisition thereof; and

          (6) interests in any investment company or money market fund which invests 95% or more of its assets in instruments of the type specified in clauses (1) through (5) above.

          “Change of Control” means:

          (1) any “person” or “group” of related persons (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the General Partner (or, following the conversion of the Company into another form as described below, more than 50% of the total voting power of the Voting Stock of the successor entity to the Company);

          (2) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors;

          (3) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than to the Company, a Restricted Subsidiary or a Permitted Holder; or

          (4) the adoption by the members of the General Partner or the partners of the Company (or, following the conversion of the Company into another form as described below, its equity holders) of a plan or proposal for the liquidation or dissolution of the Company.

          Notwithstanding the preceding, a conversion (whether by merger, statutory conversion or otherwise) of the Company from a limited partnership to a limited liability company or corporation or an exchange of all of the outstanding partnership interests in the Company for Capital Stock in a corporation or a limited liability company, shall not constitute a Change of Control, so long as following such conversion or exchange the “persons” (as that term is used in Section 13(d)(3) of the Exchange Act) who Beneficially Owned the Capital Stock of

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the General Partner and the Company immediately prior to such transactions continue to Beneficially Own in the aggregate sufficient Capital Stock of such successor entity to elect a majority of its directors, managers trustees or other persons serving in a similar capacity for such successor entity.

          “Code” means the Internal Revenue Code of 1986, as amended.

          “Co-Issuer” has the meaning ascribed to it in the first introductory paragraph of this Indenture, together with its successors and assigns.

          “Commodity Agreements” means, in respect of any Person, any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement in respect of Hydrocarbons used, produced, processed or sold by such Person that is customary in the Oil and Gas Business and designed to protect such Person against fluctuation in Hydrocarbon prices.

          “Common Stock” means with respect to any Person, any and all Capital Stock (however designated and whether voting or nonvoting) of such Person other than any Preferred Stock, whether or not outstanding on the Issue Date, and includes, all series and classes of such Capital Stock.

          “Company” has the meaning ascribed to it in the first introductory paragraph of this Indenture, together with its successors and assigns.

          “Consolidated Coverage Ratio” means, for any Person, as of any date of determination, the ratio of (x) the aggregate amount of Consolidated EBITDAX of such Person for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which financial statements are in existence to (y) Consolidated Interest Expense for such four fiscal quarters, provided, however, that:

          (1) if the Company or any Restricted Subsidiary:

          (a) has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to the Incurrence of such Indebtedness and the use of proceeds thereof as if such Indebtedness had been Incurred on the first day of such period and such proceeds had been applied as of such date (except that in making such computation, the amount of any revolving credit Indebtedness outstanding on the date of such calculation will be deemed to be (i) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period during which such Indebtedness was outstanding or (ii) if such revolving credit Indebtedness was Incurred after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of Incurrence of such revolving credit Indebtedness to the date of such calculation, in each case,

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provided that such average daily balance shall take into account any permanent repayment of such revolving credit Indebtedness as provided in clause (b)); or

          (b) has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of the period, including with the proceeds of such new Indebtedness, that is no longer outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio involves a discharge of Indebtedness (in each case other than any revolving credit Indebtedness, unless such revolving credit Indebtedness has been permanently repaid and the related commitment terminated), Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving effect on a pro forma basis to such discharge of such Indebtedness as if such discharge had occurred on the first day of such period;

          (2) if, since the beginning of such period, the Company or any Restricted Subsidiary has made any Asset Disposition or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is such an Asset Disposition, the Consolidated EBITDAX for such period will be reduced by an amount equal to the Consolidated EBITDAX (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the Consolidated EBITDAX (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with or with the proceeds from such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale);

          (3) if, since the beginning of such period, the Company or any Restricted Subsidiary (by merger or otherwise) has made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary or is merged with or into the Company or a Restricted Subsidiary) or an acquisition (or has received a contribution) of assets, including any acquisition or contribution of assets occurring in connection with a transaction causing a calculation to be made under this Indenture, which constitutes all or substantially all of a Company, division, operating unit, segment, business, group of related assets or line of business, Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition or contribution had occurred on the first day of such period; and

          (4) if, since the beginning of such period, any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) made any Asset

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Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, Consolidated EBITDAX and Consolidated Interest Expense for such period will be calculated after giving pro forma effect thereto as if such Asset Disposition or Investment or acquisition of assets had occurred on the first day of such period.

          For purposes of this definition, whenever pro forma effect is to be given to any calculation under this definition, the pro forma calculations will be determined on behalf of the Company in good faith by a responsible financial or accounting officer of the Company; provided that such officer may in his or her discretion include any reasonably identifiable and factually supportable pro forma changes to Consolidated EBITDAX, including any pro forma expenses and cost reductions, that have occurred or in the judgment of such officer are reasonably expected to occur within 12 months of the date of the applicable transaction (regardless of whether such expense or cost reduction or any other operating improvements could then be reflected properly in pro forma financial statements prepared in accordance with Regulation S-X under the Securities Act or any other regulation or policy of the SEC). If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness will be calculated as if the average rate in effect from the beginning of such period to the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness, but if the remaining term of such Interest Rate Agreement is less than 12 months, then such Interest Rate Agreement shall only be taken into account for that portion of the period equal to the remaining term thereof). If any Indebtedness that is being given pro forma effect bears an interest rate at the option of the Company or any Restricted Subsidiary, the interest rate shall be calculated by applying such optional rate chosen by the Company or such Restricted Subsidiary. Interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Company or the applicable Restricted Subsidiary may designate.

          “Consolidated EBITDAX” for any period means, without duplication, the Consolidated Net Income for such period, plus the following, without duplication and to the extent deducted (and not added back) in calculating such Consolidated Net Income:

          (1) Consolidated Interest Expense;

          (2) Consolidated Income Tax Expense;

          (3) consolidated depletion and depreciation expense of the Company and its Restricted Subsidiaries;

          (4) consolidated amortization expense or impairment charges of the Company and its Restricted Subsidiaries recorded in connection with the application of Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangibles” and Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets”;

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          (5) other non-cash charges of the Company and its Restricted Subsidiaries (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation); and

          (6) the consolidated exploration and abandonment expense of the Company and its Restricted Subsidiaries,

if applicable for such period; and less, to the extent included in calculating such Consolidated Net Income and in excess of any costs or expenses attributable thereto that were deducted (and not added back) in calculating such Consolidated Net Income, the sum of (x) the amount of deferred revenues that is amortized during such period and is attributable to reserves that are subject to Volumetric Production Payments, (y) amounts recorded in accordance with GAAP as repayments of principal and interest pursuant to Dollar-Denominated Production Payments and (z) other non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced Consolidated EBITDAX in any prior period).

          Notwithstanding the preceding sentence, clauses (2) through (6) relating to amounts of a Restricted Subsidiary will be added to Consolidated Net Income to compute Consolidated EBITDAX of the Company only to the extent (and in the same proportion) that the net income (loss) of such Restricted Subsidiary was included in calculating the Consolidated Net Income of the Company and, to the extent the amounts set forth in clauses (2) through (6) are in excess of those necessary to offset a net loss of such Restricted Subsidiary or if such Restricted Subsidiary has net income for such period included in Consolidated Net Income, only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or the holders of its Capital Stock.

          “Consolidated Income Tax Expense” means, with respect to any period, the provision for federal, state, local and foreign taxes (including state franchise taxes) based on income of the Company and its Restricted Subsidiaries for such period as determined in accordance with GAAP, or (for any period in which the Company is a partnership) the Tax Amount for such period.

          “Consolidated Interest Expense” means, for any period, the total consolidated interest expense (excluding interest income) of the Company and its Restricted Subsidiaries, whether paid or accrued, plus, to the extent not included in such interest expense and without duplication:

          (1) interest expense attributable to Capitalized Lease Obligations or Attributable Debt and the interest component of any deferred payment obligations;

          (2) amortization of debt discount and debt issuance cost (provided that any amortization of bond premium will be credited to reduce Consolidated Interest

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Expense unless, pursuant to GAAP, such amortization of bond premium has otherwise reduced Consolidated Interest Expense);

          (3) non-cash interest expense;

          (4) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing;

          (5) the interest expense on Indebtedness of another Person that is guaranteed by the Company or one of its Restricted Subsidiaries or secured by a Lien on assets of the Company or one of its Restricted Subsidiaries;

          (6) cash costs associated with Interest Rate Agreements (including amortization of fees); provided, however, that if Interest Rate Agreements result in net cash benefits rather than costs, such benefits shall be credited to reduce Consolidated Interest Expense unless, pursuant to GAAP, such net benefits are otherwise reflected in Consolidated Net Income;

          (7) the consolidated interest expense of the Company and its Restricted Subsidiaries that was capitalized during such period; and

          (8) all dividends paid or payable in cash, Cash Equivalents or Indebtedness, or accrued during such period, in each case on any series of Disqualified Stock of the Company or on Preferred Stock of its Restricted Subsidiaries payable to a party other than the Company or a Wholly-Owned Subsidiary.

          For the purpose of calculating the Consolidated Coverage Ratio in connection with the Incurrence of any Indebtedness described in the final paragraph of the definition of “Indebtedness,” the calculation of Consolidated Interest Expense shall include all interest expense (including any amounts described in clauses (1) through (8) above) relating to any Indebtedness of the Company or any Restricted Subsidiary described in the final paragraph of the definition of “Indebtedness.”

          “Consolidated Net Income” means, for any period, the aggregate net income (loss) of the Company and its Subsidiaries determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends of such Person, less (for any period the Company is a partnership) the Tax Amount for such period; provided, however, that there will not be included (to the extent otherwise included therein) in such Consolidated Net Income:

          (1) any net income (loss) of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that:

          (a) subject to the limitations contained in clauses (3) and (4) below, the Company’s equity in the net income of any such Person for such period will be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in

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the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (2) below); and

          (b) the Company’s equity in a net loss of any such Person for such period will be included in determining such Consolidated Net Income to the extent such loss has been funded with cash from the Company or a Restricted Subsidiary during such period;

          (2) any net income (but not loss) of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that:

          (a) subject to the limitations contained in clauses (3) and (4) below, the Company’s equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause); and

          (b) the Company’s equity in a net loss of any such Restricted Subsidiary for such period will be included in determining such Consolidated Net Income;

          (3) any gain (loss) realized upon the sale or other disposition of any property, plant or equipment of the Company or its Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (loss) realized upon the sale or other disposition of any Capital Stock of any Person;

          (4) any extraordinary or nonrecurring gains or losses, together with any related provision for taxes (and, without duplication, any related Permitted Tax Distributions) on such gains or losses and all related fees and expenses;

          (5) the cumulative effect of a change in accounting principles;

          (6) any asset impairment writedowns on Oil and Gas Properties under GAAP or SEC guidelines;

          (7) any unrealized non-cash gains or losses or charges in respect of Hedging Obligations (including those resulting from the application of Statement of Financial Accounting Standard No. 133);

          (8) income or loss attributable to discontinued operations (including operations disposed of during such period whether or not such operations were classified as discontinued);

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          (9) all deferred financing costs written off, and premiums paid, in connection with any early extinguishment of Indebtedness; and

          (10) any non-cash compensation charge arising from any grant of stock, stock options or other equity based awards; provided that the proceeds resulting from any such grant will be excluded from clause (ii) of the definition of Basket Amount in Section 3.3.

          “Continuing Directors” means, as of any date of determination, any member of the Board of Directors of the Company who: (1) was a member of such Board of Directors on the date of this Indenture; or (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.

          “Credit Facility” means, with respect to the Company or any Subsidiary Guarantor, one or more debt facilities (including, without limitation, the Senior Secured Credit Agreement), or commercial paper facilities providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit from banks or other institutional lenders, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time (and whether or not with the original administrative agent and lenders or another administrative agent or agents or other lenders and whether provided under the original Senior Secured Credit Agreement or any other credit or other agreement or indenture).

          “Currency Agreement” means in respect of a Person any foreign exchange contract, currency swap agreement, futures contract, option contract or other similar agreement as to which such Person is a party or a beneficiary.

          “Custodian” means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law.

          “Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.

          “Definitive Securities” means certificated Securities.

          “Disqualified Stock” means, with respect to any Person, any Capital Stock of such Person which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) at the option of the holder of the Capital Stock or upon the happening of any event:

          (1) matures or is mandatorily redeemable (other than redeemable only for Capital Stock of such Person which is not itself Disqualified Stock) pursuant to a sinking fund obligation or otherwise;

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          (2) is convertible or exchangeable for Disqualified Stock or other Indebtedness (excluding Capital Stock which is convertible or exchangeable solely at the option of the Company or a Restricted Subsidiary); or

          (3) is required to be repurchased by such Person at the option of the holder of the Capital Stock in whole or in part,

in each case on or prior to the date that is 91 days after the earlier of the date (a) of the Stated Maturity of the Securities or (b) on which there are no Securities outstanding; provided that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so required to be repurchased at the option of the holder thereof prior to such date will be deemed to be Disqualified Stock; provided further, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company or any of its Restricted Subsidiaries to repurchase such Capital Stock upon the occurrence of a change of control or asset sale (each defined in a substantially identical manner to the corresponding definitions in this Indenture) shall not constitute Disqualified Stock if the terms of such Capital Stock (and all such securities into which it is convertible or for which it is exchangeable) provide that (i) the Company and its Restricted Subsidiaries may not repurchase or redeem any such Capital Stock (and all such securities into which it is convertible or for which it is ratable or exchangeable) pursuant to such provision prior to compliance by the Company and its Restricted Subsidiaries with Section 3.9 and Section 3.5 and (ii) such repurchase or redemption will be permitted solely to the extent also permitted in accordance with Section 3.3.

          “Dollar-Denominated Production Payments” means production payment obligations recorded as liabilities in accordance with GAAP, together with all undertakings and obligations in connection therewith.

          “Domestic Subsidiary” means any Restricted Subsidiary that is not a Foreign Subsidiary.

          “DTC” means The Depository Trust Company, its nominees and their respective successors and assigns, or such other depository institution hereinafter appointed by the Issuers.

          “Equity Offering” means a public or private offering for cash by the Company of its Capital Stock (other than Disqualified Stock).

          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

          “Exchange Securities” means Securities issued in an exchange offer for Initial Securities or Additional Securities pursuant to the Registration Rights Agreement

          “Fair Market Value” means, with respect to any asset or property, the sale value that would be obtained in an arm’s-length free market transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. Fair Market Value of an asset or property in excess of $20.0 million shall be determined by the Board of Directors of the Company acting in good faith, whose determination

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shall be conclusive and evidenced by a resolution of such Board of Directors, and any lesser Fair Market Value may be determined by an officer of the Company acting in good faith.

          “Foreign Subsidiary” means any Restricted Subsidiary that is not organized under the laws of the United States of America or any state thereof or the District of Columbia and that conducts substantially all of its operations outside the United States of America.

          “GAAP” means generally accepted accounting principles in the United States of America as in effect on the Issue Date. All ratios and computations based on GAAP contained in this Indenture will be computed in conformity with GAAP.

          “General Partner” means Alta Mesa Holdings GP, LLC, a Texas limited liability company, and its successors as general partner of the Company.

          “guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person:

          (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise); or

          (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);

provided, however, that the term “guarantee” will not include endorsements for collection or deposit in the ordinary course of business or any obligation to the extent it is payable only in Capital Stock of the guarantor that is not Disqualified Stock. The term “guarantee” used as a verb has a corresponding meaning.

          “Guarantor Subordinated Obligation” means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinated in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement.

          “Hedging Obligations” of any Person means the obligations of such Person pursuant to any Interest Rate Agreement, Currency Agreement or Commodity Agreement.

          “Holder” or “Securityholder” means a Person in whose name a Security is registered in the Securities Register.

          “Hydrocarbons” means oil, natural gas, casing head gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all constituents, elements or compounds thereof and products refined or processed therefrom.

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          “IAI” means an institutional “accredited investor” as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.

          “Immaterial Subsidiary” means, as of any date, any Restricted Subsidiary with no Indebtedness in excess of $500,000 (excluding guarantees of Indebtedness under the Senior Secured Credit Agreement by Brayton Resources, L.P., Brayton Resources II, L.P. and Orion Operating Company, LP), and whose total assets, as of the end of the most recent month for which financial statements are available, taken together with those of all other Immaterial Subsidiaries, are less than 1.0% of the Company’s Adjusted Consolidated Net Tangible Assets and whose total revenues, taken together with those of all other Immaterial Subsidiaries, for the most recent 12-month period for which financial statements are available do not exceed 1.0% of the Company’s total consolidated revenues for such period.

          “Incur” means issue, create, assume, guarantee, incur or otherwise become directly or indirectly liable for, contingently or otherwise; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) will be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; and the terms “Incurred” and “Incurrence” have meanings correlative to the foregoing.

          “Indebtedness” means, with respect to any Person on any date of determination (without duplication, whether or not contingent):

          (1) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money;

          (2) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

          (3) the principal component of all obligations of such Person in respect of letters of credit, bankers’ acceptances or other similar instruments (including reimbursement obligations with respect thereto except to the extent such reimbursement obligation relates to a trade payable and except to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such obligation is satisfied within five Business Days of payment on the letter of credit);

          (4) the principal component of all obligations of such Person to pay the deferred and unpaid purchase price of property, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto to the extent such obligations would appear as liabilities upon the consolidated balance sheet of such Person in accordance with GAAP, or as obligor on conditional sales of property or under any title retention agreement;

          (5) Capitalized Lease Obligations or Attributable Debt of such Person;

          (6) the principal component or liquidation preference of all obligations of such Person with respect to the redemption, repayment or other repurchase of any

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Disqualified Stock or, with respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends);

          (7) the principal component of all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of such Indebtedness will be the lesser of (a) the Fair Market Value of such asset at such date of determination and (b) the amount of such Indebtedness of such other Persons;

          (8) the principal component of Indebtedness of other Persons to the extent guaranteed by such Person; and

          (9) to the extent not otherwise included in this definition, net obligations of such Person under Commodity Agreements, Currency Agreements and Interest Rate Agreements (the amount of any such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such obligation that would be payable by such Person at such time);

provided, however, that any indebtedness which has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Cash Equivalents (in an amount sufficient to satisfy all such indebtedness obligations at maturity or redemption, as applicable, and all payments of interest and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such indebtedness, and subject to no other Liens, shall not constitute “Indebtedness.”

          The amount of Indebtedness of any Person at any date will be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date.

          Notwithstanding the preceding, “Indebtedness” shall not include:

          (1) Production Payments and Reserve Sales;

          (2) any obligation of a Person in respect of a farm-in agreement or similar arrangement whereby such Person agrees to pay all or a share of the drilling, completion or other expenses of an exploratory or development well (which agreement may be subject to a maximum payment obligation, after which expenses are shared in accordance with the working or participation interest therein or in accordance with the agreement of the parties) or perform the drilling, completion or other operation on such well in exchange for an ownership interest in an Oil and Gas Property;

          (3) any obligations under Currency Agreements, Commodity Agreements and Interest Rate Agreements; provided that such Agreements are entered into for bona fide hedging purposes of the Company or its Restricted Subsidiaries (as determined in good faith by the Board of Directors or senior management of the Company, whether or not accounted for as a hedge in accordance with GAAP) and, in the case of Currency Agreements or Commodity Agreements, such Currency Agreements or Commodity Agreements are related to business transactions of the Company or its

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Restricted Subsidiaries entered into in the ordinary course of business and, in the case of Interest Rate Agreements, such Interest Rate Agreements substantially correspond in terms of notional amount, duration and interest rates, as applicable, to Indebtedness of the Company or its Restricted Subsidiaries Incurred without violation of this Indenture;

          (4) any obligation arising from customary agreements of the Company or a Restricted Subsidiary providing for indemnification, guarantees, adjustment of purchase price, holdbacks, contingency payment obligations or similar obligations, in each case, Incurred or assumed in connection with the acquisition or disposition of any business, assets or Capital Stock of a Restricted Subsidiary, provided that such Indebtedness is not reflected on the face of the balance sheet of the Company or any Restricted Subsidiary;

          (5) any obligation arising from the honoring by a bank or other financial institution of a check, draft or similar instrument (including daylight overdrafts) drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is extinguished within five Business Days of Incurrence;

          (6) in-kind obligations relating to net oil or natural gas balancing positions arising in the ordinary course of business; and

          (7) accrued expenses and trade payables and other accrued liabilities arising in the ordinary course of business that are not overdue by 90 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted.

          In addition, “Indebtedness” of any Person shall include Indebtedness described in the first paragraph of this definition of “Indebtedness” whether or not it would appear as a liability on the balance sheet of such Person if:

          (1) such Indebtedness is the obligation of a joint venture or partnership that is not a Restricted Subsidiary (a “Joint Venture”);

          (2) such Person or a Restricted Subsidiary of such Person is a general partner of the Joint Venture or otherwise liable for all or a portion of the Joint Venture’s liabilities (a “general partner”); and

          (3) there is recourse, by contract or operation of law, with respect to the payment of such Indebtedness to property or assets of such Person or a Restricted Subsidiary of such Person;

and then such Indebtedness shall be included in an amount not to exceed:

          (a) the lesser of (i) the net assets of the general partner and (ii) the amount of such obligations to the extent that there is recourse, by contract or operation of law, to the property or assets of such Person or a Restricted Subsidiary of such Person; or

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          (b) if less than the amount determined pursuant to clause (a) immediately above, the actual amount of such Indebtedness that is with recourse to such Person or a Restricted Subsidiary of such Person, if the Indebtedness is evidenced by a writing and is for a determinable amount.

          “Indenture” means this Indenture as amended or supplemented from time to time.

          “Initial Purchasers” means the several initial purchasers listed in Schedule 1 of the Purchase Agreement dated October 7, 2010 among the Issuers, the Subsidiary Guarantors and such initial purchasers relating to the Initial Securities.

          “Initial Securities” has the meaning ascribed to it in the first introductory paragraph of this Indenture, together with any Security issued upon registration of transfer thereof of or in exchange therefor.

          “Interest Rate Agreement” means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary.

          “Investment” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of any direct or indirect advance, loan or other extensions of credit (including by way of guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit other than a time deposit and advances or extensions of credit to customers in the ordinary course of business) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments (excluding any interest in an oil or natural gas leasehold to the extent constituting a security under applicable law) issued by, such other Person and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that none of the following will be deemed to be an Investment:

          (1) Hedging Obligations entered into in the ordinary course of business and in compliance with this Indenture; and

          (2) endorsements of negotiable instruments and documents in the ordinary course of business.

The amount of any Investment shall not be adjusted for increases or decreases in value, write-ups, write-downs or write-offs with respect to such Investment.

          For purposes of the definition of “Unrestricted Subsidiary” and Section 3.3,

          (1) “Investment” will include the portion (proportionate to the Company’s equity interest in a Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the Fair Market Value of the net assets of such Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided,

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however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company will be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary in an amount (if positive) equal to

          (a) the Company’s “Investment” in such Subsidiary at the time of such redesignation less (b) the portion (proportionate to the Company’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time that such Subsidiary is so redesignated a Restricted Subsidiary; and

          (2) any property transferred to or from an Unrestricted Subsidiary will be valued at its Fair Market Value at the time of such transfer.

          “Issue Date” means the first date on which the Securities are issued under this Indenture.

          “Issuers” means the Persons named as the “Issuers” in the first introductory paragraph of this instrument until a successor Person or Persons shall become such pursuant to the applicable provisions of this Indenture, and thereafter “Issuers” shall mean such successor Person or Persons.

          “Lien” means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge, hypothecation, charge, security interest, preference, priority or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a precautionary financing statement not intended as a security agreement.

          “Minority Interest” means the percentage interest represented by any class of Capital Stock of a Restricted Subsidiary that are not owned by the Company or a Restricted Subsidiary.

          “Moody’s” means Moody’s Investors Service, Inc., or any successor to the rating agency business thereof.

          “Net Available Cash” from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and net proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the assets that are the subject of such Asset Disposition or received in any other non-cash form) therefrom, in each case net of:

          (1) all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses Incurred, and all federal, state, provincial, foreign and local taxes (or Permitted Tax Distributions in respect thereof)

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required to be paid or accrued as a liability under GAAP (after taking into account any available tax credits or deductions and any tax sharing agreements), as a consequence of such Asset Disposition;

          (2) all payments made on any Hedging Obligation or other Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition;

          (3) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures or to holders of royalty or similar interests as a result of such Asset Disposition;

          (4) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition; and

          (5) all relocation expenses incurred as a result thereof and all related severance and associated costs, expenses and charges of personnel related to assets and related operations disposed of;

provided, however, that if any consideration for an Asset Disposition (that would otherwise constitute Net Available Cash) is required to be held in escrow pending determination of whether or not a purchase price adjustment will be made, such consideration (or any portion thereof) shall become Net Available Cash only at such time as it is released to the Company or any of its Restricted Subsidiaries from escrow.

          “Net Cash Proceeds” with respect to any issuance or sale of Capital Stock or any contribution to equity capital, means the cash proceeds of such issuance, sale or contribution net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, listing fees, discounts or commissions and brokerage, consultant and other fees and charges actually Incurred in connection with such issuance, sale or contribution and net of taxes paid or payable as a result of such issuance or sale (after taking into account any available tax credit or deductions and any tax sharing arrangements).

          “Net Working Capital” means (a) the sum of all current assets of the Company and its Restricted Subsidiaries, except current assets from commodity price risk management activities arising in the ordinary course of the Oil and Gas Business, (other than accounts receivable with respect to any non-contingent periodic settlement payments due thereunder), less (b) all current liabilities of the Company and its Restricted Subsidiaries, except current liabilities (i) associated with asset retirement obligations relating to Oil and Gas Properties, (ii) included in Indebtedness and (iii) any current liabilities of the Company and its Restricted Subsidiaries from commodity price risk management activities arising in the ordinary course of the Oil and Gas Business, (other than accounts payable with respect to any non-contingent periodic settlement

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payments due thereunder), in each case as set forth in the consolidated financial statements of the Company prepared in accordance with GAAP.

          “Non-Recourse Debt” means Indebtedness of a Person:

          (1) as to which neither the Company nor any Restricted Subsidiary (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise) or (c) constitutes the lender;

          (2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default under such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity; and

          (3) the explicit terms of which provide there is no recourse against any of the assets of the Company or its Restricted Subsidiaries.

          “Non-U.S. Person” means a Person who is not a U.S. Person (as defined in Regulation S).

          “Obligations” means any principal, interest (including any interest accruing subsequent to the filing of a petition in bankruptcy, reorganization or similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable state, federal or foreign law), other monetary obligations, penalties, fees, indemnifications, reimbursements (including reimbursement obligations with respect to letters of credit and banker’s acceptances), damages and other liabilities, and guarantees of payment of such principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities, payable under the documentation governing any Indebtedness.

          “Offering Memorandum” means the offering memorandum, dated October 7, 2010, relating to the offering by the Issuers of the Initial Securities.

          “Officer” means the Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, Chief Accounting Officer, any Vice President, the Treasurer or the Secretary of an Issuer. Officer of any Subsidiary Guarantor has a correlative meaning, and in the case of the Company (so long as it is a limited partnership), Officer means an Officer of its General Partner.

          “Officers’ Certificate” means a certificate signed by two Officers of the Company, at least one of whom shall be the Chief Executive Officer, the Chief Financial Officer or the Chief Accounting Officer of the Company.

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          “Oil and Gas Business” means the business of exploiting, exploring for, developing, acquiring, operating, producing, processing, gathering, marketing, storing, selling, hedging, treating, swapping and transporting (but not refining) Hydrocarbons.

          “Oil and Gas Properties” means any and all rights, titles, interests and estates in and to (1) oil or gas leases or (2) other liquid or gaseous Hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, in each case including any reserved or residual interests of whatever nature.

          “Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Issuers, a Subsidiary Guarantor or the Trustee.

          “Pari Passu Indebtedness” means any Indebtedness of the Company, the Co-Issuer or any Subsidiary Guarantor that ranks equally in right of payment to the Securities or the Subsidiary Guarantees, as the case may be.

          “Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56, as amended, and signed into law October 26, 2001.

          “Permitted Acquisition Indebtedness” means Indebtedness (including Disqualified Stock) of the Company or any of the Restricted Subsidiaries to the extent such Indebtedness was Indebtedness:

          (1) of an acquired Person prior to the date on which such Person became a Restricted Subsidiary as a result of having been acquired and not incurred in contemplation of such acquisition; or

          (2) of a Person that was merged or consolidated with or into the Company or a Restricted Subsidiary that was not incurred in contemplation of such merger or consolidation,

provided that on the date such Person became a Restricted Subsidiary or the date such Person was merged or consolidated with or into the Company or a Restricted Subsidiary, as applicable, after giving pro forma effect thereto, the Restricted Subsidiary or the Company, as applicable, would be permitted to incur at least $1.00 of additional Indebtedness pursuant to Section 3.2(a).

          “Permitted Business Investment” means any Investment made in the ordinary course of, and of a nature that is or shall have become customary in, the Oil and Gas Business through agreements, transactions, interests or arrangements which permit one to share risks or costs, comply with regulatory requirements regarding local ownership or satisfy other objectives customarily achieved through the conduct of the Oil and Gas Business jointly with third parties including:

          (1) ownership interests in oil, natural gas, other Hydrocarbon and mineral properties, processing facilities, gathering systems, pipelines, storage facilities or related systems or ancillary real property interests; and

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          (2) Investments in the form of or pursuant to operating agreements, working interests, royalty interests, mineral leases, processing agreements, farm-in agreements, farm-out agreements, contracts for the sale, transportation or exchange of oil, natural gas, other Hydrocarbons and minerals, production sharing agreements, participation agreements, development agreements, area of mutual interest agreements, unitization agreements, pooling agreements, joint bidding agreements, service contracts, joint venture agreements, partnership agreements (whether general or limited), subscription agreements, stock purchase agreements, stockholder agreements and other similar agreements (including for limited liability companies) with third parties.

          “Permitted Holder” means any of the following (A) (i) Mike Ellis, Mickey Ellis and their children, estates, heirs or lineal descendants, (ii) any trust having as its sole beneficiaries one or more of the persons listed in clause (A)(i) above, (iii) any Person a majority of the Voting Stock of which is owned or controlled by one or more of the Persons referred to in clauses (A)(i) or (ii); (B) Denham Capital Management LP and any of its affiliates (other than any operating company in which it has a portfolio investment) and (C) any group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision) of which any of the forgoing are members.

          “Permitted Investment” means an Investment by the Company or any Restricted Subsidiary in:

          (1) the Company or a Restricted Subsidiary;

          (2) another Person whose primary business is the Oil and Gas Business if as a result of such Investment such other Person becomes a Restricted Subsidiary or is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is the Oil and Gas Business;

          (3) cash and Cash Equivalents;

          (4) receivables owing to the Company or any Restricted Subsidiary created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances;

          (5) payroll, commission, travel, relocation, expense and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business;

          (6) loans or advances to employees (other than executive officers) made in the ordinary course of business of the Company or such Restricted Subsidiary;

          (7) Capital Stock or other securities received in settlement of debts (x) created in the ordinary course of business and owing to the Company or any Restricted

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Subsidiary or in satisfaction of judgments or (y) pursuant to any plan of reorganization or similar arrangement in a bankruptcy or insolvency proceeding;

          (8) any Person as a result of the receipt of non-cash consideration from an Asset Disposition that was made pursuant to and in compliance with Section 3.5;

          (9) Investments in existence on the Issue Date;

          (10) Commodity Agreements, Currency Agreements, Interest Rate Agreements described in clause (3) of the penultimate paragraph of the definition of “Indebtedness,” and related Hedging Obligations;

          (11) guarantees issued in accordance with Section 3.2;

          (12) Permitted Business Investments;

          (13) any Person to the extent such Investments consist of prepaid expenses, negotiable instruments held for collection and lease, utility and workers’ compensation, performance and other similar deposits made in the ordinary course of business by the Company or any Restricted Subsidiary;

          (14) guarantees of performance or other obligations (other than Indebtedness) arising in the ordinary course of the Oil and Gas Business, including obligations under oil and natural gas exploration, development, joint operating, and related agreements and licenses, concessions or operating leases related to the Oil and Gas Business;

          (15) Investments in the Securities;

          (16) Investments made after the Issue Date in Unrestricted Subsidiaries in an aggregate amount outstanding at any time not to exceed $10.0 million; and

          (17) Investments by the Company or any of its Restricted Subsidiaries, together with all other Investments pursuant to this clause (17), in an aggregate amount outstanding at the time of such Investment not to exceed the greater of (i) $25.0 million and (ii) 2.5% of the Company’s Adjusted Consolidated Net Tangible Assets.

          “Permitted Liens” means, with respect to any Person:

          (1) Liens securing Indebtedness under a Credit Facility permitted to be Incurred under clause (1) of Section 3.2(b);

          (2) pledges or deposits by such Person under workers’ compensation laws, unemployment insurance laws, social security or old age pension laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits (which may be secured by a Lien) to secure public or statutory obligations of such Person including letters of credit and bank guarantees required or requested by the United States,

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any State thereof or any foreign government or any subdivision, department, agency, organization or instrumentality of any of the foregoing in connection with any contract or statute (including lessee or operator obligations under statutes, governmental regulations, contracts or instruments related to the ownership, exploration and production of oil, natural gas, other hydrocarbons and minerals on state, federal or foreign lands or waters), or deposits of cash or United States government bonds to secure indemnity performance, surety or appeal bonds or other similar bonds to which such Person is a party, or deposits as security for contested taxes or import or customs duties or for the payment of rent, in each case Incurred in the ordinary course of business;

          (3) statutory and contractual Liens of landlords and Liens imposed by law, including carriers’, warehousemen’s, mechanics’, materialmen’s and repairmen’s Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings if a reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made in respect thereof;

          (4) Liens for taxes, assessments or other governmental charges or claims not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings; provided that appropriate reserves, if any, required pursuant to GAAP have been made in respect thereof;

          (5) Liens in favor of issuers of surety or performance bonds or bankers’ acceptances issued pursuant to the request of and for the account of such Person in the ordinary course of its business;

          (6) survey exceptions, encumbrances, ground leases, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning, building codes or other restrictions (including minor defects or irregularities in title and similar encumbrances) as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties or assets which do not in the aggregate materially adversely affect the value of the properties or assets of such Person and its Restricted Subsidiaries, taken as a whole, or materially impair their use in the operation of the business of such Person;

          (7) Liens arising from the deposit of funds or securities in trust for the purpose of decreasing or defeasing Indebtedness so long as such deposit of funds or securities and such decreasing or defeasing of Indebtedness are permitted under the covenant described under Section 3.2;

          (8) Liens arising from leases, licenses, subleases and sublicenses of any property or assets (including real property and intellectual property rights) entered into in the ordinary course of the Oil and Gas Business;

          (9) prejudgment Liens and judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment have

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not been finally terminated or the period within which such proceedings may be initiated has not expired;

          (10) Liens for the purpose of securing the payment of all or a part of the purchase price of, or Capitalized Lease Obligations, purchase money obligations or other payments Incurred to finance the acquisition, lease, improvement or construction of or repairs or additions to, assets or property acquired or constructed in the ordinary course of business; provided that:

          (a) the aggregate principal amount of Indebtedness secured by such Liens is otherwise permitted to be Incurred under this Indenture and does not exceed the cost of the assets or property so acquired or constructed; and

          (b) such Liens are created within 180 days of the later of the acquisition, lease, completion of improvements, construction, repairs or additions or commencement of full operation of the assets or property subject to such Lien and do not encumber any other assets or property of the Company or any Restricted Subsidiary other than such assets or property and assets affixed or appurtenant thereto;

          (11) Liens arising solely by virtue of any statutory or common law provisions relating to banker’s Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depositary institution; provided that:

          (a) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the Federal Reserve Board; and

          (b) such deposit account is not intended by the Company or any Restricted Subsidiary to provide collateral to the depository institution;

          (12) Liens arising from deposits made in the ordinary course of business to secure any liability to insurance carriers;

          (13) Liens existing on the Issue Date;

          (14) Liens on any property or assets of a Person at the time such Person becomes a Subsidiary; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such other Person becoming a Subsidiary; provided further, however, that any such Lien may not extend to any other property or assets owned by the Company or any Restricted Subsidiary (other than any property or assets affixed or appurtenant thereto);

          (15) Liens on any property or assets at the time the Company or any of its Subsidiaries acquired the property or assets, including any acquisition by means of a merger or consolidation with or into the Company or any of its Subsidiaries; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such acquisition; provided further, however, that such Liens may not

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extend to any other property or assets owned by the Company or any Restricted Subsidiary (other than any property or assets affixed or appurtenant thereto);

          (16) Liens securing the Securities, the Subsidiary Guarantees and any other Obligations under this Indenture;

          (17) Liens securing Refinancing Indebtedness Incurred to refinance Indebtedness described under clauses (10), (13), (14), (15) or this clause (17) that was previously so secured, provided that any such Lien is limited to all or part of the same property or assets that secured (or, under the written arrangements under which the original Lien arose, could secure) the Indebtedness being refinanced or is in respect of property or assets that is the security for a Permitted Lien hereunder;

          (18) any interest or title of a lessor under any operating lease;

          (19) Liens arising under farm-out agreements, farm-in agreements, division orders, contracts for the sale, purchase, exchange, transportation, gathering or processing of Hydrocarbons, unitizations and pooling designations, declarations, orders and agreements, development agreements, joint venture agreements, partnership agreements, operating agreements, royalties, working interests, net profits interests, joint interest billing arrangements, participation agreements, production sales contracts, area of mutual interest agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or geophysical permits or agreements, and other agreements that are customary in the Oil and Gas Business; provided, however, in all instances that such Liens are limited to the property or assets that are the subject of the relevant agreement, program, order or contract;

          (20) Liens on pipelines or pipeline facilities that arise by operation of law;

          (21) Liens in favor of the Company, the Co-Issuer or any Subsidiary Guarantor; and

          (22) Liens securing Indebtedness in an aggregate principal amount outstanding at any one time, added together with all other Indebtedness secured by Liens Incurred pursuant to this clause (22), not to exceed the greater of (a) $10.0 million and (b) 1.0% of the Company’s Adjusted Consolidated Net Tangible Assets.

In each case set forth above, notwithstanding any stated limitation on the property or assets that may be subject to such Lien, a Permitted Lien on a specified property or asset or group or type of properties or assets may include Liens on all improvements, additions and accessions thereto and all products and proceeds thereof (including dividends, distributions and increases in respect thereof).

          “Permitted Tax Distributions” means for any calendar year or portion thereof of the Company during which it is a pass-through entity for U.S. federal income tax purposes, payments and distributions to the partners of the Company on each estimated payment date as

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well as each other applicable due date to enable the partners of the Company (or, if any of them are themselves a pass-through entity for US. Federal income tax purposes, their shareholders or partners) to make payments of U.S. federal and state income taxes (including estimates therefor) as a result of the operations of the Company and its Subsidiaries during the current and any previous calendar year, not to exceed an amount equal to the amount of each such partner’s (or, in the case of a pass-through entity, its shareholders’ or partners’) U.S. federal and state income tax liability resulting solely from the pass-through tax treatment of such partner’s interest in the Company and as calculated pursuant to the limited partnership agreement of the Company as in effect on the Issue Date and as it may be amended from time to time thereafter in a manner that is not, considered as a whole, materially adverse to the holders of the Securities.

          “Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company, government or any agency or political subdivision thereof or any other entity.

          “Preferred Stock” as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person.

          “Production Payments and Reserve Sales” means the grant or transfer by the Company or a Restricted Subsidiary to any Person of a royalty, overriding royalty, net profits interest, production payment (whether volumetric or dollar denominated), partnership or other interest in Oil and Gas Properties, reserves or the right to receive all or a portion of the production or the proceeds from the sale of production attributable to such properties where the holder of such interest has recourse solely to such production or proceeds of production, subject to the obligation of the grantor or transferor to operate and maintain, or cause the subject interests to be operated and maintained, in a reasonably prudent manner or other customary standard or subject to the obligation of the grantor or transferor to indemnify for environmental, title or other matters customary in the Oil and Gas Business, including any such grants or transfers pursuant to incentive compensation programs on terms that are reasonably customary in the Oil and Gas Business for geologists, geophysicists or other providers of technical or management services to the Company or a Restricted Subsidiary.

          “QIB” means any “qualified institutional buyer” as such term is defined in Rule 144A.

          “Redemption Date” means, with respect to any redemption of Securities, the date of redemption with respect thereto.

          “Refinancing Indebtedness” means Indebtedness that is Incurred to refund, refinance, replace, exchange, renew, repay, extend, prepay, redeem or retire (including pursuant to any defeasance or discharge mechanism) (collectively, “refinance” and the terms “refinances” and “refinanced” shall have correlative meanings) any Indebtedness (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary, but

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excluding Indebtedness of a Restricted Subsidiary that refinances Indebtedness of the Company), including Indebtedness that refinances Refinancing Indebtedness, provided, however, that:

          (1) (a) if the Stated Maturity of the Indebtedness being refinanced is earlier than the Stated Maturity of the Securities, the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced or (b) if the Stated Maturity of the Indebtedness being refinanced is later than the Stated Maturity of the Securities, the Refinancing Indebtedness has a Stated Maturity at least 91 days later than the Stated Maturity of the Securities;

          (2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced;

          (3) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced (plus, without duplication, any additional Indebtedness Incurred to pay interest, premiums or defeasance costs required by the instruments governing such existing Indebtedness and fees and expenses Incurred in connection therewith); and

          (4) if the Indebtedness being refinanced is subordinated in right of payment to the Securities or a Subsidiary Guarantee, such Refinancing Indebtedness is subordinated in right of payment to the Securities or the Subsidiary Guarantee on terms at least as favorable to the holders as those contained in the documentation governing the Indebtedness being refinanced.

          “Registration Rights Agreement” means that certain registration rights agreement dated as of the Issue Date by and among the Issuers, the Subsidiary Guarantors and the Initial Purchasers and, with respect to any Additional Securities, one or more substantially similar registration rights agreements among the Issuers and the other parties thereto, as any such agreement may be amended from time to time.

          “Regulation S” means Regulation S under the Securities Act.

          “Restricted Investment” means any Investment other than a Permitted Investment.

          “Restricted Securities” means Initial Securities and Additional Securities bearing one of the restrictive legends described in Section 2.1(d).

          “Restricted Securities Legend” means the legend set forth in Section 2.1(d)(1) and, in the case of the Temporary Regulation S Global Note, the legend set forth in Section 2.1(d)(2).

          “Restricted Subsidiary” means any Subsidiary of the Company, including the Co-Issuer, other than an Unrestricted Subsidiary.

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          “Rule 144A” means Rule 144A under the Securities Act.

          “S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor to the rating agency business thereof.

          “Sale/Leaseback Transaction” means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person.

          “SEC” means the United States Securities and Exchange Commission.

          “Securities” means securities issued under this Indenture. The Initial Securities, the Exchange Securities and the Additional Securities shall be treated as a single class for all purposes under this Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase and unless otherwise provided or the context otherwise requires, all references to “the Securities” shall include the Initial Securities, the Exchange Securities and the Additional Securities.

          “Securities Act” means the Securities Act of 1933 (15 U.S.C. §§ 77a-77aa), as amended, and the rules and regulations of the SEC promulgated thereunder.

          “Securities Custodian” means the custodian with respect to the Global Security (as appointed by DTC), or any successor Person thereto and shall initially be the Trustee.

          “Senior Secured Credit Agreement” means the Sixth Amended and Restated Credit Agreement dated as of May 13, 2010 among the Company, as borrower, Wells Fargo Bank, National Association, as administrative agent and the lenders parties thereto from time to time, including any guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, renewals, restatements, refundings or refinancings thereof with other revolving credit facilities with banks or other institutional lenders or investors that replace, refund or refinance any part of the loans or commitments thereunder, including any such replacement, refunding or refinancing revolving credit facility that increases the amount borrowable thereunder or alters the maturity thereof.

          “Shelf Registration Statement” shall have the meaning set forth in the applicable Registration Rights Agreement.

          “Significant Subsidiary” means any Restricted Subsidiary that would be a “Significant Subsidiary” of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC, as in effect on the Issue Date.

          “Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision, but shall not include any contingent obligations to repay, redeem or repurchase any such principal prior to the date originally scheduled for the payment thereof.

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          “Subordinated Obligation” means any Indebtedness of the Company or the Co-Issuer (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinated in right of payment to the Securities pursuant to a written agreement.

          “Subsidiary” of any Person means (a) any corporation, association or other business entity (other than a partnership, joint venture, limited liability company or similar entity) of which more than 50% of the Voting Stock or (b) any partnership, joint venture, limited liability company or similar entity of which more than 50% of the capital accounts, distribution rights, total equity and voting interests or general or limited partnership interests, as applicable, is, in the case of clauses (a) and (b), at the time owned or controlled, directly or indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person. Unless otherwise specified herein, each reference to a Subsidiary (other than in this definition) refers to a Subsidiary of the Company.

          “Subsidiary Guarantee” means, individually, any guarantee of payment of the Securities by a Subsidiary Guarantor pursuant to the terms of this Indenture and any supplemental indenture thereto, and, collectively, all such guarantees.

          “Subsidiary Guarantor” means any Subsidiary of the Company that is a guarantor of the Securities, including any Person that is required after the Issue Date to guarantee the Securities pursuant to Section 3.11, in each case until a successor replaces such Person pursuant to the applicable provisions of this Indenture and, thereafter, means such successor; provided, however, that the Co-Issuer shall not be a Subsidiary Guarantor.

          “Tax Amount” means, for any period, the combined federal, state and local income taxes, including estimated taxes, that would be payable by the Company if it were a Texas corporation filing separate tax returns with respect to its Taxable Income for such period; provided that in determining the Tax Amount, the effect thereon of any net operating loss carryforwards or other carryforwards or tax attributes, such as alternative minimum tax carryforwards, that would have arisen if the Company were a Texas corporation shall be taken into account; provided, further, that, if there is an adjustment in the amount of the Taxable Income for any period, an appropriate positive or negative adjustment shall be made in the Tax Amount, and if the Tax Amount is negative, then the Tax Amount for succeeding periods shall be reduced to take into account such negative amount until such negative amount is reduced to zero. Notwithstanding anything to the contrary, Tax Amount shall not include taxes resulting from the Company’s reorganization as, or change in the status to, a corporation for tax purposes.

          “Taxable Income” means, for any period, the taxable income or loss of the Company for such period for U.S. federal income tax purposes.

          “TIA” or “Trust Indenture Act” means the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb), as in effect on the date of this Indenture.

          “Trustee” means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor.

          “Trust Officer” means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice

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president, secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person’s knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture.

          “Unrestricted Subsidiary” means:

          (1) any Subsidiary of the Company (other than the Co-Issuer) that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of the Company in the manner provided below; and

          (2) any Subsidiary of an Unrestricted Subsidiary.

          The Board of Directors of the Company may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary or a Person becoming a Subsidiary through merger or consolidation or Investment therein) to be an Unrestricted Subsidiary only if:

          (1) such Subsidiary or any of its Subsidiaries does not own any Capital Stock or Indebtedness of or have any Investment in, or own or hold any Lien on any property of, any other Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary;

          (2) all the Indebtedness of such Subsidiary and its Subsidiaries shall, at the date of designation, and will at all times thereafter, consist of Non-Recourse Debt;

          (3) on the date of such designation, such designation and the Investment of the Company or a Restricted Subsidiary in such Subsidiary complies with Section 3.3;

          (4) such Subsidiary is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Capital Stock of such Person or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results;

          (5) such Subsidiary, either alone or in the aggregate with all other Unrestricted Subsidiaries, does not operate, directly or indirectly, all or substantially all of the business of the Company and its Subsidiaries; and

          (6) such Subsidiary is not a party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary with terms less favorable to the Company or such Restricted Subsidiary than those that might have been obtained from Persons who are not Affiliates of the Company.

          Any such designation by the Board of Directors of the Company shall be evidenced to the Trustee by filing with the Trustee a Board Resolution of the Company giving

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effect to such designation and an Officers’ Certificate certifying that such designation complies with the preceding conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be Incurred as of such date.

          The Board of Directors of the Company may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof and the Company could Incur at least $1.00 of additional Indebtedness under Section 3.2(a) on a pro forma basis taking into account such designation.

          “U.S. Government Obligations” means securities that are (a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation of the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligations or a specific payment of principal of or interest on any such U.S. Government Obligations held by such custodian for the account of the holder of such depositary receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced by such depositary receipt.

          “Volumetric Production Payments” means production payment obligations recorded as deferred revenue in accordance with GAAP, together with all undertakings and obligations in connection therewith.

          “Voting Stock” of a Person means all classes of Capital Stock of such Person then outstanding and normally entitled to vote in the election of members of such Person’s Board of Directors.

          “Wholly-Owned Subsidiary” means a Restricted Subsidiary, all of the Capital Stock of which (other than directors’ qualifying shares or other shares required by applicable law to be held by a Person other than the Company or another Wholly-Owned Subsidiary) is owned by the Company or another Wholly-Owned Subsidiary.

     SECTION 1.2. Other Definitions.

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	Defined in
Term	Section
“Additional Restricted Securities”	2.1(b)
“Affiliate Transaction”	3.8
“Agent Members”	2.1(e)(ii)
“Asset Disposition Offer Amount”	3.5
“Asset Disposition Offer Period”	3.5
“Asset Disposition Offer”	3.5
“Asset Disposition Purchase Date”	3.5
“Authenticating Agent”	2.2
“Basket Amount”	3.3(4)(c)
“Change of Control Offer”	3.9
“Change of Control Payment”	3.9(1)
“Change of Control Payment Date”	3.9(2)
“Clearstream”	2.1(b)
“covenant defeasance option”	8.1(b)
“cross acceleration provision”	6.1(6)(b)
“Defaulted Interest”	2.14
“Euroclear”	2.1(b)
“Event of Default”	6.1
“Excess Proceeds”	3.5
“Exchange Global Note”	2.1(b)
“Global Securities”	2.1(b)
“Institutional Accredited Investor Global Notes”	2.1(b)
“Institutional Accredited Investor Note”	2.1(b)
“Investment”	3.3(4)(c)(iv)(B)
“Issuer Order”	2.2
“Joint Venture”	1.1

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	Defined in
Term	Section
“judgment default provision”	6.1(9)
“legal defeasance option”	8.1(b)
“Notice of Default”	6.1(4); 6.1(5)
“Pari Passu Securities”	3.5
“Paying Agent”	2.3
“payment default”	6.1(6)(a)
“Permanent Regulation S Global Note”	2.1(b)
“protected purchaser”	2.10
“Registrar”	2.3
“Regulation S Global Note”	2.1(b)
“Regulation S Notes”	2.1(b)
“Resale Restriction Termination Date”	2.6(b)
“Restricted Payment”	3.3
“Restricted Period”	2.1(b)
“Rule 144A Global Note”	2.1(b)
“Rule 144A Notes”	2.1(b)
“Securities Register”	2.3
“Special Interest Payment Date”	2.14(a)
“Special Record Date”	2.14(a)
“Successor Company”	4.1(a)(1)
“Temporary Regulation S Global Note”	2.1(b)

     SECTION 1.3. Incorporation by Reference of Trust Indenture Act. This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings:

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          “Commission” means the SEC.

          “indenture securities” means the Securities and the Subsidiary Guarantees.

          “indenture security holder” means a Securityholder.

          “indenture to be qualified” means this Indenture.

          “indenture trustee” or “institutional trustee” means the Trustee.

          “obligor” on the indenture securities means the Issuers, the Subsidiary Guarantors and any other obligor on the indenture securities.

          All other TIA terms used in this Indenture that are defined by the TIA, defined in the TIA by reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions.

     SECTION 1.4. Rules of Construction. Unless the context otherwise requires:

          (1) a term has the meaning assigned to it;

          (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP and references to Statements of Financial Accounting Standards of the Financial Accounting Standards Board do not reflect the new nomenclature resulting from the FASB’s codification of such Statements in its ASC 105, Generally Accepted Accounting Principles, issued in June 2009, but are deemed to include the codified Statements under their current nomenclature;

          (3) “or” is not exclusive;

          (4) “including” means including without limitation;

          (5) words in the singular include the plural and words in the plural include the singular;

          (6) all amounts expressed in this Indenture or in any of the Securities in terms of money refer to the lawful currency of the United States of America; and

          (7) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

ARTICLE II
THE SECURITIES

     SECTION 2.1. Form, Dating and Terms.

          (a) The aggregate principal amount of Securities that may be authenticated and delivered under this Indenture is unlimited, subject to compliance with the other terms of this

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Indenture. The Initial Securities issued on the date hereof shall be in an aggregate principal amount of $300,000,000. In addition, the Issuers may issue, from time to time in accordance with the provisions of this Indenture, including Section 3.2 hereof, Additional Securities (as provided herein) and Exchange Securities. Furthermore, Securities may be authenticated and delivered upon registration of transfer, exchange or in lieu of, other Securities pursuant to Section 2.2, 2.6, 2.10, 2.12, 5.8 or 9.5, in connection with an Asset Disposition Offer pursuant to Section 3.5 or in connection with a Change of Control Offer pursuant to Section 3.9.

          The Securities shall be known and designated as “9 5/8% Senior Notes due 2018” of the Issuers.

          With respect to any Additional Securities, the Issuers shall set forth in (a) a Board Resolution and (b) (i) an Officers’ Certificate or (ii) one or more indentures supplemental hereto, the following information:

          (1) the aggregate principal amount of such Additional Securities to be authenticated and delivered pursuant to this Indenture;

          (2) the issue price and the issue date of such Additional Securities, including the date from which interest shall accrue; and

          (3) whether such Additional Securities shall be Restricted Securities issued in the form of Exhibit A hereto.

          In authenticating and delivering Additional Securities, the Trustee shall be entitled to receive and shall be fully protected in relying upon, in addition to the Opinion of Counsel and Officers’ Certificate required by Section 11.4, an Opinion of Counsel as to the due authorization, execution, delivery, validity and enforceability of such Additional Securities.

          The Initial Securities, the Additional Securities and the Exchange Securities shall be considered collectively as a single class for all purposes of this Indenture. Holders of the Initial Securities, the Additional Securities and the Exchange Securities will vote and consent together on all matters to which such Holders are entitled to vote or consent as one class, and none of the Holders of the Initial Securities, the Additional Securities or the Exchange Securities shall have the right to vote or consent as a separate class on any matter to which such Holders are entitled to vote or consent.

          If any of the terms of any Additional Securities are established by action taken pursuant to Board Resolutions of the Issuers, a copy of an appropriate record of such action shall be certified by the Secretary or any Assistant Secretary of the Issuers and delivered to the Trustee at or prior to the delivery of the Officers’ Certificate or the indenture supplemental hereto setting forth the terms of the Additional Securities.

          (b) The Initial Securities are being offered and sold by the Issuers pursuant to a Purchase Agreement, dated October 7, 2010, among the Issuers, the Subsidiary Guarantors and the Initial Purchasers. The Initial Securities and any Additional Securities (if issued as Restricted Securities) (the “Additional Restricted Securities”) shall be resold initially only to (A) QIBs in reliance on Rule 144A (B) IAIs in reliance upon Rule 501 of the Securities Act and (C)

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Non-U.S. Persons in reliance on Regulation S. Such Initial Securities and Additional Restricted Securities may thereafter be transferred to, among others, QIBs, purchasers in reliance on Regulation S and IAIs in accordance with Rule 501 of the Securities Act, in each case, in accordance with the procedure described herein. Additional Securities offered after the date hereof may be offered and sold by the Issuers from time to time pursuant to one or more purchase agreements in accordance with applicable law.

          Initial Securities and Additional Restricted Securities offered and sold to QIBs in the United States of America in reliance on Rule 144A (the “Rule 144A Notes”) shall be issued in the form of a permanent global Security substantially in the form of Exhibit A, which is hereby incorporated by reference and made a part of this Indenture, including appropriate legends as set forth in Section 2.1(d) (the “Rule 144A Global Note”), deposited with the Trustee, as Securities Custodian, duly executed by the Issuers and authenticated by the Trustee as hereinafter provided. The Rule 144A Global Note may be represented by more than one certificate, if so required by DTC’s rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Rule 144A Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as Securities Custodian, as hereinafter provided.

          Initial Securities and Additional Restricted Securities offered and sold or resold to IAIs (the “Institutional Accredited Investor Notes”) in the United States of America shall be issued in the form of a permanent global Security substantially in the form of Exhibit A including appropriate legends as set forth in Section 2.1(d) (the “Institutional Accredited Investor Global Note”) deposited with the Trustee, as Securities Custodian, duly executed by the Issuers and authenticated by the Trustee as hereinafter provided. The Institutional Accredited Investor Global Note may be represented by more than one certificate, if so required by DTC’s rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Institutional Accredited Investor Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC or its nominee, as hereinafter provided.

          Initial Securities and any Additional Restricted Securities offered and sold outside the United States of America (the “Regulation S Notes”) in reliance on Regulation S shall initially be issued in the form of a temporary global Security (the “Temporary Regulation S Global Note”), without interest coupons. Beneficial interests in the Temporary Regulation S Global Note will be exchanged for beneficial interests in a corresponding permanent global Security, without interest coupons, substantially in the form of Exhibit A including appropriate legends as set forth in Section 2.1(d) (the “Permanent Regulation S Global Note” and, together with the Temporary Regulation S Global Note, each a “Regulation S Global Note”) within a reasonable period after the expiration of the Restricted Period (as defined below) upon delivery of the certification contemplated by Section 2.7. Each Regulation S Global Note will be deposited upon issuance with, or on behalf of, the Trustee as Securities Custodian in the manner described in this Article II for credit to the respective accounts of the purchasers (or to such other accounts as they may direct), including, but not limited to, accounts at Euroclear Bank S.A./N.V. (“Euroclear”) or Clearstream Banking, société anonyme (“Clearstream”). Prior to the 40th day after the later of the commencement of the offering of the Initial Securities and the Issue Date (such period through and including such 40th day, the “Restricted Period”), interests in the

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Temporary Regulation S Global Note may only be transferred to Non-U.S. Persons pursuant to Regulation S, unless exchanged for interests in another Global Security in accordance with the transfer and certification requirements described herein.

          Following the Restricted Period, Investors may hold their interests in the Regulation S Global Note through organizations other than Euroclear or Clearstream that are participants in DTC’s system or directly through Euroclear or Clearstream, if they are participants in such systems, or indirectly through organizations which are participants in such systems.

          The Regulation S Global Note may be represented by more than one certificate, if so required by DTC’s rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Regulation S Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC or its nominee, as hereinafter provided.

          Exchange Securities exchanged for interests in the Rule 144A Notes, the Regulation S Notes and the Institutional Accredited Investor Notes shall be issued in the form of a permanent global Security, substantially in the form of Exhibit A, which is hereby incorporated by reference and made a part of this Indenture, deposited with the Trustee as hereinafter provided, including the appropriate legend set forth in Section 2.1(d) (the “Exchange Global Note”). The Exchange Global Note shall be deposited upon issuance with, or on behalf of, the Trustee as Securities Custodian, duly executed by the Issuers and authenticated by the Trustee as hereinafter provided. The Exchange Global Note may be represented by more than one certificate, if so required by DTC’s rules regarding the maximum principal amount to be represented by a single certificate.

          The Rule 144A Global Note, the Regulation S Global Note, the Institutional Accredited Investor Global Note and the Exchange Global Note are sometimes collectively herein referred to as the “Global Securities.”

          The principal of (and premium, if any) and interest (including Additional Interest, if any) on the Securities shall be payable at the office or agency of the Issuers maintained for such purpose in The City of New York, and at such other office or agency of the Issuers as may be maintained for such purpose pursuant to Section 2.3; provided, however, that, at the option of the Issuers, each installment of interest may be paid by (i) check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Securities Register or (ii) wire transfer to an account located in the United States maintained by the payee, subject to the last sentence of this paragraph. Payments in respect of Securities represented by a Global Security (including principal, premium, if any, and interest) will be made by wire transfer of immediately available funds to the accounts specified by DTC. At the Issuers’ option, payments in respect of Securities represented by Definitive Securities (including principal, premium, if any, and interest) may be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if the Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion).

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          The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage, in addition to those set forth on Exhibit A and in Section 2.1(d). The Issuers shall approve any notation, endorsement or legend on the Securities. Each Security shall be dated the date of its authentication, and the Trustee’s certificate of authentication shall be substantially in the form set forth on Exhibit A. The terms of the Securities set forth in Exhibit A are part of the terms of this Indenture and, to the extent applicable, the Issuers, the Subsidiary Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to be bound by such terms.

          (c) Denominations. The Securities shall be issuable only in fully registered form, without coupons, and only in denominations of $2,000 and any integral multiple of $1,000 in excess thereof.

          (d) Restrictive Legends. Unless and until (i) an Initial Security or an Additional Security issued as a Restricted Security is sold under an effective registration statement or (ii) an Initial Security or an Additional Security issued as a Restricted Security is exchanged for an Exchange Security in connection with an effective registration statement, in each case pursuant to a Registration Rights Agreement or a similar agreement:

          (1) the Rule 144A Global Note, the Regulation S Global Note and the Institutional Accredited Investor Global Note shall bear the following legend on the face thereof:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.

THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS A NON-U.S. PURCHASER AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (C) IT IS AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT, AND (2) AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE “RESALE RESTRICTION TERMINATION DATE”) WHICH IS ONE YEAR AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUERS OR ANY AFFILIATE OF THE ISSUERS WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO ALTA MESA HOLDINGS, LP OR ANY SUBSIDIARY THEREOF, (B) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED

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INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) PURSUANT TO OFFERS AND SALES TO NON-U.S. PURCHASERS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (D) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF SUBPARAGRAPH (a)(1),(2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF AN INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, (E) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS’ AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (C), (D) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.

IN THE CASE OF REGULATION S NOTES: BY ITS ACQUISITION HEREOF, THE HOLDER HEREOF REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT.

          (2) the Temporary Regulation S Global Note shall bear the following additional legend on the face thereof:

THIS GLOBAL SECURITY IS A TEMPORARY GLOBAL NOTE FOR PURPOSES OF REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). NEITHER THIS TEMPORARY GLOBAL NOTE NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE INDENTURE REFERRED TO BELOW.

NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE INDENTURE.

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          (3) Each Global Security, whether or not an Initial Security, shall bear the following legend on the face thereof:

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE ISSUERS OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO DTC, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.

          (e) Book-Entry Provisions. This Section 2.1(e) shall apply only to Global Securities deposited with the Trustee, as Securities Custodian.

               (i) Each Global Security initially shall (x) be registered in the name of Cede & Co. as the nominee of DTC, (y) be delivered to the Trustee as Securities Custodian and (z) bear legends as set forth in Section 2.1(d). Transfers of a Global Security (but not a beneficial interest therein) will be limited to transfers thereof in whole, but not in part, to the DTC, its successors or their respective nominees, except as set forth in Section 2.1(e)(v) and 2.1(f). If a beneficial interest in a Global Security is transferred or exchanged for a beneficial interest in another Global Security, the Trustee will (x) record a decrease in the principal amount of the Global Security being transferred or exchanged equal to the principal amount of such transfer or exchange and (y) record a like increase in the principal amount of the other Global Security. Any beneficial interest in one Global Security that is transferred to a Person who takes delivery in the form of an interest in another Global Security, or exchanged for an interest in another Global Security, will, upon transfer or exchange, cease to be an interest in such Global Security and become an interest in the other Global Security and, accordingly, will thereafter be subject to all transfer and exchange restrictions, if any, and other procedures applicable to beneficial interests in such other Global Security for as long as it remains such an interest.

               (ii) Members of, or participants in, DTC (“Agent Members”) shall have no rights under this Indenture with respect to any Global Security held on their behalf by DTC or by the Trustee as the Securities Custodian or under such Global Security, and DTC may be treated by the Issuers, the Subsidiary Guarantors, the Trustee and any agent of the Issuers, the Subsidiary Guarantors or the Trustee as the absolute owner of such Global Security for all

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purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Issuers, the Subsidiary Guarantors, the Trustee or any agent of the Issuers, the Subsidiary Guarantors or the Trustee from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices of DTC governing the exercise of the rights of a Holder of a beneficial interest in any Global Security.

               (iii) In connection with any transfer of a portion of the beneficial interest in a Global Security pursuant to Section 2.1(f) to beneficial owners who are required to hold Definitive Securities, the Securities Custodian shall reflect on its books and records the date and a decrease in the principal amount of such Global Security in an amount equal to the principal amount of the beneficial interest in the Global Security to be transferred, and the Issuers shall execute, and the Trustee shall, upon receipt of an Issuer Order, authenticate and make available for delivery, one or more Definitive Securities of like tenor and amount.

               (iv) In connection with the transfer of an entire Global Security to beneficial owners pursuant to Section 2.1(f), such Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Issuers shall execute, and the Trustee shall, upon receipt of an Issuer Order, authenticate and make available for delivery, to each beneficial owner identified by DTC in exchange for its beneficial interest in such Global Security, an equal aggregate principal amount of Definitive Securities of authorized denominations.

               (v) The registered Holder of a Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities.

               (vi) Any Holder of a Global Security shall, by acceptance of such Global Security, agree that transfers of beneficial interests in such Global Security may be effected only through a book-entry system maintained by (a) the Holder of such Global Security (or its agent) or (b) any holder of a beneficial interest in such Global Security, and that ownership of a beneficial interest in such Global Security shall be required to be reflected in a book entry.

          (f) Definitive Securities. Except as provided below, owners of beneficial interests in Global Securities will not be entitled to receive Definitive Securities. If required to do so pursuant to any applicable law or regulation, beneficial owners may obtain Definitive Securities in exchange for their beneficial interests in a Global Security upon written request in accordance with DTC’s and the Registrar’s procedures. In addition, Definitive Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Security if (A) DTC notifies the Issuers that it is unwilling or unable to continue as depositary for such Global Security or DTC ceases to be a clearing agency registered under the Exchange Act, at a time when DTC is required to be so registered in order to act as depositary, and in each case a successor depositary is not appointed by the Issuers within 90 days of such notice or (B) an Event of Default has occurred under this Indenture and is continuing and the Registrar has received a request from the DTC to issue Securities in certificated registered form. In the event of the occurrence of any of the events specified in the preceding sentence or in clause (A) or (B)

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of the preceding sentence, Definitive Securities delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of DTC (in accordance with its customary procedures).

               (i) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to Section 2.1(e)(iv) shall, except as otherwise provided by Section 2.6(d), bear the applicable legend regarding transfer restrictions applicable to the Definitive Security set forth in Section 2.1(d).

               (ii) If a Definitive Security is transferred or exchanged for a beneficial interest in a Global Security, the Trustee will (x) cancel such Definitive Security, (y) record an increase in the principal amount of such Global Security equal to the principal amount of such transfer or exchange and (z) in the event that such transfer or exchange involves less than the entire principal amount of the canceled Definitive Security, the Issuers shall execute, and the Trustee shall, upon receipt of an Issuer Order, authenticate and make available for delivery, to the transferring Holder a new Definitive Security representing the principal amount not so transferred.

               (iii) If a Definitive Security is transferred or exchanged for another Definitive Security, (x) the Trustee will cancel the Definitive Security being transferred or exchanged, (y) the Issuers shall execute, and the Trustee shall, upon receipt of an Issuer Order, authenticate and make available for delivery, one or more new Definitive Securities in authorized denominations having an aggregate principal amount equal to the principal amount of such transfer or exchange to the transferee (in the case of a transfer) or the Holder of the canceled Definitive Security (in the case of an exchange), registered in the name of such transferee or Holder, as applicable, and (z) if such transfer or exchange involves less than the entire principal amount of the canceled Definitive Security, the Issuers shall execute, and the Trustee shall, upon receipt of an Issuer Order, authenticate and make available for delivery to the Holder thereof, one or more Definitive Securities in authorized denominations having an aggregate principal amount equal to the untransferred or unexchanged portion of the canceled Definitive Securities, registered in the name of the Holder thereof.

               (iv) Notwithstanding anything to the contrary in this Indenture, in no event shall a Definitive Security be delivered upon exchange or transfer of a beneficial interest in the Temporary Regulation S Global Note prior to the end of the Restricted Period.

     SECTION 2.2. Execution and Authentication. One Officer shall sign the Securities for the Issuers by manual or facsimile signature. If the Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless.

          A Security shall not be valid until an authorized officer of the Trustee manually authenticates the Security. The signature of the Trustee on a Security shall be conclusive evidence that such Security has been duly and validly authenticated and issued under this Indenture. A Security shall be dated the date of its authentication.

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          At any time and from time to time after the execution and delivery of this Indenture, the Trustee shall authenticate and make available for delivery: (1) Initial Securities for original issue on the Issue Date in an aggregate principal amount of $300,000,000, (2) subject to the terms of this Indenture (including Section 3.2), Additional Securities for original issue in an unlimited principal amount, (3) Exchange Securities for issue only in an exchange offer pursuant to a Registration Rights Agreement or upon resale under an effective Shelf Registration Statement, and only in exchange for Initial Securities or Additional Securities of an equal principal amount and (4) when sold in connection with an effective registration statement, Initial Securities in the form of an Unrestricted Global Note, in each case upon a written order of the Issuers signed by one Officer of the Issuers (the “Issuer Order”). Such Issuer Order shall specify whether the Securities will be in the form of Definitive Securities or Global Securities, the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities, Additional Securities or Exchange Securities.

          The Trustee may appoint an agent (the “Authenticating Agent”) reasonably acceptable to the Issuers to authenticate the Securities. Any such instrument shall be evidenced by an instrument signed by a Trust Officer, a copy of which shall be furnished to the Issuers. Unless limited by the terms of such appointment, any such Authenticating Agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by the Authenticating Agent. An Authenticating Agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands.

          In case the Issuers or any Subsidiary Guarantor, pursuant to Article IV or Section 10.2, as applicable, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Issuers or any Subsidiary Guarantor shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article IV or Section 10.2, as applicable, any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon receipt of an Issuer Order of the successor Person, shall authenticate and make available for delivery Securities as specified in such order for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section 2.2 in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time outstanding for Securities authenticated and delivered in such new name.

     SECTION 2.3. Registrar and Paying Agent. The Issuers shall maintain in the continental United States an office or agency where Securities may be presented for registration of transfer or for exchange (the “Registrar”), and the Issuers shall maintain in New York, New

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York an office or agency where Securities may be presented for payment (the “Paying Agent”). The Registrar shall keep a register of the Securities and of their transfer and exchange (the “Securities Register”). The Company or any of its Restricted Subsidiaries may act as Registrar or Paying Agent. The Issuers may have one or more co-registrars and one or more additional paying agents. The term “Paying Agent” includes any additional paying agent and the term “Registrar” includes any co-registrar.

          The Issuers shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Issuers shall notify the Trustee of the name and address of each such agent. If the Issuers fail to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.7. The Issuers or any of its wholly owned Subsidiaries organized in the United States may act as Paying Agent, Registrar or transfer agent.

          The Issuers initially appoint the Trustee as Registrar for the Securities at its corporate trust office in Dallas, Texas, and as Paying Agent for the Securities at its corporate trust office in New York, New York, which, on the date hereof, is located at 45 Broadway, 14th Floor, New York, New York 10006. The Issuers may remove any Registrar or Paying Agent upon written notice to such Registrar or Paying Agent and to the Trustee; provided, however, that no such removal shall become effective until (i) acceptance of any appointment by a successor as evidenced by an appropriate agreement entered into by the Issuers and such successor Registrar or Paying Agent, as the case may be, and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as Registrar or Paying Agent until the appointment of a successor in accordance with clause (i) above. The Registrar or Paying Agent may resign at any time upon written notice to the Issuers and the Trustee.

     SECTION 2.4. Paying Agent to Hold Money in Trust. By no later than 11:00 a.m. (New York City time) on the date on which any principal of, premium, if any, or interest on any Security is due and payable, the Issuers shall deposit with the Paying Agent a sum sufficient in immediately available funds to pay such principal, premium or interest when due. The Issuers shall require each Paying Agent (other than the Trustee) to agree in writing that such Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by such Paying Agent for the payment of principal of, premium, if any, or interest on the Securities (whether such assets have been distributed to it by the Issuers or other obligors on the Securities), shall notify the Trustee in writing of any default by the Issuers or any Subsidiary Guarantor in making any such payment and shall during the continuance of any default by the Issuers (or any other obligor upon the Securities) in the making of any payment in respect of the Securities, upon the written request of the Trustee, forthwith deliver to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities together with a full accounting thereof. If the Company or a Restricted Subsidiary of the Company acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Issuers at any time may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee and to account for any funds or assets disbursed by such Paying Agent. Upon complying with this Section 2.4, the Paying Agent (if other than the Company or a Restricted Subsidiary of the Company) shall have no further liability for the money delivered to

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the Trustee. Upon any bankruptcy, reorganization or similar proceeding with respect to the Issuers, the Trustee shall serve as Paying Agent for the Securities.

     SECTION 2.5. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders and shall otherwise comply with TIA § 312(a). If the Trustee is not the Registrar, or to the extent otherwise required under the TIA, the Issuers, on its own behalf and on behalf of each of the Subsidiary Guarantors, shall furnish or cause the Registrar to furnish to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders and the Issuers shall otherwise comply with TIA § 312(a).

     SECTION 2.6. Transfer and Exchange.

          (a) A Holder may transfer a Security (or a beneficial interest therein) to another Person or exchange a Security (or a beneficial interest therein) for another Security or Securities of any authorized denomination by presenting to the Trustee a written request therefor stating the name of the proposed transferee or requesting such an exchange, accompanied by any certification, opinion or other document required by this Section 2.6. The Trustee shall promptly register any transfer or exchange that meets the requirements of this Section 2.6 by noting the same in the register maintained by the Trustee for the purpose, and no transfer or exchange shall be effective until it is registered in such register. The transfer or exchange of any Security (or a beneficial interest therein) may only be made in accordance with this Section 2.6 and Section 2.1(e) and 2.1(f), as applicable, and, in the case of a Global Security (or a beneficial interest therein), the applicable rules and procedures of DTC, Euroclear and Clearstream. The Trustee shall refuse to register any requested transfer or exchange that does not comply with this paragraph.

          (b) Transfers of Rule 144A Notes and Institutional Accredited Investor Notes. The following provisions shall apply with respect to any proposed registration of transfer of a Rule 144A Note or an Institutional Accredited Investor Note prior to the date which is one year after the later of the date of its original issue and the last date on which the Issuers or any Affiliate of Issuers was the owner of such Securities (or any predecessor thereto) (the “Resale Restriction Termination Date”):

               (i) a registration of transfer of a Rule 144A Note or an Institutional Accredited Investor Note or a beneficial interest therein to a QIB shall be made upon the representation of the transferee in the form as set forth on the reverse of the Security that it is purchasing for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuers as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; provided that no such written representation or other written certification

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shall be required in connection with the transfer of a beneficial interest in the Rule 144A Global Note to a transferee in the form of a beneficial interest in that Rule 144A Global Note in accordance with this Indenture and the applicable procedures of DTC.

               (ii) a registration of transfer of a Rule 144A Note or an Institutional Accredited Investor Note or a beneficial interest therein to an IAI shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.8 from the proposed transferee and, if requested by the Issuers, the delivery of an opinion of counsel, certification and/or other information satisfactory to it; and

               (iii) a registration of transfer of a Rule 144A Note or an Institutional Accredited Investor Note or a beneficial interest therein to a Non-U.S. Person shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.9 from the proposed transferee and, if requested by the Issuers, the delivery of an opinion of counsel, certification and/or other information satisfactory to it.

          (c) Transfers of Regulations S Notes. The following provisions shall apply with respect to any proposed transfer of a Regulation S Note prior to the expiration of the Restricted Period:

               (i) a transfer of a Regulation S Note or a beneficial interest therein to a QIB shall be made upon the representation of the transferee, in the form of assignment on the reverse of the certificate, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A, is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuers as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A;

               (ii) a transfer of a Regulation S Note or a beneficial interest therein to an IAI shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.8 from the proposed transferee and, if requested by the Issuers or the Trustee, the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them; and

               (iii) a transfer of a Regulation S Note or a beneficial interest therein to a Non-U.S. Person shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.9 hereof from the proposed transferee and, if requested by the Issuers, receipt by the Trustee or its agent of an opinion of counsel, certification and/or other information satisfactory to the Issuers.

          After the expiration of the Restricted Period, interests in the Regulation S Note may be transferred in accordance with applicable law without requiring the certification set forth in Section 2.8, Section 2.9 or any additional certification.

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          (d) Restricted Securities Legend. Upon the transfer, exchange or replacement of Securities not bearing a Restricted Securities Legend, the Registrar shall deliver Securities that do not bear a Restricted Securities Legend. Upon the transfer, exchange or replacement of Securities bearing a Restricted Securities Legend, the Registrar shall deliver only Securities that bear a Restricted Securities Legend unless (i) Initial Securities are being exchanged for Exchange Securities in an exchange offer pursuant to a Registration Rights Agreement, in which case the Exchange Securities shall not bear a Restricted Securities Legend, (ii) an Initial Security is being transferred pursuant to a Shelf Registration Statement or other effective registration statement or (iii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Issuers and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. Any Additional Securities sold in a registered offering shall not be required to bear the Restricted Securities Legend.

          (e) Retention of Written Communications. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.1 or this Section 2.6. The Issuers shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable prior written notice to the Registrar.

          (f) Obligations with Respect to Transfers and Exchanges of Securities.

               (i) To permit registrations of transfers and exchanges, the Issuers shall, subject to the other terms and conditions of this Article II, execute and the Trustee shall, upon receipt of an Issuer Order, authenticate Definitive Securities and Global Securities at the Registrar’s request.

               (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Issuers may require the Holder to pay a sum sufficient to cover any transfer tax assessments or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charges payable upon exchange or transfer pursuant to Sections 2.2, 2.6, 2.10, 2.12, 3.5, 3.9, 5.8 or 9.5).

               (iii) The Issuers (and the Registrar) shall not be required to register the transfer of or exchange of any Security (A) for a period (1) of 15 days before a selection of Securities to be redeemed or (2) beginning 15 days before an interest payment date and ending on such interest payment date or (B) selected for redemption, except the unredeemed portion of any Security being redeemed in part.

               (iv) Prior to the due presentation for registration of transfer of any Security, the Issuers, any Subsidiary Guarantor, the Trustee, the Paying Agent or the Registrar may deem and treat the person in whose name a Security is registered as the owner of such Security for the purpose of receiving payment of principal of, premium, if any, and (subject to paragraph 2 of the forms of Securities attached hereto as Exhibits A and B) interest on such Security and for all other purposes whatsoever, including without limitation the transfer or exchange of such Security, whether or not such Security is overdue, and none of the Issuers, any

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Subsidiary Guarantor, the Trustee, the Paying Agent or the Registrar shall be affected by notice to the contrary.

               (v) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to Section 2.1(f) shall, except as otherwise provided by Section 2.6(d), bear the applicable legend regarding transfer restrictions applicable to the Definitive Security set forth in Section 2.1(d).

               (vi) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange.

          (g) No Obligation of the Trustee. The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, Agent Member or other Person with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than DTC) of any notice (including any notice of redemption or purchase) or the payment of any amount or delivery of any Securities (or other security or property) under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders in respect of the Securities shall be given or made only to or upon the order of the registered Holders (which shall be DTC or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through DTC subject to the applicable rules and procedures of DTC. The Trustee may rely and shall be fully protected in relying upon information furnished by DTC with respect to its Agent Members and any beneficial owners. The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Agent Members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

          (h) Affiliate Holders. By accepting a beneficial interest in a Global Security, any Person that is an Affiliate of the Issuers agrees to give notice to the Issuers, the Trustee and the Registrar of the acquisition and its Affiliate status.

          (i) Global Securities. Neither the Trustee nor any of its agents shall have any responsibility for any actions taken or not taken by DTC.

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     SECTION 2.7. Form of Certificate to be Delivered upon Termination of Restricted Period.

[Date]

Alta Mesa Holdings, LP and Alta Mesa Finance Services Corp. and
Wells Fargo Bank, National Association
1445 Ross Avenue — 2nd Floor
Dallas, TX 75202-2812
Attention: Corporate Trust Administration

Re:	Alta Mesa Holdings, LP and Alta Mesa Finance Services Corp. (together as the “Issuers”)
	9 5/8% Senior Notes due 2018 (the “Securities”)

Ladies and Gentlemen:

     This letter relates to Securities represented by a temporary global note (the “Temporary Regulation S Global Note”). Pursuant to Section 2.1 of the Indenture dated as of October 13, 2010 relating to the Securities (the “Indenture”), we hereby certify that the persons who are the beneficial owners of $[_______] principal amount of Securities represented by the Temporary Regulation S Global Note are persons outside the United States to whom beneficial interests in such Securities could be transferred in accordance with Rule 904 of Regulation S promulgated under the Securities Act of 1933, as amended. Accordingly, you are hereby requested to issue a Permanent Regulation S Global Note representing the undersigned’s interest in the principal amount of Securities represented by the Temporary Regulation S Global Note, all in the manner provided by the Indenture. We certify that we [are][are not] an Affiliate of the Issuers.

     You and the Issuers are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this letter have the meanings set forth in Regulation S.

Very truly yours, [Name of Transferor]
By:
	Authorized Signature

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     SECTION 2.8. Form of Certificate to be Delivered in Connection with Transfers to Institutional Accredited Investors.

[Date]

Alta Mesa Holdings, LP and Alta Mesa Finance Services Corp.
Wells Fargo Bank, National Association
1445 Ross Avenue — 2nd Floor
Dallas, TX 75202-2812
Attention: Corporate Trust Administration

Ladies and Gentlemen:

     This certificate is delivered to request a transfer of $[_________] principal amount of the 9 5/8% Senior Notes due 2018 (the “Securities”) of Alta Mesa Holdings, LP and Alta Mesa Finance Services Corp. (together as the “Issuers”).

     Upon transfer, the Securities would be registered in the name of the new beneficial owner as follows:

Name: _________________________

Address: ______________________

Taxpayer ID Number: _____________________

The undersigned represents and warrants to you that:

          1. We are an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the “Securities Act”)) purchasing for our own account or for the account of such an institutional “accredited investor,” and we are acquiring the Securities not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of our investment in the Securities and we invest in or purchase securities similar to the Securities in the normal course of our business. We and any accounts for which we are acting are each able to bear the economic risk of our or its investment.

          2. We understand that the Securities have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Securities to offer, sell or otherwise transfer such Securities prior to the date that is one year after the later of the date of original issue and the last date on which the Issuers or any affiliate of the Issuers was the owner of such Securities (or any predecessor thereto) (the “Resale Restriction Termination Date”) only (a) to the Issuers or any Subsidiary thereof, (b) pursuant to an effective registration statement under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act, to a person we reasonably believe is a “qualified institutional buyer” under Rule 144A of the Securities Act (a “QIB”) that is

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purchasing for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales to non-U.S. persons that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional “accredited investor,” for investment purposes and not with a view to or for offer or sale in connection with any distribution in violation of the Securities Act or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Issuers and the Trustee, which shall provide, among other things, that the transferee is an institutional “accredited investor” (within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and that it is acquiring such Securities for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Issuers and the Trustee reserve the right prior to any offer, sale or other transfer prior to the Resale Termination Date of the Securities pursuant to clauses (d), (e) or (f) above to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to the Issuers and the Trustee.

          3. We [are][are not] an Affiliate of the Issuers.

TRANSFEREE:______________________

BY:______________________
 

     SECTION 2.9. Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S.

[Date]

Alta Mesa Holdings, LP and Alta Mesa Finance Services Corp.
Wells Fargo Bank, National Association
1445 Ross Avenue — 2nd Floor
Dallas, TX 75202-2812
Attention: Corporate Trust Administration

Re:	Alta Mesa Holdings, LP and Alta Mesa Finance Services Corp. (together as the “Issuers”)
	9 5/8% Senior Notes due 2018 (the “Securities”)

Ladies and Gentlemen:

     In connection with our proposed sale of $[________] aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with

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Regulation S under the United States Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, we represent that:

          (a) the offer of the Securities was not made to a person in the United States;

          (b) either (i) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (ii) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States;

          (c) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(a)(2) or Rule 904(a)(2) of Regulation S, as applicable; and

          (d) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act.

     In addition, if the sale is made during a restricted period and the provisions of Rule 903(b)(2), Rule 903(b)(3) or Rule 904(b)(1) of Regulation S are applicable thereto, we confirm that such sale has been made in accordance with the applicable provisions of Rule 903(b)(2), Rule 903(b)(3) or Rule 904(b)(1), as the case may be.

     We also hereby certify that we [are][are not] an Affiliate of the Issuers and, to our knowledge, the transferee of the Securities [is][is not] an Affiliate of the Issuers.

     You and the Issuers are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S.

Very truly yours, [Name of Transferor]
By:
	Authorized Signature

     SECTION 2.10. Mutilated, Destroyed, Lost or Stolen Securities. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Issuers shall issue and the Trustee shall, upon receipt of an Issuer Order, authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met, such that the Securityholder (a) satisfies the Issuers or the Trustee that such Security has been lost, destroyed or wrongfully taken within a reasonable time after such Securityholder has notice of such loss, destruction or wrongful taking and the Registrar has not registered a transfer prior to receiving such notification, (b) makes such request to the Issuers or Trustee prior to the Security being acquired by a protected purchaser as defined in Section 8-303 of the Uniform Commercial Code (a “protected purchaser”) and (c) satisfies any

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other reasonable requirements of the Trustee; provided, however, if after the delivery of such replacement Security, a protected purchaser of the Security for which such replacement Security was issued presents for payment or registration such replaced Security, the Trustee or the Issuers shall be entitled to recover such replacement Security from the Person to whom it was issued and delivered or any Person taking therefrom, except a protected purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expense incurred by the Issuers or the Trustee in connection therewith. If required by the Trustee or the Issuers, such Holder shall furnish an indemnity bond sufficient in the judgment of the Issuers and the Trustee to protect the Issuers, the Trustee, the Paying Agent and the Registrar from any loss which any of them may suffer if a Security is replaced, and, in the absence of notice to the Issuers, any Subsidiary Guarantor or the Trustee that such Security has been acquired by a protected purchaser, the Issuers shall execute, and upon receipt of an Issuer Order the Trustee shall authenticate and make available for delivery, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or wrongfully taken Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding.

          In case any such mutilated, destroyed, lost or wrongfully taken Security has become or is about to become due and payable, the Issuers in its discretion may, instead of issuing a new Security, pay such Security.

          Upon the issuance of any new Security under this Section 2.10, the Issuers may require that such Holder pay a sum sufficient to cover any transfer tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of counsel and of the Trustee) in connection therewith.

          Subject to the proviso in the initial paragraph of this Section 2.10, every new Security issued pursuant to this Section in lieu of any mutilated, destroyed, lost or wrongfully taken Security shall constitute an original additional contractual obligation of the Issuers, any Subsidiary Guarantor and any other obligor upon the Securities, whether or not the mutilated, destroyed, lost or wrongfully taken Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.

          The provisions of this Section 2.10 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Securities.

     SECTION 2.11. Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding in the event the Issuers or an Affiliate of the Issuers holds the Security; provided, however, that (i) for purposes of determining which are outstanding for consent or voting purposes hereunder, the provisions of Section 11.6 shall apply and (ii) in determining whether the Trustee shall be protected in making a determination whether the Holders of the requisite principal amount of outstanding Securities are present at a meeting of Holders of Securities for quorum purposes or have consented to or voted in favor of any request, demand, authorization,

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direction, notice, consent, waiver, amendment or modification hereunder, or relying upon any such quorum, consent or vote, only Securities which a Trust Officer of the Trustee actually knows to be held by the Issuers or an Affiliate of the Issuers shall not be considered outstanding.

          If a Security is replaced pursuant to Section 2.10 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee and the Issuers receive proof satisfactory to them that the replaced Security is held by a protected purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement pursuant to Section 2.10.

          If the Paying Agent segregates and holds in trust, in accordance with this Indenture, by 11:00 a.m. (New York City time) on a Redemption Date or other maturity date money sufficient to pay all principal, premium, if any, and accrued interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or otherwise maturing, as the case may be, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue.

     SECTION 2.12. Temporary Securities. In the event that Definitive Securities are to be issued under the terms of this Indenture, until such Definitive Securities are ready for delivery, the Issuers may prepare and the Trustee shall, upon receipt of an Issuer Order, authenticate temporary Securities. Temporary Securities shall be substantially in the form, and shall carry all rights, of Definitive Securities but may have variations that the Issuers consider appropriate for temporary Securities. Without unreasonable delay, the Issuers shall prepare and the Trustee shall, upon receipt of an Issuer Order, authenticate Definitive Securities. After the preparation of Definitive Securities, the temporary Securities shall be exchangeable for Definitive Securities upon surrender of the temporary Securities at any office or agency maintained by the Issuers for that purpose and such exchange shall be without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Issuers shall execute, and the Trustee shall, upon receipt of an Issuer Order, authenticate and make available for delivery in exchange therefor, one or more Definitive Securities representing an equal principal amount of Securities. Until so exchanged, the Holder of temporary Securities shall in all respects be entitled to the same benefits under this Indenture as a Holder of Definitive Securities.

     SECTION 2.13. Cancellation. The Issuers at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Securities surrendered for registration of transfer, exchange, payment or cancellation and dispose of such Securities in accordance with its internal policies and customary procedures including delivery of a certificate describing such Securities disposed (subject to the record retention requirements of the Exchange Act) or deliver canceled Securities to the Issuers pursuant to written direction by one Officer of the Issuers. If the Issuers or any Subsidiary Guarantor acquires any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.13. The Issuers may not issue new Securities to replace Securities they have paid or delivered to the Trustee for cancellation for any reason other than in connection with a transfer or exchange.

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          At such time as all beneficial interests in a Global Security have either been exchanged for Definitive Securities, transferred, redeemed, repurchased or canceled, such Global Security shall be returned by DTC or the Securities Custodian to the Trustee for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for Definitive Securities, transferred in exchange for an interest in another Global Security, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction.

     SECTION 2.14. Payment of Interest; Defaulted Interest. Interest on any Security which is payable, and is punctually paid or duly provided for, on any interest payment date shall be paid to the Person in whose name such Security (or one or more predecessor Securities) is registered at the close of business on the regular record date for such payment at the office or agency of the Issuers maintained for such purpose pursuant to Section 2.3.

          Any interest on any Security which is payable, but is not paid when the same becomes due and payable and such nonpayment continues for a period of 30 days shall forthwith cease to be payable to the Holder on the regular record date, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities (such defaulted interest and interest thereon herein collectively called “Defaulted Interest”) shall be paid by the Issuers, at its election in each case, as provided in clause (a) or (b) below:

               (a) The Issuers may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective predecessor Securities) are registered at the close of business on a Special Record Date (as defined below) for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Issuers shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment (the “Special Interest Payment Date”), and at the same time the Issuers shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Issuers shall fix a record date (the “Special Record Date”) for the payment of such Defaulted Interest, which date shall be not more than 15 days and not less than 10 days prior to the Special Interest Payment Date and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Issuers shall promptly notify the Trustee of such Special Record Date, and in the name and at the expense of the Issuers, the Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date and Special Interest Payment Date therefor to be given in the manner provided for in Section 11.2, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date and Special Interest Payment Date therefor having been so given, such Defaulted Interest shall be paid on the Special Interest Payment Date to the Persons in whose names the Securities (or their respective predecessor Securities) are registered at

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the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b).

               (b) The Issuers may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Issuers to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.

          Subject to the foregoing provisions of this Section 2.14, each Security delivered under this Indenture upon registration of, transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.

     SECTION 2.15. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months.

     SECTION 2.16. CUSIP, Common Code and ISIN Numbers. The Issuers in issuing the Securities may use “CUSIP”, “Common Code” and “ISIN” numbers and, if so, the Trustee shall use “CUSIP”, “Common Code” and “ISIN” numbers in notices of redemption or purchase as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption or purchase and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption or purchase shall not be affected by any defect in or omission of such CUSIP, Common Code and ISIN numbers. The Issuers shall promptly notify the Trustee in writing of any change in the CUSIP, Common Code and ISIN numbers.

ARTICLE III
COVENANTS

     SECTION 3.1. Payment of Securities. The Issuers shall promptly pay the principal of, premium, if any, and interest (including Additional Interest, if any) on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal, premium, if any, and interest (including Additional Interest, if any) shall be considered paid on the date due if by 11:00 a.m. (New York City time) on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal, premium, if any, and interest (including Additional Interest) then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture.

          The Issuers shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest (including Additional Interest) at the same rate to the extent lawful.

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          Notwithstanding anything to the contrary contained in this Indenture, the Issuers may, to the extent they are required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder.

     SECTION 3.2. Limitation on Indebtedness and Preferred Stock.

          (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness) and the Company will not permit any of its Restricted Subsidiaries to issue Preferred Stock; provided, however, that the Company and any of the Subsidiary Guarantors may Incur Indebtedness and issue Preferred Stock if on the date thereof:

               (1) the Consolidated Coverage Ratio for the Company and its Restricted Subsidiaries is at least 2.25 to 1.00, determined on a pro forma basis (including a pro forma application of proceeds); and

               (2) no Default would occur as a consequence of, and no Event of Default would be continuing following, Incurring the Indebtedness or its application.

          (b) Section 3.2(a) will not prohibit the Incurrence of the following:

               (1) Indebtedness under one or more Credit Facilities (including the Senior Secured Credit Agreement) Incurred pursuant to this clause (1) by the Issuers or any Subsidiary Guarantor in an aggregate amount outstanding at any one time not to exceed the greater of (i) $300.0 million or (ii) 30.0% of the Company’s Adjusted Consolidated Net Tangible Assets determined as of the date of the Incurrence of such Indebtedness after giving effect to the application of the proceeds therefrom;

               (2) guarantees of Indebtedness Incurred in accordance with the provisions of this Indenture; provided that in the event such Indebtedness that is being guaranteed is a Subordinated Obligation or a Guarantor Subordinated Obligation, then the related guarantee shall be subordinated in right of payment to the Securities or the Subsidiary Guarantees to at least the same extent as the Indebtedness being guaranteed, as the case may be;

               (3) Indebtedness of the Company owing to and held by any Restricted Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or any Restricted Subsidiary; provided, however, that (a)(i) if the Company is the obligor on such Indebtedness and the obligee is not a Subsidiary Guarantor, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all obligations with respect to the Securities and (ii) if a Subsidiary Guarantor is the obligor of such Indebtedness and the obligee is neither the Company nor a Subsidiary Guarantor, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all obligations of such Subsidiary Guarantor with respect to its Subsidiary Guarantee and (b)(i) any subsequent issuance or transfer of Capital Stock or any other event which results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary of the Company and (ii) any sale or other transfer of any such Indebtedness to a Person other than the Company or a Restricted Subsidiary of the

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Company shall be deemed, in each case, to constitute an Incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this Section 3.2(b)(3);

               (4) Indebtedness represented by (a) the Securities issued on the Issue Date and all Subsidiary Guarantees, (b) any Indebtedness (other than the Indebtedness described in Section 3.2(b)(1), (3), (4)(a) and (9) outstanding on the Issue Date), (c) any Exchange Securities and related Subsidiary Guarantees issued pursuant to a Registration Rights Agreement and (d) any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this Section 3.2(b)(4) or Section 3.2(b)(5) or Incurred pursuant to Section 3.2(a);

               (5) Permitted Acquisition Indebtedness;

               (6) Indebtedness Incurred in respect of (a) self-insurance obligations or bid, plugging and abandonment, appeal, reimbursement, performance, surety and similar bonds provided by the Company or a Restricted Subsidiary in the ordinary course of business and any guarantees or letters of credit functioning as or supporting any of such obligations or bonds and (b) obligations represented by letters of credit for the account of the Company or a Restricted Subsidiary in order to provide security for workers’ compensation claims (in the case of both clauses (a) and (b) other than for an obligation for money borrowed);

               (7) Indebtedness of the Company or any Subsidiary Guarantor represented by Capitalized Lease Obligations (whether or not incurred pursuant to Sale/Leaseback Transactions) or other Indebtedness incurred or assumed in connection with the acquisition, construction, improvement or development of real or personal, movable or immovable, property, in each case Incurred for the purpose of financing, refinancing, renewing, defeasing or refunding all or any part of the purchase price or cost of acquisition, construction, improvement or development of property used in the business of the Company or its Subsidiary Guarantors; provided that the aggregate principal amount incurred by the Company or any Subsidiary Guarantor pursuant to this Section 3.2(b)(7) outstanding at any time shall not exceed the greater of (x) $25.0 million and (y) 2.5% of the Company’s Adjusted Consolidated Net Tangible Assets; and provided further that the principal amount of any Indebtedness permitted under this Section 3.2(b)(7) did not in each case at the time of incurrence exceed the Fair Market Value, as determined in accordance with the definition of such term, of the acquired or constructed asset or improvement so financed;

               (8) Indebtedness to the extent that the net proceeds thereof are promptly deposited to defease the Securities or to satisfy and discharge the Indenture;

               (9) in addition to the items referred to in Sections 3.2(b)(1) through (8) above, Indebtedness of the Company and its Restricted Subsidiaries in an aggregate outstanding principal amount which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this clause (9) and then outstanding, will not

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exceed the greater of (a) $35.0 million and (b) 5.0% of the Company’s Adjusted Consolidated Net Tangible Assets.

          (c) For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness Incurred pursuant to and in compliance with, this Section 3.2:

               (1) in the event an item of that Indebtedness meets the criteria of more than one of the types of Indebtedness described in Section 3.2(a) and (b), the Company, in its sole discretion, will classify such item of Indebtedness on the date of Incurrence and, subject to Section 3.2(c)(2) below may later classify, reclassify or redivide all or a portion of such item of Indebtedness, in any manner that complies with this Section 3.2;

               (2) any Indebtedness outstanding on the date of this Indenture under the Senior Secured Credit Agreement shall be deemed Incurred on the Issue Date under Section 3.2(b)(1);

               (3) guarantees of, or obligations in respect of letters of credit supporting, Indebtedness which is otherwise included in the determination of a particular amount of Indebtedness shall not be included;

               (4) the principal amount of any Disqualified Stock of the Company or a Restricted Subsidiary, or Preferred Stock of a Restricted Subsidiary, will be equal to the greater of the maximum mandatory redemption or repurchase price (including, in either case, any redemption or repurchase premium) or the liquidation preference thereof;

               (5) Indebtedness permitted by this Section 3.2 need not be permitted solely by reference to one provision permitting such Indebtedness but may be permitted in part by one such provision and in part by one or more other provisions of this Section 3.2 permitting such Indebtedness; and

               (6) the amount of Indebtedness issued at a price that is less than the principal amount thereof will be equal to the amount of the liability in respect thereof determined in accordance with GAAP.

          Accrual of interest, accrual of dividends, the amortization of debt discount or the accretion of accreted value and unrealized losses or charges in respect of Hedging Obligations (including those resulting from the application of Statement of Financial Accounting Standard No. 133) will not be deemed to be an Incurrence of Indebtedness for purposes of this Section 3.2.

          The Company will not permit any of its Unrestricted Subsidiaries to Incur any Indebtedness other than Non-Recourse Debt. If at any time an Unrestricted Subsidiary becomes a Restricted Subsidiary, any Indebtedness of such Subsidiary shall be deemed to be Incurred by a Restricted Subsidiary as of such date (and, if such Indebtedness is not permitted to be Incurred as of such date under this Section 3.2, the Company shall be in Default of this Section 3.2).

          This Indenture will not treat (1) unsecured Indebtedness as subordinated or junior to secured Indebtedness merely because it is unsecured or (2) senior Indebtedness as

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subordinated or junior to any other senior Indebtedness merely because it has a junior priority with respect to the same collateral.

     SECTION 3.3. Limitation on Restricted Payments. The Company will not, and will not permit any of its Restricted Subsidiaries, directly or indirectly, to:

          (1) declare or pay any dividend or make any payment or distribution on or in respect of its Capital Stock (including any payment or distribution in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) except:

          (a) dividends or distributions by the Company payable solely in Capital Stock of the Company (other than Disqualified Stock); and

          (b) dividends or distributions payable to the Company or a Restricted Subsidiary and if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation) so long as the Company or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution;

          (2) purchase, repurchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Company or any direct or indirect parent of the Company held by Persons other than the Company or a Wholly-Owned Subsidiary;

          (3) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations or Guarantor Subordinated Obligations (other than (x) Indebtedness permitted under Section 3.2(b)(3) or (y) the purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations or Guarantor Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase, redemption, defeasance or other acquisition or retirement); or

          (4) make any Restricted Investment in any Person;

(any such dividend, distribution, purchase, repurchase, redemption, defeasance, other acquisition or retirement or Restricted Investment referred to in clauses (1) through (4) is referred to herein as a “Restricted Payment”), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment:

          (a) a Default has occurred and is continuing (or would result therefrom);

          (b) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to Section 3.2(a) after giving effect, on a pro forma basis, to such Restricted Payment; or

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          (c) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made subsequent to the Issue Date (other than under clauses (1), (2), (4), (5), (6), (7), (8), (9), (10), and (11) of the next paragraph) would exceed the sum of (the “Basket Amount”):

          (i) 50% of Consolidated Net Income accrued on a cumulative basis for the period (treated as one accounting period) from October 1, 2010 to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment for which financial statements are in existence (or, in case such Consolidated Net Income is a deficit, minus 100% of such deficit);

          (ii) 100% of the aggregate Net Cash Proceeds and the Fair Market Value of any Capital Stock of Persons engaged primarily in the Oil and Gas Business or assets used in the Oil and Gas Business, in each case received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or from cash capital contributions subsequent to the Issue Date (other than Net Cash Proceeds received from an issuance or sale of such Capital Stock to (x) a Subsidiary of the Company or (y) an employee stock ownership plan, option plan or similar trust (to the extent such sale to an employee stock ownership plan, option plan or similar trust is financed by loans from or guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination));

          (iii) the amount by which Indebtedness of the Company or its Restricted Subsidiaries is reduced on the Company’s balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company or its Restricted Subsidiaries convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the Fair Market Value of any other property (other than such Capital Stock), distributed by the Company upon such conversion or exchange), together with the net proceeds, if any, received by the Company or any of its Restricted Subsidiaries upon such conversion or exchange; and

          (iv) the amount equal to the aggregate net reduction in Restricted Investments made by the Company or any of its Restricted Subsidiaries in any other Person after the Issue Date resulting from:

          (A) repurchases, repayments or redemptions of such Restricted Investments by such Person, proceeds realized upon the sale of such Restricted Investments (other than to a Subsidiary of the Company), or repayments of loans or advances or other transfers of assets (including by way of dividend or

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distribution) by such Person to the Company or any Restricted Subsidiary; and

          (B) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of “Investment”) not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount in each case under this clause (iv) was included in the calculation of the amount of Restricted Payments; provided, however, that no amount will be included under this clause (iv) to the extent it is already included in Consolidated Net Income.

          The provisions of the preceding paragraph will not prohibit:

          (1) any Restricted Payment made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan, option plan or similar trust to the extent such sale to an employee stock ownership plan, option plan or similar trust is financed by loans from or guaranteed by the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination) or a substantially concurrent cash capital contribution received by the Company from the owners of its Capital Stock; provided that the Net Cash Proceeds from such sale of Capital Stock or capital contribution will be excluded from clause (c)(ii) of the preceding paragraph;

          (2) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Subordinated Obligations of an Issuer or Guarantor Subordinated Obligations of any Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of Refinancing Indebtedness with respect to such Subordinated Obligations or Guarantor Subordinated Obligations permitted to be Incurred pursuant to Section 3.2.

          (3) dividends paid or distributions made within 60 days after the date of declaration if at such date of declaration such dividend or distribution would have complied with this Section 3.3; provided, however, that such dividends and distributions will be included in subsequent calculations of the Basket Amount; and provided further, however, that for purposes of clarification, this clause (3) shall not include cash payments in lieu of the issuance of fractional shares included in clause (8) below;

          (4) the repurchase or other acquisition of Capital Stock (including options, warrants, equity appreciation rights or other rights to purchase or acquire Capital Stock) of the Company held by any existing or former employees, officers or directors of the Company or the General Partner or any Restricted Subsidiary of the Company or their assigns, estates or heirs, in each case pursuant to the repurchase or other acquisition provisions under employee stock option or stock purchase plans or agreements or other agreements to compensate employees, officers or directors, in each case approved by the Company’s Board of Directors; provided that such

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repurchases or other acquisitions pursuant to this clause (4) will not exceed $2.0 million in the aggregate during any calendar year; and provided that the proceeds received from any such transaction will be excluded from clause (c)(ii) of the preceding paragraph;

          (5) purchases, repurchases, redemptions or other acquisitions or retirements for value of Capital Stock deemed to occur upon the exercise of stock options, warrants, rights to acquire Capital Stock or other convertible securities if such Capital Stock represents a portion of the exercise or exchange price thereof, and any purchases, repurchases, redemptions or other acquisitions or retirements for value of Capital Stock made in lieu of withholding taxes in connection with any exercise or exchange of warrants, options or rights to acquire Capital Stock;

          (6) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of any Subordinated Obligation (i) at a purchase price not greater than 101% of the principal amount of such Subordinated Obligation in the event of a Change of Control in accordance with provisions similar to Section 3.9 or (ii) at a purchase price not greater than 100% of the principal amount thereof in accordance with provisions similar to Section 3.5; provided that, prior to or simultaneously with such purchase, repurchase, redemption, defeasance or other acquisition or retirement, the Company has made the Change of Control Offer or Asset Disposition Offer, as applicable, as provided in such Section with respect to the Securities and has completed the repurchase of all Securities accepted for payment in connection with such Change of Control Offer or Asset Disposition Offer;

          (7) so long as no Default has occurred and is continuing, payments or distributions to dissenting equityholders pursuant to applicable law or in connection with the settlement or other satisfaction of legal claims made pursuant to or in connection with a consolidation, merger or transfer of assets;

          (8) cash payments in lieu of the issuance of fractional shares;

          (9) the declaration and payment of scheduled or accrued dividends to holders of any class of or series of Disqualified Stock of the Company issued after the Issue Date in accordance with Section 3.2, to the extent such dividends are included in Consolidated Interest Expense;

          (10) so long as the Company is treated for U.S. federal tax purposes as a disregarded entity or partnership, Permitted Tax Distributions;

          (11) dividends paid or distributions made by the Company, or purchases, repurchases, redemptions or other acquisitions or retirements for value of Capital Stock of the Company, within 60 days after the Issue Date from proceeds of the issuance of the Initial Securities in an aggregate amount not to exceed $50.0 million; and

          (12) so long as no Default has occurred and is continuing, Restricted Payments in an amount not to exceed $25.0 million in the aggregate since the Issue Date.

          The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of such Restricted Payment of the securities or other assets proposed to be paid, transferred or issued by the Company or such Restricted Subsidiary, as the case may be,

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pursuant to such Restricted Payment. The Fair Market Value of any cash Restricted Payment shall be its face amount, and the Fair Market Value of any non-cash Restricted Payment shall be determined in accordance with the definition of that term. Not later than the date of making any Restricted Payment pursuant to clause (c) of the second preceding paragraph or clause (12) of the preceding paragraph, the Company shall deliver to the Trustee an Officers’ Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 3.3 were computed and the Basket Amount after giving effect to such Restricted Payment.

          In the event that a Restricted Payment meets the criteria of more than one of the exceptions described in clauses (1) through (12) above or is entitled to be made pursuant to the first paragraph above, the Company shall, in its sole discretion, classify such Restricted Payment and may later re-classify all or a portion of such Restricted Payment.

          The Company will not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the last sentence of the definition of “Unrestricted Subsidiary.” For purpose of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated will be deemed to be Restricted Payments in an amount determined as set forth in the last sentence of the definition of “Investment.” Such designation will be permitted only if a Restricted Payment in such amount would be permitted at such time, whether pursuant to the first paragraph of this Section 3.3 or under clause (12) of the second paragraph of this Section 3.3, or pursuant to the definition of “Permitted Investments,” and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.

     SECTION 3.4. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary (other than the Co-Issuer) to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any such Restricted Subsidiary to:

          (1) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company or any other Restricted Subsidiary (it being understood that the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on Common Stock shall not be deemed a restriction on the ability to make distributions on Capital Stock);

          (2) make any loans or advances to the Company or any other Restricted Subsidiary (it being understood that the subordination of loans or advances made to the Company or any Restricted Subsidiary to other Indebtedness Incurred by the Company or any Restricted Subsidiary shall not be deemed a restriction on the ability to make loans or advances); or

          (3) sell, lease or transfer any of its property or assets to the Company or any other Restricted Subsidiary.

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          The preceding provisions will not prohibit:

          (i) any encumbrance or restriction pursuant to or by reason of an agreement in effect at or entered into on the Issue Date, including this Indenture and the Senior Secured Credit Agreement, each as in effect on such date;

          (ii) any encumbrance or restriction with respect to a Person pursuant to or by reason of an agreement relating to any Capital Stock or Indebtedness Incurred by a Person on or before the date on which such Person was acquired by the Company or another Restricted Subsidiary (other than Capital Stock or Indebtedness Incurred as consideration in, or to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions pursuant to which such Person was acquired by the Company or a Restricted Subsidiary or in contemplation of the transaction) and outstanding on such date; provided that any such encumbrance or restriction shall not extend to any assets or property of the Company or any other Restricted Subsidiary other than the assets and property so acquired;

          (iii) any encumbrance or restriction contained in contracts entered into in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of, or from the ability of the Company and the Restricted Subsidiaries to realize the value of, property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary;

          (iv) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refunding, replacement or refinancing of Indebtedness Incurred pursuant to an agreement referred to in clauses (i) and (ii) or clause (ix) of this paragraph or this clause (iv) or contained in any amendment, restatement, modification, renewal, supplemental, refunding, replacement or refinancing of an agreement referred to in clauses (i) and (ii) or clause (ix) of this paragraph or this clause (iv); provided that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such agreement taken as a whole are no less favorable in any material respect to the holders of the Securities than the encumbrances and restrictions contained in the agreements governing the Indebtedness being refunded, replaced or refinanced;

          (v) in the case of clause (3) of the first paragraph of this Section 3.4, any encumbrance or restriction:

          (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is

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subject to a lease (including leases governing leasehold interests or farm-in agreements or farm-out agreements relating to leasehold interests in Oil and Gas Properties), license or similar contract, or the assignment or transfer of any such lease (including leases governing leasehold interests or farm-in agreements or farm-out agreements relating to leasehold interests in Oil and Gas Properties), license (including licenses of intellectual property) or other contract;

          (B) contained in mortgages, pledges or other security agreements permitted under this Indenture securing Indebtedness of the Company or a Restricted Subsidiary to the extent such encumbrances or restrictions restrict the transfer of the property subject to such mortgages, pledges or other security agreements;

          (C) contained in any agreement creating Hedging Obligations permitted from time to time under this Indenture;

          (D) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary;

          (E) on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business; or

          (F) with respect to the disposition or distribution of assets or property in operating agreements, joint venture agreements, development agreements, area of mutual interest agreements and other agreements that are customary in the Oil and Gas Business and entered into in the ordinary course of business;

          (vi) any encumbrance or restriction contained in (a) purchase money obligations for property acquired in the ordinary course of business and (b) Capitalized Lease Obligations, in each case that are permitted under this Indenture and that impose encumbrances or restrictions of the nature described in clause (3) of the first paragraph of this Section 3.4 on the property or assets so acquired, and any proceeds thereof;

          (vii) any encumbrance or restriction with respect to a Restricted Subsidiary (or any of its property or assets) imposed pursuant to an agreement entered into for the direct or indirect sale or other disposition

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of all or a portion of the Capital Stock or property or assets of such Restricted Subsidiary pending the closing of such sale or other disposition;

          (viii) any encumbrance or restriction arising or existing by reason of applicable law or any applicable rule, regulation or order;

          (ix) any encumbrance or restriction contained in agreements governing Indebtedness of the Company or any of its Restricted Subsidiaries permitted to be Incurred pursuant to an agreement entered into subsequent to the Issue Date in accordance with Section 3.2; provided that the provisions relating to such encumbrance or restriction contained in such Indebtedness, taken as a whole, are not materially less favorable to the Company taken as a whole, as determined by the Board of Directors of the Company in good faith, than the provisions contained in the Senior Secured Credit Agreement and in this Indenture; and

          (x) any encumbrance or restriction on cash or other deposits or net worth imposed by customers under contracts or required by insurance, surety or bonding companies, in each case entered into or incurred in the ordinary course of business.

     SECTION 3.5. Limitation on Sales of Assets and Subsidiary Stock. The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Disposition unless:

          (1) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Disposition at least equal to the Fair Market Value (such Fair Market Value to be determined on the date of contractually agreeing to such Asset Disposition) of the Capital Stock or other assets subject to such Asset Disposition;

          (2) at least 75% of the consideration received by the Company or such Restricted Subsidiary, as the case may be, is in the form of cash or Cash Equivalents or Additional Assets, or any combination thereof; and

          (3) except as provided in the next paragraph, an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied, within 360 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash, by the Company or such Restricted Subsidiary, as the case may be:

          (a) to prepay, repay, redeem or purchase Indebtedness (other than intercompany Indebtedness, Subordinated Obligations, Capital Stock or Indebtedness owed to an Affiliate of the Company); provided, however, that, in connection with any prepayment, repayment, redemption or purchase of Indebtedness pursuant to this clause (a), the Company or such Restricted Subsidiary will cause the related commitment to be permanently reduced in an amount equal to the principal amount so prepaid, repaid, redeemed or purchased; or

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          (b) to invest in Additional Assets or to make capital expenditures in the Oil and Gas Business;

provided that pending the final application of any such Net Available Cash in accordance with clause (a) or clause (b) above, the Company and its Restricted Subsidiaries may temporarily reduce revolving credit Indebtedness or otherwise invest such Net Available Cash in any manner not prohibited by this Indenture.

Any Net Available Cash from Asset Dispositions that is not applied or invested as provided in the preceding paragraph will be deemed to constitute “Excess Proceeds.” Not later than the 360th day from the later of the date of such Asset Disposition or the receipt of such Net Available Cash, if the aggregate amount of Excess Proceeds exceeds $20.0 million, the Company will make an offer (“Asset Disposition Offer”) to all Holders of Securities and, to the extent required by the terms of other Pari Passu Indebtedness, to all holders of other Pari Passu Indebtedness outstanding with similar provisions requiring the Company to make an offer to purchase such Pari Passu Indebtedness with the proceeds from any Asset Disposition (“Pari Passu Securities”) to purchase the maximum principal amount of Securities and any such Pari Passu Securities to which the Asset Disposition Offer applies that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount (or, in the event such Pari Passu Indebtedness was issued with original issue discount, 100% of the accreted value thereof) of the Securities and Pari Passu Securities plus accrued and unpaid interest, if any (or in respect of such Pari Passu Securities, such lesser price, if any, as may be provided for by its terms), to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the procedures set forth in this Section 3.5 or the agreements governing the Pari Passu Securities, as applicable, in each case in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess thereof. If the aggregate principal amount of Securities surrendered by Holders thereof and other Pari Passu Securities surrendered by holders or lenders, collectively, exceeds the amount of Excess Proceeds, the Trustee shall select the Securities to be purchased on a pro rata basis (or, in the case of Securities issued in global form as discussed in Section 2.1(e) the Trustee will select the Securities for purchase based on DTC’s method that most nearly approximates a pro rata selection) on the basis of the aggregate principal amount of tendered Securities and Pari Passu Securities. To the extent that the aggregate amount of Securities and Pari Passu Securities so validly tendered and not properly withdrawn pursuant to an Asset Disposition Offer is less than the Excess Proceeds, the Company and its Restricted Subsidiaries may use any remaining Excess Proceeds for general corporate purposes, subject to the other covenants contained in this Indenture. Upon completion of such Asset Disposition Offer, the amount of Excess Proceeds shall be reset at zero.

The Asset Disposition Offer will remain open for a period of 20 Business Days following its commencement, except to the extent that a longer period is required by applicable law (the “Asset Disposition Offer Period”). No later than two Business Days after the termination of the Asset Disposition Offer Period (the “Asset Disposition Purchase Date”), the Company will purchase the principal amount of Securities and Pari Passu Securities required to be purchased pursuant to this Section 3.5 (the “Asset Disposition Offer Amount”) or, if less than the Asset Disposition Offer Amount has been so validly tendered and not properly withdrawn, all

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Securities and Pari Passu Securities validly tendered and not properly withdrawn in response to the Asset Disposition Offer.

          If the Asset Disposition Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest will be paid to each Person in whose name a Note is registered at the close of business on such record date, and no further interest will be payable to Holders who tender Securities pursuant to the Asset Disposition Offer.

          On or before the Asset Disposition Purchase Date, the Company will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Asset Disposition Offer Amount of Securities and Pari Passu Securities or portions of Securities and Pari Passu Securities so validly tendered and not properly withdrawn pursuant to the Asset Disposition Offer, or if less than the Asset Disposition Offer Amount has been validly tendered and not properly withdrawn, all Securities and Pari Passu Securities so validly tendered and not properly withdrawn, in each case in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess thereof. The Company will deliver to the Trustee an Officers’ Certificate stating that such Securities or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.5 and, in addition, the Company will deliver all certificates required, if any, by the agreements governing the Pari Passu Securities. On the Asset Disposition Date, the Company or the paying agent, as the case may be, will mail or deliver to each tendering Holder of Securities or holder or lender of Pari Passu Securities, as the case may be, an amount equal to the purchase price of the Securities or Pari Passu Securities so validly tendered and not properly withdrawn by such holder or lender, as the case may be, and accepted by the Company for purchase, and the Company will promptly issue a new Security, and the Trustee, upon delivery of an Officers’ Certificate from the Issuers, will authenticate and mail or deliver such new Security to such Holder, in a principal amount equal to any unpurchased portion of the Security surrendered; provided that each such new Security will be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. In addition, the Company will take any and all other actions required by the agreements governing the Pari Passu Securities. Any Security not so accepted will be promptly mailed or delivered by the Issuers to the Holder thereof. The Company will publicly announce the results of the Asset Disposition Offer on the Asset Disposition Purchase Date.

          The Company will comply, to the extent applicable, with the requirements of Rule 14e-1 of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to an Asset Disposition Offer. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 3.5, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Indenture by virtue of its compliance with such securities laws or regulations.

For the purposes of clause (2) of the first paragraph of this Section 3.5, the following will be deemed to be cash:

          (1) the assumption by the transferee of Indebtedness of the Company or Indebtedness of a Restricted Subsidiary (other than intercompany Indebtedness,

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Subordinated Obligations, Capital Stock or Indebtedness owed to an Affiliate of the Company) and the release of such Issuers or Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition; and

          (2) securities, notes or other obligations received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into cash within 30 days after receipt thereof.

          The Company will not, and will not permit any Restricted Subsidiary to, engage in any Asset Swaps, unless in the event such Asset Swap involves the transfer by the Company or any Restricted Subsidiary of assets having an aggregate Fair Market Value in excess of $20.0 million, the terms of such Asset Swap have been approved by a majority of the members of the Board of Directors of the Company.

     SECTION 3.6. Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer to exist any Lien (other than Permitted Liens) upon any of its property or assets (including Capital Stock of Restricted Subsidiaries), including any income or profits therefrom, whether owned on the date of this Indenture or acquired after that date, which Lien is securing any Indebtedness, unless contemporaneously with the Incurrence of such Lien effective provision is made to secure the Indebtedness due under the Securities (in the case of the Company) or any Subsidiary Guarantee of such other Restricted Subsidiary, equally and ratably with (or senior in priority to in the case of Liens with respect to Subordinated Obligations or Guarantor Subordinated Obligations, as the case may be) the Indebtedness secured by such Lien for so long as such Indebtedness is so secured.

     SECTION 3.7. Statement by Officers as to Default. The Issuers shall, so long as any Security is outstanding, deliver to the Trustee within thirty days after the occurrence of a Default, an Officers’ Certificate setting forth the details of such Default, and what action the Issuers are taking or proposing to take with respect thereto.

     SECTION 3.8. Limitation on Affiliate Transactions. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into, make, amend or conduct any transaction (including making a payment to, the purchase, sale, lease or exchange of any property or the rendering of any service), contract, agreement or understanding with or for the benefit of any Affiliate of the Company (an “Affiliate Transaction”) unless:

          (1) the terms of such Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could reasonably be expected to be obtained in a comparable transaction at the time of such transaction in arm’s-length dealings with a Person who is not such an Affiliate;

          (2) if such Affiliate Transaction involves an aggregate consideration in excess of $20.0 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Company having no personal stake in such transaction, if any (and such majority determines that such Affiliate Transaction satisfies the criteria in clause (1) above); and

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          (3) if such Affiliate Transaction involves an aggregate consideration in excess of $50.0 million, the Board of Directors of the Company has received a written opinion from an independent investment banking, accounting, engineering or appraisal firm of nationally recognized standing that such Affiliate Transaction is fair, from a financial standpoint, to the Company or such Restricted Subsidiary or, in the case of non-financial transactions, is not less favorable to the Company or such Restricted Subsidiary than those that could reasonably be expected to be obtained in a comparable transaction at such time on an arm’s-length basis from a Person that is not an Affiliate.

The preceding paragraph will not apply to:

          (1) any Restricted Payment permitted to be made pursuant to Section 3.3;

          (2) any issuance of Capital Stock (other than Disqualified Stock), or other payments, awards or grants in cash, Capital Stock (other than Disqualified Stock) or otherwise pursuant to, or the funding of, any employment, consulting, service or severance agreements or other compensation arrangements, options to purchase Capital Stock (other than Disqualified Stock) of the Company, restricted stock plans, long-term incentive plans, stock appreciation rights plans, participation plans or similar employee benefits plans or insurance and indemnification arrangements provided to or for the benefit of directors, officers and employees, in each case in the ordinary course of business and approved by the Board of Directors of the Company;

          (3) any merger or other transaction with an Affiliate solely for the purpose of reincorporating or reorganizing the Company or any of its Restricted Subsidiaries in another jurisdiction or creating a holding company for the Company;

          (4) advances to or reimbursements of employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business of the Company or any of its Restricted Subsidiaries;

          (5) any transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, and guarantees issued by the Company or a Restricted Subsidiary for the benefit of the Company or a Restricted Subsidiary, as the case may be, in accordance with Section 3.2;

          (6) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the Company to, or the receipt by the Company of any capital contribution from, the holders of its Capital Stock;

          (7) indemnities of officers, directors and employees of the Company or any of its Restricted Subsidiaries permitted by charter, bylaw or statutory provisions;

          (8) the payment of reasonable compensation and fees to officers or directors of the Company or any Restricted Subsidiary;

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          (9) any transaction with a joint venture or similar entity (other than an Unrestricted Subsidiary) which would constitute an Affiliate Transaction solely because the Company or a Restricted Subsidiary owns, directly or indirectly, an equity interest in or otherwise controls such joint venture or similar entity; and

          (10) the performance of obligations of the Company or any of its Restricted Subsidiaries under the terms of any agreement to which the Company or any of its Restricted Subsidiaries is a party as of or on the Issue Date that is disclosed in the Offering Memorandum under “Certain Relationships and Related Party Transactions,” as these agreements may be amended, modified, supplemented, extended or renewed from time to time; provided, however, that any future amendment, modification, supplement, extension or renewal entered into after the Issue Date will be permitted only to the extent that its terms are not materially more disadvantageous, taken as a whole, to the holders of the Securities than the terms of the agreements in effect on the Issue Date.

     SECTION 3.9. Purchase of Securities Upon a Change of Control. If a Change of Control occurs, unless the Issuers have previously or concurrently exercised their right to redeem all of the Securities pursuant to Article V, each Holder will have the right to require the Company to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess thereof ) of such Holder’s Securities at a purchase price in cash equal to 101% of the principal amount of the Securities plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date).

          Within 30 days following any Change of Control, unless the Issuers have previously or concurrently exercised their right to redeem all of the Securities pursuant to Article V, the Company will mail a notice (the “Change of Control Offer”) to each Holder, with a copy to the Trustee, stating:

          (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder’s Securities at a purchase price in cash equal to 101% of the principal amount of such Securities plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date) (the “Change of Control Payment”);

          (2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the “Change of Control Payment Date”);

          (3) that any Security not properly tendered will remain outstanding and continue to accrue interest;

          (4) that unless the Company defaults in the payment of the Change of Control Payment, all Securities accepted for payment pursuant to the Change of Control Offer will cease to accrue interest on the Change of Control Payment Date;

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          (5) that Holders electing to have any Securities purchased pursuant to a Change of Control Offer will be required to surrender such Securities, with the form entitled “Option of Holder to Elect Purchase” on the reverse of such Securities in certificated form completed, to the Paying Agent specified in the notice at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;

          (6) that Holders will be entitled to withdraw their tendered Securities and their election to require the Company to purchase such Securities, provided that the Paying Agent receives, not later than the close of business on the third Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder of the Securities, the principal amount of Securities tendered for purchase, and a statement that such Holder is withdrawing its tendered Securities and its election to have such Securities purchased;

          (7) that if the Company is repurchasing a portion of the Security of any Holder, the Holder will be issued a new Note equal in principal amount to the unpurchased portion of the Note surrendered, provided that the unpurchased portion of the Note must be equal to a minimum principal amount of $2,000 and an integral multiple of $1,000 in excess thereof; and

          (8) the procedures determined by the Company, consistent with this Indenture, that a Holder must follow in order to have its Securities repurchased.

          On the Change of Control Payment Date, the Company will, to the extent lawful:

          (1) accept for payment all Securities or portions of Securities (in a minimum principal amount of $2,000 and integral multiples of $1,000 in excess thereof) properly tendered pursuant to the Change of Control Offer and not properly withdrawn;

          (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Securities or portions of Securities accepted for payment; and

          (3) deliver or cause to be delivered to the Trustee the Securities so accepted together with an Officers’ Certificate stating the aggregate principal amount of Securities or portions of Securities being purchased by the Company.

          The Paying Agent will promptly mail or deliver to each Holder of Securities accepted for payment the Change of Control Payment for such Securities, and the Trustee, upon receipt of an Issuer Order, will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Security equal in principal amount to any unpurchased portion of the Securities surrendered, if any; provided that each such new Note will be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess thereof.

          If the Change of Control Payment Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest, will be paid to each Person in whose name a Security is registered at the close of business on such record date,

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and no further interest will be payable to Holders who tender pursuant to the Change of Control Offer.

          The Company is not required to make a Change of Control Offer upon a Change of Control if any other Person makes the Change of Control Offer in the manner, at the times and otherwise in compliance with this Section 3.9 applicable to a Change of Control Offer made by the Company and purchases all Securities validly tendered and not properly withdrawn under such Change of Control Offer.

          A Change of Control Offer may be made in advance of a Change of Control, and conditioned upon the occurrence of a Change of Control, if a definitive agreement is in place for the Change of Control at the time of making the Change of Control Offer.

          The Company will comply, to the extent applicable, with the requirements of Rule 14e-1 of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 3.9, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section 3.9 by virtue of its compliance with such securities laws or regulations.

     SECTION 3.10. Provision of Financial Information. Whether or not the Company is subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act, the Company will make available to the Trustee and the Holders of the Securities without cost, by posting the same on its website for public availability, the annual reports and the information, documents and other reports that are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation that would be due after the Issue Date, within the time periods specified therein with respect to a non-accelerated filer; provided, however, that in lieu of a Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, the Company may instead provide, no later than 15 days after the applicable deadline under SEC rules for such report, unaudited quarterly financial statements together with a Management’s Discussion and Analysis of Financial Condition and Results of Operations, in each case consistent with those that would be included in a Quarterly Report on Form 10-Q (the “Initial Report”), and no information required to be reported in a Current Report on Form 8-K shall be due with respect to any event occurring prior to the date of such Initial Report provided that information required in any such Current Report on Form 8-K is included in such Initial Report. In addition, following the consummation of the Exchange Offer contemplated by the Registration Rights Agreement, the Company will file a copy of each of the reports referred to in the preceding sentence with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC will not accept such a filing).

          This Section 3.10 will not impose any duty on the Company under the Sarbanes-Oxley Act of 2002 and the related SEC rules that would not otherwise be applicable.

          If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the financial information required will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in any

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accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.

          The availability of the foregoing materials on the SEC’s website or on the Company’s website shall be deemed to satisfy the foregoing delivery obligations.

          For so long as any Securities remain outstanding and constitute “restricted securities” under Rule 144, the Company will furnished to the holders of the Securities, and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

          Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuers’ compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).

     SECTION 3.11. Future Subsidiary Guarantors. The Company will cause (a) each Domestic Subsidiary of the Company formed or acquired after the Issue Date and (b) any other Restricted Subsidiary (except the Co-Issuer) that is not already a Subsidiary Guarantor that guarantees any Indebtedness of the Company, or a Subsidiary Guarantor, in each case to execute and deliver to the Trustee within 30 days a supplemental indenture (in substantially the form specified in Exhibit B to this Indenture) pursuant to which such Subsidiary will unconditionally guarantee, on a joint and several basis, the full and prompt payment of the principal of, premium, if any, and interest on the Securities on a senior basis; provided that (i) any Restricted Subsidiary that constitutes an Immaterial Subsidiary need not become a Subsidiary Guarantor until such time as it ceases to be an Immaterial Subsidiary and (ii) Brayton Resources, L.P., Brayton Resources II, L.P. and Orion Operating Company, LP shall not be required to become Subsidiary Guarantors for so long as they remain Immaterial Subsidiaries and do not guarantee Indebtedness of the Company or any Subsidiary Guarantor other than the Senior Secured Credit Agreement.

     SECTION 3.12. Maintenance of Office or Agency. The Issuers will maintain an office or agency where the Securities may be presented or surrendered for payment, where, if applicable, the Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Issuers in respect of the Securities and this Indenture may be served. The corporate trust office of the Trustee indicated in Section 2.3 shall be such office or agency of the Issuers, unless the Issuers shall designate and maintain some other office or agency for one or more of such purposes. The Issuers will give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Issuers shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the corporate trust office of the Trustee indicated in Section 11.2, and the Issuers hereby appoint the Trustee as its agent to receive all such presentations, surrenders, notices and demands.

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          The Issuers may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation. The Issuers will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency.

     SECTION 3.13. Corporate Existence. Except as otherwise provided in Article IV, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the existence, rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise with respect to a Restricted Subsidiary if it shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole.

     SECTION 3.14. Payment of Taxes. The Issuers or any Subsidiary Guarantor shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, all material taxes, assessments and governmental charges levied or imposed upon the Issuers or any Subsidiary Guarantor or upon the income, profits or property of the Issuers or any Subsidiary Guarantor; provided, however, (i) that the Issuers or any Subsidiary Guarantors shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment or charge the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and (ii) that the Issuers and Subsidiary Guarantors are not required to pay or discharge taxes for which a failure to pay or discharge the same could not reasonably be expected to have a material adverse affect on the Company and the Restricted Subsidiaries taken as a whole.

     SECTION 3.15. Payments for Consent. Neither the Company nor any of its Restricted Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fees or otherwise, to any Holder of any Securities for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid or is paid to all Holders of the Securities that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or amendment.

     SECTION 3.16. Compliance Certificate. The Issuers and the Subsidiary Guarantors shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company ending after the Issue Date a statement (which need not be an Officers’ Certificate) signed by two Officers of the Company, one of which shall be the principal executive officer, the principal accounting officer or the principal financial officer of the Company, stating that a review of the activities of the Company and its Restricted Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each of the Issuers and the Subsidiary Guarantors has performed its obligations under this Indenture, and further stating whether or not the signers know of any Default or Event of Default that occurred during such period. If they do, the certificate shall describe such Default or Event of Default, its status and what action the Issuers are taking or proposes to take with respect thereto. The Issuers also shall comply with TIA § 314(a)(4).

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     SECTION 3.17. Business Activities. The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in any business other than the Oil and Gas Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. The Co-Issuer may not engage in any business not related directly or indirectly to obtaining money or arranging financing for the Company or its Restricted Subsidiaries, the Co-Issuer may not have any Subsidiary, and no Person other than the Company or any of its other Restricted Subsidiaries may own any Capital Stock of the Co-Issuer.

ARTICLE IV
SUCCESSOR COMPANY

     SECTION 4.1. Merger and Consolidation.

          (a) Neither the Company nor the Co-Issuer will consolidate with or merge with or into or wind up into (whether or not it is the surviving Person), or sell, convey, transfer or lease all or substantially all its assets in one or more related transactions to, any Person, unless:

          (1) the resulting, surviving or transferee Person (the “Successor Company”) will be a corporation (in the case of either the Company or the Co-Issuer) or a partnership, trust or limited liability company (but only in the case of the Company), organized and existing under the laws of the United States of America, any State of the United States or the District of Columbia and the Successor Company (if not the Company or the Co-Issuer, as the case may be) will expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Company or the Co-Issuer, as the case may be, under this Indenture, the Securities and the Registration Rights Agreement;

          (2) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Subsidiary of the Successor Company as a result of such transaction as having been Incurred by the Successor Company or such Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing;

          (3) immediately after giving effect to such transaction, the Successor Company would be able to Incur at least an additional $1.00 of Indebtedness pursuant to Section 3.2(a);

          (4) if an Issuer is not the Successor Company in any of the transactions referred to above that involve such Issuer, each Subsidiary Guarantor (unless it is the other party to the transactions, in which case clause (1) shall apply) shall have by supplemental indenture confirmed that its Subsidiary Guarantee shall apply to the Successor Company’s obligations in respect of this Indenture and the Securities and that its Subsidiary Guarantee shall continue to be in effect; and

          (5) the Company or the Co-Issuer, as the case may be, shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such transaction and such supplemental indenture (if any) comply with this Indenture.

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          For purposes of this Section 4.1, the sale, conveyance, assignment, transfer, lease or other disposition of all or substantially all of the assets of one or more Subsidiaries of the Company, which assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially all of the assets of the Company on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the assets of the Company.

          Upon satisfaction of the foregoing requirements, as applicable, the Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company or the Co-Issuer, as the case may be, under this Indenture; and its predecessor, except in the case of a lease of all or substantially all its assets, will be released from all obligations under this Indenture.

          Notwithstanding the preceding clause (3), (x) any Restricted Subsidiary (other than the Co-Issuer) may consolidate with, merge into or transfer all or part of its assets to the Company and the Company may consolidate with, merge into or transfer all or part of its assets to a Subsidiary Guarantor and (y) the Company may merge with an Affiliate formed solely for the purpose of reorganizing the Company in another jurisdiction.

          (b) In addition, the Company will not permit any Subsidiary Guarantor to consolidate with or merge with or into, and will not permit the conveyance, transfer or lease of all or substantially all of the assets of any Subsidiary Guarantor to, any Person (other than the Company or another Subsidiary Guarantor) unless:

               (1) either (A) (i) the resulting, surviving or transferee Person will be a corporation, partnership, trust or limited liability company organized and existing under the laws of the United States of America, any State of the United States or the District of Columbia and such Person (if not such Subsidiary Guarantor) will expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Subsidiary Guarantor under this Indenture, Subsidiary Guarantee and the applicable Registration Rights Agreement and (ii) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the resulting, surviving or transferee Person or any Restricted Subsidiary as a result of such transaction as having been Incurred by such Person or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; or

                    (B) the transaction results in the release of the Subsidiary Guarantor from its obligations under its Subsidiary Guarantee in compliance with Section 10.2; and

               (2) the Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such transaction and such supplemental indenture (if any) comply with this Indenture.

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ARTICLE V
REDEMPTION OF SECURITIES

     SECTION 5.1. Redemption. The Securities may be redeemed subject to the conditions and at the redemption prices specified in paragraph 5 of the form of Securities set forth in Exhibit A hereto, which are hereby incorporated by reference and made a part of this Indenture.

     SECTION 5.2. Applicability of Article. Redemption of Securities at the election of the Issuers, as permitted by any provision of the Securities, shall be made in accordance with such provision and this Article.

     SECTION 5.3. Election to Redeem; Notice to Trustee. In case of any redemption at the election of the Issuers, the Issuers shall, not later than five Business Days prior to giving notice of any redemption pursuant to Section 5.5 (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and, in the case of any redemption of less than all Securities, shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Securities to be redeemed pursuant to Section 5.4. Any such notice may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect.

     SECTION 5.4. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed at any time pursuant to an optional redemption, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the outstanding Securities not previously called for redemption, in compliance with the requirements, as set forth in an Officers’ Certificate delivered by the Issuers to the Trustee, of the principal national securities exchange, if any, on which such Securities are listed, or, if such Securities are not so listed, then on a pro rata basis (or, in the case of Securities issued in global form as discussed in Section 2.1(e) the Trustee will select the Securities for purchase based on DTC’s method that most nearly approximates a pro rata selection), by lot or by such other method as the Trustee in its sole discretion will deem to be fair and appropriate (and in such manner as complies with applicable legal requirements), and which may provide for the selection for redemption of portions of the Securities in the principal amount of $2,000 and integral multiples of $1,000 in excess thereof; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Security not redeemed to less than $2,000.

          The Trustee shall promptly notify the Issuers in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the method it has chosen for the selection of Securities and the principal amount thereof to be redeemed.

          For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed.

     SECTION 5.5. Notice of Redemption. Notice of redemption shall be given in the manner provided for in Section 11.2 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed. At the Issuers’ request, the

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Trustee shall give notice of redemption in the Issuers’ name and at the Issuers’ expense; provided, however, that the Issuer shall deliver to the Trustee, at least five Business Days prior to the giving of such notice (unless a shorter period shall be satisfactory to the Trustee), an Officers’ Certificate requesting that the Trustee give such notice at the Issuers’ expense and setting forth the information to be stated in such notice as provided in the following items.

          All notices of redemption shall state:

          (1) the Redemption Date,

          (2) the redemption price, if then determinable, and otherwise the method for its determination and the amount of accrued interest (including Additional Interest) to the Redemption Date payable as provided in Section 5.7, if any,

          (3) if less than all outstanding Securities are to be redeemed, the identification of the particular Securities (or portion thereof) to be redeemed, as well as the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities to be outstanding after such partial redemption,

          (4) in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the Holder will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed,

          (5) that on the Redemption Date the redemption price (and accrued interest (including Additional Interest), if any, to the Redemption Date payable as provided in Section 5.7) will become due and payable upon each such Security, or the portion thereof, to be redeemed, and, unless the Issuers default in making the redemption payment, that interest on Securities called for redemption (or the portion thereof) will cease to accrue on and after said date,

          (6) the place or places where such Securities are to be surrendered for payment of the redemption price and accrued interest, if any,

          (7) the name and address of the Paying Agent,

          (8) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price,

          (9) the CUSIP, Common Code and ISIN numbers, if applicable, and that no representation is made as to the accuracy or correctness of the CUSIP, Common Code and ISIN numbers, if applicable, if any, listed in such notice or printed on the Securities, and

          (10) the paragraph of the Securities pursuant to which the Securities are to be redeemed.

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     SECTION 5.6. Deposit of Redemption Price. Prior to 11:00 a.m., New York City time, on any Redemption Date, the Issuers shall deposit with the Trustee or with a Paying Agent an amount of money sufficient to pay the redemption price of and accrued interest (including Additional Interest) on, all the Securities which are to be redeemed on that date, other than Securities or portions of Securities called for redemption that are beneficially owned by the Issuers and have been delivered by the Issuers to the Trustee for cancellation.

     SECTION 5.7. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities or portions of Securities so to be redeemed shall, on the Redemption Date, become due and payable at the redemption price therein specified (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Issuers shall default in the payment of the redemption price and accrued interest) such Securities shall cease to bear interest and the only right of the Holders thereof will be to receive payment of the redemption price and, subject to the next sentence, unpaid interest on such Securities to the Redemption Date. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Issuers at the redemption price, together with accrued interest, if any, to the Redemption Date, provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holder of such Security, or one or more predecessor Securities, registered as such as of the relevant record date.

          If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the unpaid principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Securities.

     SECTION 5.8. Securities Redeemed in Part. Any Security which is to be redeemed only in part (pursuant to the provisions of this Article) shall be surrendered at the office or agency of the Issuers maintained for such purpose pursuant to Section 3.12 (with, if the Issuers or the Trustee so require, due endorsement by, or a written instrument of transfer in form satisfactory to the Issuers and the Trustee duly executed by, the Holder thereof or such Holder’s attorney duly authorized in writing), and the Issuers shall execute, and the Trustee shall, upon receipt of an Issuer Order, authenticate and make available for delivery to the Holder of such Security at the expense of the Issuers, a new Security or Securities, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered; provided, that each such new Security will be in a principal amount of $2,000 and integral multiples of $1,000 in excess thereof.

ARTICLE VI
DEFAULTS AND REMEDIES

     SECTION 6.1. Events of Default. An “Event of Default” wherever used herein, means any one of the following events in relation to the Securities (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

          (1) default in any payment of interest or Additional Interest, if any, on any Security when due, continued for 30 days;

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          (2) default in the payment of principal of or premium, if any, on any Security when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration of acceleration or otherwise;

          (3) failure by either Issuer or any Subsidiary Guarantor to comply with its obligations under Section 4.1;

          (4) failure by either Issuer or any Subsidiary Guarantor to comply with Sections 3.2, 3.3, 3.4, 3.5, 3.6, 3.8, 3.9, 3.10, 3.11, 3.15 or 3.18 for 30 days after the Issuer has been given notice as provided below;

          (5) failure by the Company or the Issuers to comply with any agreement in this Indenture (other than an agreement, a default in or failure to comply with is elsewhere in this Section specifically dealt with) and continuance of such default or breach for a period of 60 days after the Issuer has been given notice as provided below;

          (6) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), other than Indebtedness owed to the Company or a Restricted Subsidiary, whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, which default:

          (a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (and any extensions of any grace period) (“payment default”); or

          (b) results in the acceleration of such Indebtedness prior to its Stated Maturity (the “cross acceleration provision”);

and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $20.0 million or more;

          (7) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company, the Co-Issuer or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the last audited consolidated financial statements for the Company and its Restricted Subsidiaries) would constitute a Significant Subsidiary in an involuntary case or proceeding under any applicable Federal or State or foreign bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company, the Co-Issuer, or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the last audited consolidated financial statements for the Company, the Co-Issuer and its Restricted Subsidiaries) would constitute a Significant Subsidiary bankrupt or insolvent,

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or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company, the Issuers or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the last audited consolidated financial statements for the Company and its Restricted Subsidiaries) would constitute a Significant Subsidiary, under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company, the Co-Issuer or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the last audited consolidated financial statements for the Company and its Restricted Subsidiaries) would constitute a Significant Subsidiary, or of any substantial part of its or their property, or ordering the winding up or liquidation of its or their affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or

          (8) the commencement by the Company, the Co-Issuer or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the last audited consolidated financial statements for the Company and its Restricted Subsidiaries) would constitute a Significant Subsidiary of a voluntary case or proceeding under any applicable Federal or State or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it or them to the entry of a decree or order for relief in an involuntary case or proceeding under any applicable Federal or State or foreign bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it or them, or the filing by it or them of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State or foreign law, or the consent by it or them to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company, the Co-Issuer or a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the last audited consolidated financial statements for the Company and its Restricted Subsidiaries) would constitute a Significant Subsidiary or of any substantial part of its or their property, or the making by it or them of an assignment for the benefit of creditors, or the failure by them or it to pay its or their debts generally as they become due; or

          (9) failure by the Company, the Co-Issuer or any Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Company and its Restricted Subsidiaries), would constitute a Significant Subsidiary to pay final judgments aggregating in excess of $20.0 million (to the extent not covered by insurance by a reputable and creditworthy insurer as to which the insurer has not disclaimed coverage), which judgments are not paid or discharged, and there shall be any period of 60 consecutive days following entry of such final judgment or decree during which a stay of enforcement of such final judgment or decree, by reason of pending appeal or otherwise, shall not be in effect (the “judgment default provision”); or

          (10) any Subsidiary Guarantee of a Significant Subsidiary or group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial

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statements for the Company and its Restricted Subsidiaries) would constitute a Significant Subsidiary, ceases to be in full force and effect (except as contemplated by the terms of this Indenture) or is declared null and void in a judicial proceeding or the Company or any Subsidiary Guarantor that is a Significant Subsidiary or group of Subsidiary Guarantors that, taken together (as of the latest audited consolidated financial statements of the Company and its Restricted Subsidiaries) would constitute a Significant Subsidiary, denies or disaffirms its obligations under this Indenture or its Subsidiary Guarantee.

          However, a default under clauses (4) and (5) of this Section 6.1 will not constitute an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the outstanding Securities notify the Issuers in writing and, in the case of a notice given by the Holders, the Trustee of the default and the Company or the Co-Issuer do not cure such default within the time specified in clauses (4) and (5) of this Section 6.1 after receipt of such notice.

     SECTION 6.2. Acceleration. If an Event of Default (other than an Event of Default described in Section 6.1(7) and (8)) occurs and is continuing, the Trustee by notice to the Company and the Issuers, or the Holders of at least 25% in principal amount of the outstanding Securities by notice to the Company and the Co-Issuer and the Trustee, may, and the Trustee at the request of such Holders shall, declare the principal of, premium, if any, accrued and unpaid interest, if any, on all the Securities to be due and payable. If an Event of Default described in Section 6.1(7) and (8) occurs and is continuing, the principal of, premium, if any, accrued and unpaid interest, if any, on all the Securities will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Notwithstanding the foregoing, if an Event of Default specified in Section 6.1(6) shall have occurred and be continuing, such Event of Default and any consequential acceleration (to the extent not in violation of any applicable law or in conflict with any judgment or decree of a court of competent jurisdiction) shall be automatically rescinded if (i) the Indebtedness that is the subject of such Event of Default has been repaid or (ii) if the default relating to such Indebtedness is waived by the holders of such Indebtedness or cured and if such Indebtedness has been accelerated, then the holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness, in each case within 20 days after the declaration of acceleration with respect thereto, and (iii) any other existing Events of Default, except nonpayment of principal, premium or interest on the Securities that became due solely because of the acceleration of the Securities, have been cured or waived.

     SECTION 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of (or premium) or interest (including Additional Interest) on the Securities or to enforce the performance of any provision of the Securities, this Indenture or the Subsidiary Guarantees.

          The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the

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Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative.

     SECTION 6.4. Waiver of Past Defaults. The Holders of a majority in principal amount of the outstanding Securities by notice to the Trustee (with a copy to the Issuers, but the applicable waiver or rescission shall be effective when the notice is given to the Trustee) may (a) waive, by their consent (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Securities), an existing Default or Event of Default and its consequences except (i) a Default or Event of Default in the payment of the principal of, or premium, if any, or interest (including Additional Interest) on a Security or (ii) a Default or Event of Default in respect of a provision that under Section 9.2 cannot be amended without the consent of each Securityholder affected and (b) rescind any acceleration with respect to the Securities and its consequences if (1) such rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (2) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest (including Additional Interest) on the Securities that have become due solely by such declaration of acceleration, have been cured or waived. When a Default or Event of Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right.

     SECTION 6.5. Control by Majority. The Holders of a majority in principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, the Securities or the Subsidiary Guarantees or, subject to Sections 7.1 and 7.2, that the Trustee determines is unduly prejudicial to the rights of other Securityholders (it being understood that the Trustee does not have an affirmative duty to ascertain whether or not such direction is unduly prejudicial to such Securityholders) or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any such action hereunder, the Trustee shall be entitled to indemnification or security satisfactory to it against all losses and expenses caused by taking or not taking such action.

     SECTION 6.6. Limitation on Suits. Subject to Section 6.7, a Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless:

          (1) such Holder has previously given to the Trustee written notice stating that an Event of Default is continuing;

          (2) Holders of at least 25% in principal amount of the outstanding Securities have requested that the Trustee pursue the remedy;

          (3) such Holders have offered the Trustee security or indemnity satisfactory to the Trustee against any loss, liability or expense;

          (4) the Trustee has not complied with such request within 60 days after receipt of the request and the offer of security or indemnity; and

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          (5) the Holders of a majority in principal amount of the outstanding Securities have not waived such Event of Default or otherwise given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request during such 60-day period.

          A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder.

     SECTION 6.7. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture (including, without limitation, Section 6.6), the right of any Holder to receive payment of principal of, premium (if any) or interest (including Additional Interest) on the Securities held by such Holder, on or after the respective due dates expressed or provided for in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.

     SECTION 6.8. Collection Suit by Trustee. If an Event of Default specified in clauses (1) or (2) of Section 6.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Issuers for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.7.

     SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to the Company, the Co-Issuer or the other Subsidiary Guarantors or its or their respective creditors or properties and, unless prohibited by law or applicable regulations, may be entitled and empowered to participate as a member of any official committee of creditors appointed in such matter and may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.7.

          No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

     SECTION 6.10. Priorities. If the Trustee collects any money or property pursuant to this Article VI, it shall pay out the money in the following order:

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          FIRST: to the Trustee for amounts due to it under Section 7.7, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection;

          SECOND: to Holders of Securities for amounts due and unpaid on the Securities for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium, if any, and interest (including Additional Interest), respectively; and

          THIRD: to the Issuers or to such party as a court of competent jurisdiction shall direct.

          The Trustee may fix a record date and payment date for any payment to Holders of Securities pursuant to this Section 6.10.

     SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by the Issuers, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of more than 10% in outstanding principal amount of the Securities.

ARTICLE VII
TRUSTEE

     SECTION 7.1. Duties of Trustee.

          If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.

          (a) Except during the continuance of an Event of Default:

          (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

          (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates, opinions or orders furnished to the Trustee and conforming to the requirements of this Indenture, the Securities or the Subsidiary Guarantees, as applicable. However, in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such certificates and opinions to determine whether or not they

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conform to the requirements of this Indenture, the Securities or the Subsidiary Guarantees, as the case may be (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).

          (b) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:

          (1) this paragraph does not limit the effect of paragraph (b) of this Section;

          (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts;

          (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5; and

          (4) no provision of this Indenture, the Securities or the Subsidiary Guarantees shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or thereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity or security against such risk or liability is not reasonably assured to it.

          (c) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.

          (d) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuers.

          (e) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

          (f) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA.

          (g) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from an Issuer shall be sufficient if signed by one Officer of such Issuer.

     SECTION 7.2. Rights of Trustee. Subject to Section 7.1:

          (a) The Trustee may conclusively rely on any document (whether in its original or facsimile form) reasonably believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. The Trustee shall receive and retain financial reports and statements of the Issuers as

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provided herein, but shall have no duty to review or analyze such reports or statements to determine compliance with covenants or other obligations of the Issuers.

          (b) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate and/or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on an Officers’ Certificate or Opinion of Counsel.

          (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care.

          (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture.

          (e) The Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture, the Securities or the Subsidiary Guarantees shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder or under the Securities or the Subsidiary Guarantees in good faith and in accordance with the advice or opinion of such counsel.

          (f) The Trustee shall not be deemed to have knowledge or notice of any Default or Event of Default or whether any entity or group of entities constitutes a Significant Subsidiary unless a Trust Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a Default or of any such Significant Subsidiary is received by the Trustee at the corporate trust office of the Trustee specified in Section 11.2, and such notice references the Securities and this Indenture.

          (g) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder.

          (h) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture, the Securities or the Subsidiary Guarantees at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it in its sole discretion against the costs, expenses and liabilities which may be incurred therein or thereby.

          (i) The Trustee shall not be deemed to have knowledge of any fact or matter unless such fact or matter is known to a Trust Officer of the Trustee.

          (j) Whenever in the administration of this Indenture, the Securities or the Subsidiary Guarantees the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder or thereunder, the Trustee (unless other evidence be herein specifically prescribed) may request and in the absence of bad faith or willful misconduct on its part, rely upon an Officers’ Certificate.

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          (k) In no event shall the Trustee be responsible or liable for any special, indirect, punitive or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

          (l) The parties hereto acknowledge, in accordance with Section 326 of the Patriot Act, that the Trustee, like all financial institutions and in order to help fight the funding of terrorism and money laundering, is required to obtain, verify and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The Company and the Subsidiary Guarantors agree that they will provide the Trustee with all such information as it may reasonably request in order to satisfy the requirements or its obligations under the Patriot Act.

          (m) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder.

     SECTION 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Issuers, the Subsidiary Guarantors or their Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent or Registrar may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. In addition, the Trustee shall be permitted to engage in transactions with the Issuers; provided, however, that if the Trustee acquires any conflicting interest under the TIA, the Trustee must (i) eliminate such conflict within 90 days of acquiring such conflicting interest, (ii) apply to the SEC for permission to continue acting as Trustee or (iii) resign.

     SECTION 7.4. Trustee’s Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, the Subsidiary Guarantees or the Securities, shall not be accountable for the Issuers’ use of the proceeds from the sale of the Securities, shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee or any money paid to the Issuers pursuant to the terms of this Indenture and shall not be responsible for any statement of the Issuers in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee’s certificate of authentication.

     SECTION 7.5. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if a Trust Officer has knowledge thereof, the Trustee shall mail by first class mail to each Securityholder at the address set forth in the Securities Register notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium (if any), or interest on any Security (including payments pursuant to the optional redemption or required repurchase provisions of such Security), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Securityholders.

     SECTION 7.6. Reports by Trustee to Holders. Within 60 days after each October 15 beginning October 15, 2011, the Trustee shall mail to each Securityholder a brief report dated as

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of such October 15 that complies with TIA § 313(a) if and to the extent required thereby. The Trustee also shall comply with TIA § 313(b) and TIA § 313(c).

          A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof and the Trustee shall comply with TIA § 313(d).

     SECTION 7.7. Compensation and Indemnity. The Issuers shall pay to the Trustee from time to time compensation for its services hereunder and under the Securities and the Subsidiary Guarantees as the Issuers and the Trustee shall from time to time agree in writing. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuers shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including, but not limited to, costs of collection, costs of preparing reports, certificates and other documents, costs of preparation and mailing of notices to Securityholders. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee’s agents, counsel, accountants and experts. The Issuers shall indemnify the Trustee against any and all loss, liability, damages, claims or expense (including reasonable attorneys’ fees and expenses) incurred by it without willful misconduct, gross negligence or bad faith on its part in connection with the administration of this trust and the performance of its duties hereunder and under the Securities and the Subsidiary Guarantees, including the costs and expenses of enforcing this Indenture (including this Section 7.7), the Securities and the Subsidiary Guarantees and of defending itself against any claims (whether asserted by any Securityholder, the Issuers or otherwise). The Trustee shall notify the Issuers promptly of any claim for which it may seek indemnity of which it has received written notice. Failure by the Trustee to so notify the Issuers shall not relieve the Issuers of its obligations hereunder except to the extent the Issuers are prejudiced thereby. The Issuers shall defend the claim and the Trustee shall provide reasonable cooperation at the Issuers’ expense in the defense. The Trustee may have separate counsel and the Issuers shall pay the fees and expenses of such counsel; provided that the Issuers shall not be required to pay the fees and expenses of such separate counsel if it assumes the Trustee’s defense, and, in the reasonable judgment of outside counsel to the Trustee, (i) there is no conflict of interest between the Issuers and the Trustee in connection with such defense or (ii) there are no legal defenses available to the Trustee that are different from or are in addition to those available to the Issuers.

          To secure the Issuers’ payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of, premium, if any, and interest on particular Securities. Such lien shall survive the satisfaction and discharge of this Indenture. The Trustee’s right to receive payment of any amounts due under this Section 7.7 shall not be subordinate to any other liability or Indebtedness of the Issuers.

          The Issuers’ payment obligations pursuant to this Section shall survive the discharge of this Indenture. Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee incurs expenses after the occurrence of a Default specified in clause (7) or clause (8) of Section 6.1, the expenses are intended to constitute expenses of administration under any Bankruptcy Law.

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     SECTION 7.8. Replacement of Trustee. The Trustee may resign at any time by so notifying the Issuers in writing. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the removed Trustee in writing and may appoint a successor Trustee with the Issuers’ written consent, which consent will not be unreasonably withheld. The Issuers shall remove the Trustee if:

          (1) the Trustee fails to comply with Section 7.10 hereof or TIA §310;

          (2) the Trustee is adjudged bankrupt or insolvent;

          (3) a receiver or other public officer takes charge of the Trustee or its property; or

          (4) the Trustee otherwise becomes incapable of acting.

          If the Trustee resigns or is removed by the Issuers or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee as described in the preceding paragraph, or if a vacancy exists in the office of the Trustee for any other reason (the Trustee in such event being referred to herein as the retiring Trustee), the Issuers shall promptly appoint a successor Trustee.

          A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuers. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.7.

          If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of at least 10% in principal amount of the Securities may petition, at the Issuers’ expense, any court of competent jurisdiction for the appointment of a successor Trustee.

          If the Trustee fails to comply with Section 7.10, unless the Trustee’s duty to resign is stayed as provided in TIA § 310(b), any Securityholder, who has been a bona fide holder of a Security for at least six months, may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

          Notwithstanding the replacement of the Trustee pursuant to this Section 7.8, the Issuers’ obligations under Section 7.7 shall continue for the benefit of the retiring Trustee.

     SECTION 7.9. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee.

          In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture, any of the

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Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; provided that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Securities in the name of any predecessor Trustee shall only apply to its successor or successors by merger, consolidation or conversion.

     SECTION 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee that satisfies the requirements of TIA § 310(a)(1), (2) and (5) in every respect. The Trustee shall have a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA § 310(b); provided, however, that there shall be excluded from the operation of TIA § 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Issuers are outstanding if the requirements for such exclusion set forth in TIA § 310(b)(1) are met.

     SECTION 7.11. Preferential Collection of Claims Against the Issuers. The Trustee shall comply with TIA § 311(a), excluding any creditor relationship listed in TIA § 311(b). A Trustee who has resigned or been removed shall be subject to TIA § 311(a) to the extent indicated.

     SECTION 7.12. Trustee’s Application for Instruction from the Issuers. Any application by the Trustee for written instructions from the Issuers may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective. The Trustee shall not be liable for any action taken by, or omission of, the Trustee in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than three Business Days after the date any Officer of the Issuers actually receives such application, unless any such Officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Trustee shall have received written instructions in response to such application specifying the action to be taken or omitted.

ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE

     SECTION 8.1. Discharge of Liability on Securities; Defeasance.

          (a) Subject to Section 8.1(c), when (i)(x) all Securities that have been authenticated (other than Securities replaced or paid pursuant to Section 2.10 and Securities for whose payment money has been deposited in trust or segregated and held in trust by the Issuers and thereafter repaid to the Issuers or discharged from such trust), have been delivered to the Trustee for cancellation or (y) all outstanding Securities not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise, will become due and payable within one year or will be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of

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redemption by the Trustee in the name, and at the expense, of the Issuers, and the Issuers or any Subsidiary Guarantor has irrevocably deposited or caused to be deposited with the Trustee, as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, in such amount as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Securities not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of final maturity or redemption; (ii) the Issuers have paid or caused to be paid all sums payable by it under this Indenture; and (iii) the Issuers have delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of such Securities at final maturity or the redemption date, as the case may be, then the Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Issuers (accompanied by an Officers’ Certificate and an Opinion of Counsel stating that all conditions precedent specified herein relating to the satisfaction and discharge of this Indenture have been complied with) and at the cost and expense of the Issuers. If U.S. Government Obligations shall have been deposited in connection with such satisfaction and discharge, then as a further condition to such satisfaction and discharge, the Trustee shall have received a certificate from a nationally recognized firm of independent accountants to the effect set forth in Section 8.2(1).

          (b) Subject to Sections 8.1(c) and 8.2, the Issuers at any time may terminate (i) all of their obligations under the Securities and this Indenture (“legal defeasance option”), and after giving effect to such legal defeasance, any omission to comply with such obligations shall no longer constitute a Default or Event of Default or (ii) its obligations under Sections 3.2, 3.3, 3.4, 3.5, 3.6, 3.8, 3.9, 3.10, 3.11, 3.15 and 3.18 and Section 4.1 (other than Sections 4.1(a)(1), (2), (4) and (5)), and the Issuers may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply with such covenants shall no longer constitute a Default or an Event of Default under Section 6.1(3) (as it relates to Section 4.1(a)(3)), Section 6.1 (4) (to the extent applicable to such other defeased covenants), Section 6.1(6), Section 6.1(7) (with respect to Significant Subsidiaries), Section 6.1(8) (with respect to Significant Subsidiaries) and Section 6.1(9), and the events specified in such Sections shall no longer constitute an Event of Default (clause (ii) being referred to as the “covenant defeasance option”), but except as specified above, the remainder of this Indenture and the Securities shall be unaffected thereby. The Issuers may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Issuers exercise their legal defeasance or its covenant defeasance option, the Subsidiary Guarantees in effect at such time shall terminate.

          If the Issuers exercise their legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default. If the Issuers exercise its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Section 6.1(4) (to the extent applicable to Sections 3.2, 3.3, 3.4, 3.5, 3.6, 3.8, 3.9, 3.10, 3.11, 3.15 and 3.18), Section 6.1(5), Section 6.1(6), Section 6.1(7) (with respect only to Significant Subsidiaries), Section 6.1(8) (with respect only to Significant Subsidiaries), Section 6.1(9) or Section 6.1(10) or because of the failure of the Company or the Issuers to comply with Section 4.1(a)(3).

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          Upon satisfaction of the conditions set forth herein and upon request and expense of the Issuers, the Trustee shall acknowledge in writing the discharge of those obligations that the Issuers terminates.

          (c) Notwithstanding the provisions of Sections 8.1(a) and (b) to the extent relating to a legal defeasance, the Issuers’ obligations in Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.10, 2.11, 2.12, 2.13, 3.12, 7.7 and 7.8 and in this Article VIII shall survive until the Securities have been paid in full. Thereafter, the Issuers’ obligations in Sections 7.7, 8.4 and 8.5 shall survive.

     SECTION 8.2. Conditions to Defeasance. The Issuers may exercise its legal defeasance option or its covenant defeasance option only if:

          (1) the Issuers or a Subsidiary Guarantor irrevocably deposits in trust with the Trustee, in trust, for the benefit of the Holders, cash in U.S. dollars, U.S. Government Obligations, or a combination of cash in U.S. dollars and U.S. Government Obligations, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, and premium, if any, and interest, including Additional Interest, if any, due on the outstanding Securities on the Stated Maturity or on the applicable redemption date, as the case may be, and the Issuers must specify whether the Securities are being defeased to Stated Maturity or to a particular redemption date;

          (2) in the case of legal defeasance, the Issuers have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that since the Issue Date, (a) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling or (b) there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel will confirm that, the Holders of the respective outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred;

          (3) in the case of covenant defeasance, the Issuers have delivered to the Trustee an Opinion of Counsel (subject to customary assumptions and exclusions) reasonably acceptable to the Trustee confirming that the Holders of the respective outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred;

          (4) such legal defeasance or covenant defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than this Indenture) to which the Issuers or any of the Restricted Subsidiaries is a party or by which the Issuers or any Restricted Subsidiaries are bound;

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          (5) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit and the grant of any Lien securing such borrowings) or insofar as Events of Default resulting from the borrowing of funds or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit;

          (6) the Issuers must deliver to the Trustee an Opinion of Counsel to the effect that, assuming, among other things, no intervening bankruptcy of the Issuers between the date of deposit and the 91st day following the deposit and assuming that no Holder is an “insider” of the Issuers under applicable bankruptcy law, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization of similar laws affecting creditors’ rights generally;

          (7) the Issuers must deliver to the Trustee an Officers’ Certificate stating that the deposit was not made by the Issuers with the intent of defeating, hindering, delaying or defrauding creditors of the Issuers or others; and

          (8) the Issuers must deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel (which Opinion of Counsel may be subject to customary assumptions and exclusions), each stating that all conditions precedent relating to the legal defeasance or the covenant defeasance have been complied with.

     SECTION 8.3. Application of Trust Money. The Trustee shall hold in trust all money or U.S. Government Obligations (including proceeds thereof) deposited with it pursuant to this Article VIII. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture and the Securities to the Holders of the Securities of all sums due in respect of the payment of principal of, premium, if any, and accrued interest on the Securities.

     SECTION 8.4. Repayment to the Issuers. The Trustee and the Paying Agent shall promptly turn over to the Issuers upon request any excess money, U.S. Government Obligations or other securities held by them upon payment of all the Obligations under this Indenture.

          Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Issuers upon request any money held by them for the payment of principal of or premium, if any, or interest on the Securities that remains unclaimed by the Holders thereof for two years, and, thereafter, Securityholders entitled to the money must look to the Issuers for payment as unsecured general creditors unless an abandoned property law designates another Person and the Trustee and the Paying Agent shall have no further liability with respect to such money.

     SECTION 8.5. Indemnity for U.S. Government Obligations. The Issuers shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations.

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     SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article VIII by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Issuers and each Subsidiary Guarantor under this Indenture, the Securities and the Subsidiary Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to this Article VIII until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article VIII; provided, however, that, if the Issuers or the Subsidiary Guarantors have made any payment of principal, premium, if any, or interest (including Additional Interest) on any Securities because of the reinstatement of their obligations, the Issuers or Subsidiary Guarantors, as the case may be, shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent.

          The Trustee’s rights under this Article VIII shall survive termination of this Indenture.

ARTICLE IX
AMENDMENTS

     SECTION 9.1. Without Consent of Holders. The Issuers, the Subsidiary Guarantors and the Trustee may amend or supplement this Indenture, the Securities and the Subsidiary Guarantees without notice to or consent of any Securityholder:

          (1) to cure any ambiguity, omission, defect, mistake or inconsistency;

          (2) to provide for the assumption by a successor corporation, partnership, trust or limited liability company of the obligations of the Company, the Co-Issuer or any Subsidiary Guarantor under this Indenture and the Securities;

          (3) to provide for or facilitate the issuance of uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code;

          (4) to add Subsidiary Guarantors (or any other guarantors) with respect to the Securities, including Subsidiary Guarantors, or release a Subsidiary Guarantor from its Subsidiary Guarantee and terminate such Subsidiary Guarantee; provided that the release and termination is in accordance with the applicable provisions of this Indenture;

          (5) to secure the Securities or the Subsidiary Guarantees;

          (6) to add covenants of the Company, the Co-Issuer or a Subsidiary Guarantor for the benefit of the Holders or to surrender any right or power herein conferred upon the Company, the Co-Issuer or a Subsidiary Guarantor;

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          (7) to make any change that does not adversely affect the legal rights under this Indenture of any Securityholder, provided, however, that any change made to conform this Indenture to the “Description of Notes” contained in the Offering Memorandum shall not be deemed to adversely affect such legal rights;

          (8) to comply with any requirement of the SEC in connection with any required qualification of this Indenture under the TIA; or

          (9) to evidence and provide for the acceptance of an appointment under this Indenture of a successor Trustee; provided that the successor Trustee is otherwise qualified and eligible to act as such under the terms of this Indenture.

     SECTION 9.2. With Consent of Holders. The Issuers, the Subsidiary Guarantors and the Trustee may amend or supplement this Indenture, the Securities and the Subsidiary Guarantees without notice to any Securityholder but with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Securities). Subject to Section 6.4 and 6.7, any past default or compliance with the provisions of this Indenture, the Securities or the Subsidiary Guarantees may be waived with the consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Securities). However, without the consent of each Securityholder affected, an amendment, supplement or waiver may not:

          (1) reduce the principal amount of Securities whose Holders must consent to an amendment or waiver;

          (2) reduce the stated rate of interest or extend the stated time for payment of interest or Additional Interest on any Security;

          (3) reduce the principal of or extend the Stated Maturity of any Security;

          (4) reduce the premium payable upon the redemption of any Security as described in Section 3.9, Article V hereof or paragraph 5 of any Security, change the time at which any Security may be redeemed as described in Section 3.9, Article V hereof or paragraph 5 of any Security or make any change relative to the Issuers’ obligation to make an offer to repurchase the Securities as a result of a Change of Control as described in Section 3.9 after (but not before) the occurrence of such Change of Control;

          (5) make any Security payable in money other than U.S. dollars;

          (6) impair the right of any Holder to receive payment of principal of, premium, if any, and interest (including Additional Interest) on such Holder’s Securities on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder’s Securities;

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          (7) make any change to this Section 9.2;

          (8) release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee otherwise than in accordance with the applicable provisions of this Indenture; or

          (9) subordinate the Securities or any Subsidiary Guarantee in right of payment to any other Indebtedness of either Issuer or any Subsidiary Guarantor.

          It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. A consent to any amendment, supplement or waiver under this Indenture by any Holder of the Securities given in connection with a tender or exchange of such Holder’s Securities will not be rendered invalid by such tender or exchange.

          After an amendment or supplement under this Section becomes effective, the Issuers shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section.

     SECTION 9.3. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture, the Securities or the Subsidiary Guarantees shall comply with the TIA as then in effect.

     SECTION 9.4. Revocation and Effect of Consents and Waivers. A consent to an amendment, supplement or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder’s Security, even if notation of the consent or waiver is not made on the Security. Any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder’s Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective or otherwise in accordance with any related solicitation documents. After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder unless it makes a change described in any of clauses (1) through (9) of Section 9.2, and in that case the amendment, supplement, waiver or other action shall bind each Securityholder who has consented to it and every subsequent Securityholder that evidences the same debt as the consenting Holder’s Securities. An amendment, supplement or waiver under Section 9.2 shall become effective upon receipt by the Trustee of the requisite number of consents, and in relation to any Securities evidenced by Global Securities, such consents need not be in written form and may be evidenced by any electronic transmissions that comport with the applicable procedures of DTC.

          The Issuers may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons,

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shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall become valid or effective more than 120 days after such record date.

     SECTION 9.5. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Issuers or the Trustee so determine, the Issuers in exchange for the Security shall issue and the Trustee shall, upon receipt of an Issuer Order, authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment.

     SECTION 9.6. Trustee to Sign Amendments. The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article IX if the amendment, supplement or waiver does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing any amendment, supplement or waiver the Trustee shall be entitled to receive indemnity satisfactory to it and shall be provided with, and (subject to Sections 7.1 and 7.2) shall be fully protected in relying upon, an Officers’ Certificate and an Opinion of Counsel stating that such amendment, supplement or waiver is authorized or permitted by this Indenture and that such amendment, supplement or waiver is the legal, valid and binding obligation of the Issuers and any Subsidiary Guarantors, enforceable against them in accordance with its terms, subject to customary exceptions, and complies with the provisions hereof (including Section 9.3).

ARTICLE X
GUARANTEE

     SECTION 10.1. Guarantee. Subject to the provisions of this Article X, each Subsidiary Guarantor hereby fully, unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, jointly and severally with each other Subsidiary Guarantor, to each Holder of the Securities, to the extent lawful, and the Trustee the full and punctual payment when due, whether at final maturity, by acceleration, by redemption or otherwise, of the Obligations. Each Subsidiary Guarantor agrees that the Obligations will rank equally in right of payment with other Indebtedness of such Subsidiary Guarantor, except to the extent such other Indebtedness is subordinate to the Obligations. Each Subsidiary Guarantor further agrees (to the extent permitted by law) that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from it, and that it will remain bound under this Article X notwithstanding any extension or renewal of any Obligation.

          Each Subsidiary Guarantor waives presentation to, demand of payment from and protest to the Issuers of any of the Obligations and also waives notice of protest for nonpayment. Each Subsidiary Guarantor waives notice of any default under the Securities or the Obligations.

          Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein constitutes a guarantee of payment when due (and not a guarantee of collection) and waives any

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right to require that any resort be had by any Holder to any security held for payment of the Obligations.

          Except as set forth in Section 10.2, the obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than payment of the Obligations in full), including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor herein shall not be discharged or impaired or otherwise affected by (a) the failure of any Holder to assert any claim or demand or to enforce any right or remedy against the Issuers or any other person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any thereof; (c) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture, the Securities or any other agreement; (d) the release of any security held by any Holder for the Obligations or any of them; (e) the failure of any Holder to exercise any right or remedy against any other Subsidiary Guarantor; (f) any change in the ownership of the Issuers; (g) any default, failure or delay, willful or otherwise, in the performance of the Obligations; or (h) any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of any Subsidiary Guarantor or would otherwise operate as a discharge of such Subsidiary Guarantor as a matter of law or equity.

          Each Subsidiary Guarantor agrees that its Subsidiary Guarantee herein shall remain in full force and effect until payment in full of all the Obligations or such Subsidiary Guarantor is released from its Subsidiary Guarantee upon the merger or the sale of all the Capital Stock or assets of the Subsidiary Guarantor or otherwise in compliance with Section 4.1, Section 10.2 or Article VIII, as applicable. Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of, premium, if any, or interest on any of the Obligations is rescinded or must otherwise be restored by any Holder upon the bankruptcy or reorganization of the Issuers or otherwise.

          In furtherance of the foregoing and not in limitation of any other right which any Holder has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Issuers to pay any of the Obligations when and as the same shall become due, whether at final maturity, by acceleration, by redemption or otherwise, each Subsidiary Guarantor hereby promises to and will, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Trustee or the Trustee on behalf of the Holders an amount equal to the sum of (i) the unpaid amount of such Obligations then due and owing and (ii) accrued and unpaid interest (including Additional Interest) on such Obligations then due and owing (but only to the extent not prohibited by law).

          Each Subsidiary Guarantor further agrees that, as between such Subsidiary Guarantor, on the one hand, and the Holders, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in this Indenture for the purposes of its Subsidiary Guarantee herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby and (y) in the event

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of any such declaration of acceleration of such Obligations, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantor for the purposes of this Subsidiary Guarantee.

          Each Subsidiary Guarantor also agrees to pay any and all reasonable costs and expenses (including reasonable attorneys’ fees) incurred by the Trustee or the Holders in enforcing any rights under this Section.

          The delivery of any Security by the Trustee, after authentication thereof hereunder, shall constitute delivery of the Subsidiary Guarantees set forth in this Indenture or any supplemental indenture on behalf of a Subsidiary Guarantor. Neither any Issuer nor any Subsidiary Guarantor shall be required to make a notation on any Security to reflect the Subsidiary Guarantees. The validity and enforceability of any Subsidiary Guarantee shall not be affected by the fact that a notation thereof is not affixed to any particular Security.

     SECTION 10.2. Limitation on Liability; Termination, Release and Discharge.

          (a) Any term or provision of this Indenture to the contrary notwithstanding, the obligations of each Subsidiary Guarantor hereunder will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (including, without limitation, any guarantees under the Senior Secured Credit Agreement) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its contribution obligations under this Indenture, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law and not otherwise being void or voidable under any similar laws affecting the rights of creditors generally.

          (b) Upon the sale or disposition of a Subsidiary Guarantor (by merger, consolidation, the sale of its Capital Stock or the sale of all or substantially all of its assets (other than by lease)) and whether or not the Subsidiary Guarantor is the surviving entity in such transaction, to a Person which is not the Company or a Restricted Subsidiary of the Company, such Subsidiary Guarantor will be automatically released from all its obligations under this Indenture and its Subsidiary Guarantee if the sale or other disposition does not violate Section 3.5.

          (c) A Subsidiary Guarantor will be released from its obligations under this Indenture and its Subsidiary Guarantee if the Company designates such Subsidiary Guarantor as an Unrestricted Subsidiary and such designation complies with the other applicable provisions of this Indenture.

          (d) Each Subsidiary Guarantor will be deemed released from all its obligations under this Indenture and its Subsidiary Guarantee, and such Subsidiary Guarantee will terminate, upon the legal defeasance or covenant defeasance of the Securities or upon satisfaction and discharge of this Indenture, in each case pursuant to the provisions of Article VIII hereof.

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          (e) Upon the liquidation or dissolution of such Subsidiary Guarantor, provided that no Default or Event of Default has occurred and is continuing.

          (f) With respect to a Subsidiary Guarantor that is an Immaterial Subsidiary, such Subsidiary Guarantor will be released from its obligations under this Indenture and its Subsidiary Guarantee upon the liquidation or dissolution of such Subsidiary Guarantor.

          (g) The release of any Subsidiary Guarantor from its obligations pursuant to this Section 10.2 shall be conditioned upon such Subsidiary Guarantor delivering to the Trustee an Officers’ Certificate and an Opinion of Counsel stating that all conditions precedent provided for in this Indenture relating to such release have been complied with.

     SECTION 10.3. Right of Contribution. Each Subsidiary Guarantor hereby agrees that to the extent that any Subsidiary Guarantor shall have paid more than its proportionate share of any payment made on the obligations under the Subsidiary Guarantees, such Subsidiary Guarantor shall be entitled to seek and receive contribution from and against the Issuers or any other Subsidiary Guarantor who has not paid its proportionate share of such payment. The provisions of this Section 10.3 shall in no respect limit the obligations and liabilities of each Subsidiary Guarantor to the Trustee and the Holders and each Subsidiary Guarantor shall remain liable to the Trustee and the Holders for the full amount guaranteed by such Subsidiary Guarantor hereunder.

     SECTION 10.4. No Subrogation. Notwithstanding any payment or payments made by each Subsidiary Guarantor hereunder, no Subsidiary Guarantor shall be entitled to be subrogated to any of the rights of the Trustee or any Holder against the Issuers or any other Subsidiary Guarantor or guarantee or right of offset held by the Trustee or any Holder for the payment of the Obligations, nor shall any Subsidiary Guarantor seek or be entitled to seek any contribution or reimbursement from the Issuers or any other Subsidiary Guarantor in respect of payments made by such Subsidiary Guarantor hereunder, until all amounts owing to the Trustee and the Holders by the Issuers on account of the Obligations are paid in full. If any amount shall be paid to any Subsidiary Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Subsidiary Guarantor in trust for the Trustee and the Holders, segregated from other funds of such Subsidiary Guarantor, and shall, forthwith upon receipt by such Subsidiary Guarantor, be turned over to the Trustee in the exact form received by such Subsidiary Guarantor (duly indorsed by such Subsidiary Guarantor to the Trustee, if required), to be applied against the Obligations.

ARTICLE XI
MISCELLANEOUS

     SECTION 11.1. Trust Indenture Act Controls. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the provision required by the TIA shall control. Each Subsidiary Guarantor in addition to performing its obligations under its Subsidiary Guarantee shall perform such other obligations as may be imposed upon it with respect to this Indenture under the TIA.

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     SECTION 11.2. Notices. Any notice or communication shall be in writing in the English language and delivered in person, sent by facsimile, other electronic means, delivered by commercial courier service or mailed by first-class mail, postage prepaid, addressed as follows:

if to the Issuers or to any Subsidiary Guarantor:

Alta Mesa Holdings, LP and Alta Mesa Finance
Services Corp.

Alta Mesa Holdings, LP
15415 Katy Freeway, Suite 800
Houston, Texas 77094
Attention: Chief Financial Officer

if to the Trustee, at its corporate trust office in Dallas,
Texas, which corporate trust office for purposes of this
Indenture is at the date hereof located at:

Wells Fargo Bank, National Association
1445 Ross Avenue, 2^nd Floor
Dallas, Texas 75202-2812
Attention: Corporate Trust Administration
Telecopy: (214) 777-4086

          The Issuers, any Subsidiary Guarantor or the Trustee by written notice to the others may designate additional or different addresses for subsequent notices or communications.

          Any notice or communication to the Issuers or the Subsidiary Guarantors shall be deemed to have been given or made as of the date so delivered if personally delivered; when receipt is acknowledged, if telecopied; and five calendar days after mailing if sent by U.S. Postal Service registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication to the Trustee shall be deemed delivered upon receipt by a Trust Officer. Notices given by publication will be deemed given on the first date on which publication is made.

          Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder’s address as it appears in the Securities Register and shall be sufficiently given if so mailed within the time prescribed.

          Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it, except that notices to the Trustee shall be effective only upon receipt.

          In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be

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made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.

     SECTION 11.3. Communication by Holders with other Holders. Securityholders may communicate pursuant to TIA § 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Issuers, the Trustee, the Registrar and anyone else shall have the protection of TIA § 312(c).

     SECTION 11.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Issuers to the Trustee to take or refrain from taking any action under this Indenture (except in connection with the original issuance of Securities on the date hereof), the Issuers shall furnish to the Trustee:

          (1) an Officers’ Certificate in form reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and

          (2) an Opinion of Counsel in form reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with.

     SECTION 11.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include:

          (1) a statement that the individual making such certificate or opinion has read such covenant or condition;

          (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

          (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

          (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with.

          In giving such Opinion of Counsel, counsel may rely as to factual matters on an Officers’ Certificate or on certificates of public officials.

     SECTION 11.6. When Securities Disregarded. In determining whether the Holders of the required aggregate principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Issuers, any Subsidiary Guarantor or any Affiliate of them shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only

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Securities which the Trustee actually knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination.

     SECTION 11.7. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by, or at meetings of, Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions.

     SECTION 11.8. Legal Holidays. If a specified payment date is not a Business Day, payment shall be made on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. If a regular record date is not a Business Day, the record date shall not be affected.

     SECTION 11.9. GOVERNING LAW. THIS INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     SECTION 11.10. No Personal Liability of Directors, Officers, Employees and Stockholders. No director, officer, employee, incorporator, stockholder, member, partner or trustee of the Company, the Co-Issuer or any Subsidiary Guarantor, as such, shall have any liability for any obligations of the Company, the Co-Issuer or any Subsidiary Guarantor under the Securities, this Indenture or the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities.

     SECTION 11.11. Successors. All agreements of the Issuers and each Subsidiary Guarantor in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors.

     SECTION 11.12. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture.

     SECTION 11.13. Table of Contents; Headings. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof.

     SECTION 11.14. Waiver of Jury Trial. EACH OF THE ISSUERS, THE SUBSIDIARY GUARANTORS AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE SECURITIES OR THE TRANSACTIONS CONTEMPLATED HEREBY.

     SECTION 11.15. Force Majeure. In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or

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caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

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          IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed all as of the date and year first written above.

ALTA MESA HOLDINGS, LP
By:	Alta Mesa Holdings GP, LLC, as general partner
By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Chief Executive Officer

ALTA MESA FINANCE SERVICES CORP.
By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Chief Executive Officer

Signature Page to Indenture

SUBSIDIARY GUARANTORS : ARI DEVELOPMENT, LLC ALTA MESA DRILLING, LLC ALTA MESA GP, LLC ALTA MESA ACQUISITION SUB, LLC ALTA MESA SERVICES, LP CAIRN ENERGY USA, LLC HILLTOP ACQUISITION LLC LOUISIANA ONSHORE PROPERTIES LLC THE MERIDIAN PRODUCTION, LLC THE MERIDIAN RESOURCE, LLC THE MERIDIAN RESOURCE & EXPLORATION LLC TMR DRILLING, LLC VIRGINIA OIL AND GAS, LLC SUNDANCE ACQUISITION, LLC TE TMR, LLC TMR EQUIPMENT, LLC NEW EXPLORATION TECHNOLOGIES COMPANY, L.L.C. FBB ANADARKO, LLC LOUISIANA EXPLORATION & ACQUISITION PARTNERSHIP, LLC BRAYTON MANAGEMENT GP, LLC BRAYTON MANAGEMENT GP II, LLC
Each by:		/s/ Harlan H. Chappelle
		Harlan H. Chappelle
		Chief Executive Officer
ARANSAS RESOURCES, L.P. BUCKEYE PRODUCTION COMPANY, LP LOUISIANA EXPLORATION & ACQUISITIONS, LP NAVASOTA RESOURCES, LTD., LLP NUECES RESOURCES, LP OKLAHOMA ENERGY ACQUISITIONS, LP TEXAS ENERGY ACQUISITIONS, LP GALVESTON BAY RESOURCES, LP PETRO ACQUISITIONS, LP PETRO OPERATING COMPANY, LP Each by: Alta Mesa GP, LLC
By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Chief Executive Officer

Signature Page to Indenture

WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	/s/ John C. Stohlmann
	Name:	John C. Stohlmann
	Title:	Vice President

Signature Page to Indenture

EXHIBIT A

[FORM OF FACE OF INITIAL SECURITY]

[Applicable Restricted Securities Legend]
[Depository Legend, if applicable]

No. [___]	Principal Amount $[______________], as
	revised by the Schedule of Increases and
	Decreases in Global Security attached hereto
	CUSIP NO.
	ISIN:

9 5/8% Senior Notes due 2018

          Alta Mesa Holdings, LP a Delaware limited partnership and Alta Mesa Finance Services Corp., a Delaware corporation, jointly and severally promise to pay to ________ or registered assigns, the principal sum of [___] Dollars, as revised by the [___] Schedule of Increases and Decreases in Global Security attached hereto, on October 15, 2018.

Interest Payment Dates: April 15 and October 15

Record Dates: April 1 and October 1

          Additional provisions of this Security are set forth on the other side of this Security.

Alta Mesa Holdings, LP
 

By:  

Alta Mesa Finance Services Corp.
 

By:  

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TRUSTEE’S CERTIFICATE OF AUTHENTICATION
This is one of the Securities described in the within-mentioned Indenture.
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee,
By:	Dated:
Authorized Officer

A-2

[FORM OF REVERSE SIDE OF NOTE]

ALTA MESA HOLDINGS, LP, AND ALTA MESA FINANCE SERVICES CORP.

9 5/8% Senior Notes due 2018

     1. Interest

          Alta Mesa Holdings, LP, a Delaware limited partnership (the “Company”), and Alta Mesa Finance Services Corp., a Delaware corporation (“Co-Issuer” together with the Company, the “Issuers”), jointly and severally promise to pay interest on the principal amount of this Security at the rate per annum shown above.

          The Issuers will pay interest semiannually on April 15 and October 15 of each year commencing April 15, 2011. Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from the date of original issuance of the Notes. The Issuers shall pay interest on overdue principal at the above rate plus 1.0% to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

          If an interest payment date falls on a day that is not a Business Day, the interest payment to be made on such interest payment date will be made on the next succeeding Business Day with the same force and effect as if made on such interest payment date, and no additional interest will accrue as a result of such delayed payment

          [The Holder of this Note is entitled to the benefits of the Registration Rights Agreement. Additional Interest, if any, due under the Registration Rights Agreement, shall be paid to the same Persons, in the same manner and at the same times as regular interest.]¹

     2. Method of Payment

          By no later than 11:00 a.m. (New York City time) on the date on which any principal of, premium, if any, or interest on any Security is due and payable, the Issuers shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest (including Additional Interest). The Issuers will pay interest (except Defaulted Interest) to the Persons who are registered Holders of Securities at the close of business on the April 1 or October 1 immediately preceding the interest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Issuers will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities represented by a Global Security (including principal, premium, if any, and interest) will be made by the transfer of immediately available funds to the accounts specified by The Depository Trust Company or any successor depository. The Issuers will make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof; provided,

¹ Include in Restricted Securities only.

A-3

however, that payments on the Securities may also be made, at the Issuers’ option, by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if the Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion).

     3. Paying Agent and Registrar

          Initially, Wells Fargo Bank, National Association (the “Trustee”) will act as Trustee, Paying Agent and Registrar. The Issuers may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Securityholder. The Company or any of its Restricted Subsidiaries may act as Paying Agent or Registrar.

     4. Indenture

          The Issuers issued the Securities under an Indenture dated as of October 13, 2010 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the “Indenture”), among the Issuers, the Subsidiary Guarantors and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. §§ 77aaa-77bbbb) as in effect on the date of the Indenture (the “Act”). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all terms and provisions of the Indenture, and Securityholders are referred to the Indenture and the Act for a statement of those terms.

          The Securities are senior obligations of the Issuers. The aggregate principal amount of Securities that may be authenticated and delivered under the Indenture is unlimited. This Security is one of the 9 5/8% Senior Notes due 2018 referred to in the Indenture. The Securities include (i) $300,000,000 aggregate principal amount of the Issuers’ 9 5/8% Senior Notes due 2018 issued under the Indenture on October 13, 2010 (herein called “Initial Securities”), (ii) if and when issued, additional 9 5/8% Senior Notes due 2018 of the Issuers that may be issued from time to time under the Indenture subsequent to October 13, 2010 (herein called “Additional Securities”) as provided in Section 2.1(a) of the Indenture and (iii) if and when issued, the Issuers’ 9 5/8% Senior Notes due 2018 that may be issued from time to time under the Indenture in exchange for Initial Securities or Additional Securities in an offer registered under the Securities Act as provided in a Registration Rights Agreement (herein called “Exchange Securities”). The Initial Securities, Additional Securities and Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the incurrence of indebtedness, the making of restricted payments, the sale of assets and subsidiary stock, the incurrence of certain liens, the making of payments for consents, the entering into of agreements that restrict distribution from restricted subsidiaries and the consummation of mergers and consolidations. The Indenture also imposes requirements with respect to the provision of financial information and the provision of guarantees of the Securities by certain subsidiaries.

          To guarantee the due and punctual payment of the principal, premium, if any, and interest (including post-filing or post-petition interest) on the Securities and all other amounts

A-4

payable by the Issuers under the Indenture, the Securities and the Registration Rights Agreement when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Subsidiary Guarantors have unconditionally guaranteed (and future guarantors, together with the Subsidiary Guarantors, will unconditionally guarantee), jointly and severally, such obligations on a senior basis pursuant to the terms of the Indenture.

     5. Redemption

          Except as set forth below, the Securities will not be redeemable at the option of the Issuers prior to October 15, 2014. On and after such date, the Securities will be redeemable, at the Issuers’ option, in whole or in part, at any time upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each Holder’s registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest (including Additional Interest) to the applicable Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on October 15 of the years set forth below:

Period	Redemption Price
2014		104.813	%
2015		102.406	%
2016 and thereafter		100.000	%

          In addition, at any time and from time to time prior to October 15, 2013, the Issuers may redeem in the aggregate up to 35% of the original principal amount of the Securities (calculated after giving effect to any issuance of Additional Securities) with the Net Cash Proceeds of one or more Equity Offerings at a redemption price (expressed as a percentage of principal amount) of 109.625% of the principal amount thereof, plus accrued and unpaid interest (including Additional Interest), if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, that:

          (1) at least 65% of the original principal amount of the Securities (calculated after giving effect to any issuance of Additional Securities) must remain outstanding after each such redemption; and

          (2) each such redemption occurs within 120 days of the date of closing of such Equity Offering.

          In addition, at any time prior to October 15, 2014, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each Holder’s registered address, the Issuers may redeem the Securities, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium plus accrued and unpaid interest (including Additional Interest), if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date).

A-5

          “Applicable Premium” means, with respect to a Security at any Redemption Date, the greater of (i) 1.0% of the principal amount of such Security or (ii) the excess, if any, of (A) the present value at such Redemption Date of (1) the redemption price of such Security on October 15, 2014 (such redemption price set forth in the table above) plus (2) all required interest payments (excluding accrued and unpaid interest to such Redemption Date) due on such Security through October 15, 2014, computed using a discount rate equal to the Treasury Rate as of such Redemption Date plus 50 basis points, over (B) the principal amount of such Security.

          “Treasury Rate” means, as of any Redemption Date, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two Business Days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the Redemption Date to October 15, 2014; provided, however, that if the period from the Redemption Date to October 15, 2014 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to October 15, 2014 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

          The Issuers will (a) calculate the Treasury Rate as of the second Business Day preceding the applicable Redemption Date and (b) prior to such Redemption Date file with the Trustee an Officers’ Certificate setting forth the Applicable Premium and the Treasury Rate and showing the calculation of each in reasonable detail.

     6. Repurchase Provisions

          If a Change of Control occurs, unless the Issuers have exercised its right to redeem all of the Securities as described under paragraph 5 of the Securities, each Holder will have the right to require the Issuers to repurchase from each Holder all or any part (equal to $2,000 or an integral multiple of $1,000 in excess thereof) of such Holder’s Securities at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, and subject to the terms of, the Indenture.

     7. Denominations; Transfer; Exchange

          The Securities are in registered form without coupons in denominations of principal amount of $2,000 and whole multiples of $1,000 in excess thereof. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay a sum sufficient to cover any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Security (A) for a period (1) of 15 days before a selection of Securities to be redeemed or (2) beginning 15 days before an

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interest payment date and ending on such interest payment date or (B) selected for redemption, except the unredeemed portion of any Security being redeemed in part.

     8. Persons Deemed Owners

          The registered Holder of this Security may be treated as the owner of it for all purposes.

     9. Unclaimed Money

          If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Issuers at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Issuers for payment as unsecured general creditors unless an abandoned property law designates another Person and not to the Trustee for payment.

     10. Defeasance

          Subject to certain exceptions and conditions set forth in the Indenture, the Issuers at any time may terminate some or all of its obligations under the Securities and the Indenture if the Issuers deposit with the Trustee money or U.S. Government Obligations for the payment of principal, premium, if any, and interest on the Securities to redemption or final maturity, as the case may be.

     11. Amendment, Supplement, Waiver

          Subject to certain exceptions set forth in the Indenture, (i) the Indenture, the Securities or the Subsidiary Guarantees may be amended or supplemented by the Issuers, the Subsidiary Guarantors and the Trustee with the consent of the Holders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other than with respect to nonpayment or in respect of a provision that cannot be amended without the written consent of each Securityholder affected) or noncompliance with any provision may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Issuers, the Subsidiary Guarantors and the Trustee may amend or supplement the Indenture, the Securities or the Subsidiary Guarantees to cure any ambiguity, omission, defect, mistake or inconsistency, to comply with Article IV of the Indenture, to provide for uncertificated Securities in addition to, or in place of, certificated Securities, to add Subsidiary Guarantors with respect to the Securities, including Subsidiary Guarantors, or release a Subsidiary Guarantor from its Subsidiary Guarantee and terminate such Subsidiary Guarantee, provided that the release and termination is in accordance with the Indenture, to secure the Securities or the Subsidiary Guarantees, to add additional covenants of the Company, the Issuers or a Subsidiary Guarantor for the benefit of the Holders or to surrender any right or power conferred on the Company, the Issuers or a Subsidiary Guarantor, to comply with any requirement of the SEC in connection with qualifying the Indenture under the Act, to make any change that does not adversely affect the rights of any Securityholder, or to evidence and provide for the appointment of a successor Trustee.

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     12. Defaults and Remedies

          Events of Default are set forth in the Indenture. Event of Default (other than an Event of Default relating to certain bankruptcy events specified in the Indenture) occurs and is continuing, the Trustee by notice to the Company and the Issuers, or the Holders of at least 25% in principal amount of the outstanding Securities by notice to the Company and the Issuers and the Trustee, may, and the Trustee at the request of such Holders shall, declare all the Securities to be due and payable immediately. If an Event of Default relating to certain bankruptcy events specified in the Indenture occurs and is continuing, the principal of, premium, if any, and accrued and unpaid interest (including Additional Interest) on all the Securities will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders.

          Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. Subject to the provisions of the Indenture relating to the duties of the Trustee if an Event of Default exists, the Trustee may refuse to enforce the Indenture or the Securities unless it receives indemnity or security satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal, premium, if any, or interest) if it determines that withholding notice is in their interest.

     13. Trustee Dealings with the Issuers

          Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Issuers or its Affiliates and may otherwise deal with the Issuers or its Affiliates with the same rights it would have if it were not Trustee.

     14. No personal liability of directors, officers, employees and stockholders

          No director, officer, employee, incorporator, stockholder, member, partner or trustee of the Company, the Co-Issuer or any Subsidiary Guarantor, as such, shall have any liability for any obligations of the Company, the Co-Issuer or any Subsidiary Guarantor under the Securities, the Indenture or the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Securities.

     15. Authentication

          This Security shall not be valid until an authorized officer of the Trustee (or an Authenticating Agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security.

     16. Abbreviations

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          Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the entirety), JT TEN (= joint tenants with rights of survivorship and not as tenants in common), CUST (= custodian) and U/G/M/A (= Uniform Gift to Minors Act).

17. CUSIP, Common Code and ISIN Numbers

          The Issuers have caused CUSIP, Common Code and ISIN numbers, if applicable, to be printed on the Securities and has directed the Trustee to use CUSIP, Common Code and ISIN numbers, if applicable, in notices of redemption or purchase as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption or purchase and reliance may be placed only on the other identification numbers placed thereon.

18. Governing Law

          This Security shall be governed by, and construed in accordance with, the laws of the State of New York.

          The Issuers will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture, which has in it the text of this Security in larger type. Requests may be made to:

Alta Mesa Holdings, LP
15415 Katy Freeway, Suite 800
Houston, Texas 77094
Attention: Chief Financial Officer

19. Patriot Act

          The parties hereto acknowledge that in accordance with Section 326 of the Patriot Act, the Trustee is required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The parties to the Indenture agree that they will provide the Trustee with such information as it may request in order for the Trustee to satisfy the requirements of the Patriot Act.

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ASSIGNMENT FORM

To assign this Security, fill in the form below:

I or we assign and transfer this Security to:

(Print or type assignee’s name, address and zip code)

(Insert assignee’s social security or tax I.D. No.)

and irrevocably appoint ___________ agent to transfer this Security on the books of the Issuers. The agent may substitute another to act for him.

Date:____________________ Your Signature:___________________

Signature Guarantee:

(Signature must be guaranteed)

Sign exactly as your name appears on the other side of this Security.

The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15.

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[The undersigned hereby certifies that it o is / o is not an Affiliate of the Issuers and that, to its knowledge, the proposed transferee o is / o is not an Affiliate of the Issuers.

          In connection with any transfer or exchange of any of the Securities evidenced by this certificate occurring prior to the date that is one year (or 40 days in the case of any Regulation S Notes) after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Issuers or any Affiliate of the Issuers, the undersigned confirms that such Securities are being:

CHECK ONE BOX BELOW:

(1)	o	acquired for the undersigned’s own account, without transfer; or
(2)	o	transferred to the Issuers; or
(3)	o	transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”); or
(4)	o	transferred pursuant to an effective registration statement under the Securities Act; or
(5)	o	transferred pursuant to and in compliance with Regulation S under the Securities Act; or
(6)	o	transferred to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter appears as Section 2.8 of the Indenture); or
(7)	o	transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933, as amended.

Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (5), (6) or (7) is checked, the Issuers may require, prior to registering any such transfer of the Securities, in its sole discretion, such legal opinions, certifications and other information as the Issuers may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended, such as the exemption provided by Rule 144 under such Act.

	Signature
Signature Guarantee:
(Signature must be guaranteed)	Signature

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The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15.

TO BE COMPLETED BY PURCHASER IF BOX (1) OR (3) ABOVE IS CHECKED.

          The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuers as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.

                                                                                      
Dated: ]²

² Include in Restricted Security only.

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[TO BE ATTACHED TO GLOBAL SECURITIES]

SCHEDULE OF INCREASES AND DECREASES IN GLOBAL SECURITY

          The following increases or decreases in this Global Security have been made:

				Signature of
		Amount of	Principal Amount	authorized
	Amount of decrease	increase	of this Global	signatory of
	in Principal Amount	in Principal Amount	Security following	Trustee or
Date of	of this Global	of this Global	such decrease or	Securities
increase/decrease	Security	Security	increase	Custodian

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OPTION OF HOLDER TO ELECT PURCHASE

          If you elect to have this Security purchased by the Issuers pursuant to Section 3.5 or 3.9 of the Indenture, check either box:

o     o
3.5      3.9

          If you want to elect to have only part of this Security purchased by the Issuers pursuant to Section 3.5 or Section 3.9 of the Indenture, state the amount in principal amount (must be in denominations of $2,000 or an integral multiple of $1,000 in excess thereof): $________________________ and specify the denomination or denominations (which shall not be less than the minimum authorized denomination) of the Securities to be issued to the Holder for the portion of the within Security not being repurchased (in the absence of any such specification, one such Security will be issued for the portion not being repurchased): $ ________________.

Date: __________	Your Signature
	(Sign exactly as your name appears on the other side of the Security)
Signature Guarantee:
(Signature must be guaranteed)

The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15.

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EXHIBIT B

FORM OF INDENTURE SUPPLEMENT TO ADD SUBSIDIARY GUARANTORS

          This Supplemental Indenture, dated as of [_______ __], 20__ (this “Supplemental Indenture” or “Guarantee”), is among [name of future Guarantor] (the “Guarantor”), Alta Mesa Holdings, LP, a Delaware limited partnership (the “Company”), and Alta Mesa Finance Services Corp., a Delaware corporation (“Co-Issuer” together with the Company, the “Issuers”), each other then existing Subsidiary Guarantor under the Indenture referred to below, and Wells Fargo Bank, National Association, as Trustee under the Indenture referred to below.

W I T N E S S E T H:

          WHEREAS, the Issuers, the Company, the Subsidiary Guarantors and the Trustee have heretofore executed and delivered an Indenture, dated as of October 13, 2010 (as amended, supplemented, waived or otherwise modified, the “Indenture”), providing for the issuance of an aggregate principal amount of [  ] million of 9 5/8% Senior Notes due 2018 of the Issuers (the “Securities”);

          WHEREAS, Section 3.11 of the Indenture provides that after the Issue Date the Company is required to cause certain Subsidiaries of the Company to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiary will unconditionally guarantee, on a joint and several basis with the other Subsidiary Guarantors, the full and prompt payment of the principal of, premium, if any, and interest on the Securities; and

          WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee, the Guarantor and the Issuers are authorized to execute and deliver this Supplemental Indenture to amend or supplement the Indenture, without the consent of any Securityholder;

          NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guarantor, the Issuers, the Company, the other Subsidiary Guarantors and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows:

ARTICLE I

Definitions

          SECTION 1.1 Defined Terms. As used in this Supplemental Indenture, terms defined in the Indenture or in the preamble or recital hereto are used herein as therein defined. The words “herein,” “hereof” and “hereby” and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof.

B-1

ARTICLE II

Agreement to be Bound; Guarantee

          SECTION 2.1 Agreement to be Bound. The Guarantor hereby becomes a party to the Indenture as a Subsidiary Guarantor and as such will have all of the rights and be subject to all of the obligations and agreements of a Subsidiary Guarantor under the Indenture. The Guarantor agrees to be bound by all of the provisions of the Indenture applicable to a Subsidiary Guarantor and to perform all of the obligations and agreements of a Subsidiary Guarantor under the Indenture.

          SECTION 2.2 Guarantee. The Guarantor agrees, on a joint and several basis with all the existing Subsidiary Guarantors, to fully, unconditionally and irrevocably Guarantee to each Holder of the Securities and the Trustee the Obligations pursuant to Article X of the Indenture.

ARTICLE III

Miscellaneous

          SECTION 3.1 Notices. All notices and other communications to the Guarantor shall be given as provided in the Indenture to the Guarantor, at its address set forth below, with a copy to the Issuers as provided in the Indenture for notices to the Issuers.

          SECTION 3.2 Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm or corporation, other than the Holders and the Trustee, any legal or equitable right, remedy or claim under or in respect of this Supplemental Indenture or the Indenture or any provision herein or therein contained.

          SECTION 3.3 Governing Law. This Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York.

          SECTION 3.4 Severability Clause. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.

          SECTION 3.5 Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby. The Trustee makes no representation or warranty as to the validity or sufficiency of this Supplemental Indenture or with respect to the recitals contained herein, all of which recitals are made solely by the other parties hereto.

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          SECTION 3.6 Counterparts. The parties hereto may sign one or more copies of this Supplemental Indenture in counterparts, all of which together shall constitute one and the same agreement.

          SECTION 3.7 Headings. The headings of the Articles and the sections in this Supplemental Indenture are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.

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          IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.

ALTA MESA HOLDINGS, LP
By:	Alta Mesa Holdings GP, LLC, as general partner
By:
	Name:
	Title:
ALTA MESA FINANCE SERVICES CORP.
By:
	Name:
	Title:
Accepted as of the date hereof. WELLS FARGO BANK, NATIONAL ASSOCIATION.
By:	WELLS FARGO BANK, NATIONAL ASSOCIATION.
By:
	Name:
	Title:
[GUARANTOR]
By:
	Name:
	Title:

B-4

EX-4.2

Exhibit 4.2

Execution Copy

REGISTRATION RIGHTS AGREEMENT

by and among

Alta Mesa Holdings, LP,
Alta Mesa Finance Services Corp.,
the Guarantors party hereto,

and

Wells Fargo Securities, LLC,

as representative of the Initial Purchasers

Dated as of October 13, 2010

REGISTRATION RIGHTS AGREEMENT

     This Registration Rights Agreement (this “Agreement”) is made and entered into as of October 13, 2010, by and among Alta Mesa Holdings, LP, a Texas limited partnership (the “Company”), Alta Mesa Finance Services Corp., a Delaware corporation (“FinCo,” and together with the Company, the “Issuers”), the entities listed as signatory guarantors hereto (collectively, the “Guarantors”), and Wells Fargo Securities, LLC, as the representative of the initial purchasers listed on Schedule 1 to the Purchase Agreement (each an “Initial Purchaser” and, collectively, the “Initial Purchasers”), each of whom has agreed to purchase the Issuers’ 9 5/8% Senior Notes due 2018 (the “Notes”), fully and unconditionally guaranteed by the Guarantors (the “Guarantees”) pursuant to the Purchase Agreement (as defined below). The Notes and the Guarantees attached thereto are herein collectively referred to as the “Securities.”

     This Agreement is made pursuant to the Purchase Agreement, dated October 7, 2010 (the “Purchase Agreement”), by and among the Issuers, the Guarantors and the Initial Purchasers (i) for the benefit of the Initial Purchasers and (ii) for the benefit of the holders from time to time of Transfer Restricted Securities, including the Initial Purchasers. In order to induce the Initial Purchasers to purchase the Securities, the Issuers have agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers, as set forth in Section 6(k) of the Purchase Agreement.

     The parties hereby agree as follows:

     SECTION 1. Definitions.

     As used in this Agreement, the following capitalized terms shall have the following meanings:

     Additional Interest: As defined in Section 5 hereof.

     Advice: As defined in Section 6(c) hereof.

     Affiliate. As defined in Rule 144 promulgated by the Commission.

     Agreement: As defined in the preamble hereto.

     Broker-Dealer: Any broker or dealer registered under the Exchange Act.

     Business Day: Any day other than a Saturday, Sunday or U.S. federal holiday or a day on which banking institutions or trust companies located in New York, New York are authorized or obligated to be closed.

     Closing Date: The date of this Agreement.

     Commission: The Securities and Exchange Commission.

     Company: As defined in the preamble hereto.

     Consummate: A registered Exchange Offer shall be deemed “Consummated” for purposes of this Agreement upon the occurrence of (i) the filing and effectiveness under the Securities Act of the Exchange Offer Registration Statement relating to the Exchange Securities to be issued in the Exchange Offer, (ii) the maintenance of such Registration Statement being continuously effective and the keeping of the Exchange Offer open for a period not less than the minimum period required pursuant to Section 3(b) hereof, and (iii) the delivery by the Issuers to the Registrar under the Indenture of Exchange Securities in the same aggregate principal amount as the aggregate principal amount of Transfer Restricted Securities that were tendered by Holders thereof pursuant to the Exchange Offer.

     Controlling Person: As defined in Section 8(a) hereof.

     Exchange Act: The Securities Exchange Act of 1934, as amended.

     Exchange Date: As defined in Section 3(a) hereto.

     Exchange Offer: The registration by the Issuers under the Securities Act of the Exchange Securities pursuant to a Registration Statement pursuant to which the Issuers offer the Holders of all outstanding Transfer Restricted Securities the opportunity to exchange all such outstanding Transfer Restricted Securities held by such Holders for Exchange Securities in an aggregate principal amount equal to the aggregate principal amount of the Transfer Restricted Securities tendered in such exchange offer by such Holders with terms that are identical in all respects to the Transfer Restricted Securities (except that Exchange Securities will not contain terms with respect to any increase in annual interest rate as described herein and the transfer restrictions).

     Exchange Offer Registration Statement: The Registration Statement relating to the Exchange Offer, including the related Prospectus.

     Exchange Securities: The 9 5/8% Senior Notes due 2018, of the same series under the Indenture as the Transfer Restricted Securities, including the Guarantees, to be offered to Holders in exchange for Transfer Restricted Securities pursuant to this Agreement.

     Fin Co.: As defined in the preamble hereto.

     FINRA: Financial Industry Regulatory Authority, Inc.

     Guarantees: As defined in the preamble hereto.

     Guarantors: As defined in the preamble hereto.

     Holders: As defined in Section 2(b) hereof.

     Indemnified Holder: As defined in Section 8(a) hereof.

     Indenture: The Indenture, dated as of October 13, 2010, by and among the Issuers, the Guarantors and Wells Fargo Bank, National Association, as trustee (the “Trustee”), pursuant to

2

which the Securities are to be issued, as such Indenture is amended or supplemented from time to time in accordance with the terms thereof.

     Initial Placement: The issuance and sale by the Issuers of the Securities to the Initial Purchasers pursuant to the Purchase Agreement.

     Initial Purchasers: As defined in the preamble hereto.

     Initial Securities: The Securities issued and sold by the Issuers to the Initial Purchasers pursuant to the Purchase Agreement on the Closing Date.

     Issuers: As defined in the preamble hereto.

     Notes: As defined in the preamble hereto.

     Person: An individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof.

     Prospectus: The prospectus included in a Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus.

     Purchase Agreement: As defined in the preamble hereto.

     Registration Actions: As defined in Section 4(c) hereof.

     Registration Default: As defined in Section 5 hereof.

     Registration Statement: Any registration statement of the Issuers relating to (a) an offering of Exchange Securities pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, which is filed pursuant to the provisions of this Agreement, in each case, including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein.

     Securities: As defined in the preamble hereto.

     Securities Act: The Securities Act of 1933, as amended.

     Shelf Filing Deadline: As defined in Section 4(a) hereof.

     Shelf Registration Statement: As defined in Section 4(a) hereof.

     Suspension Period: As defined in Section 4(c) hereof.

     Transfer Restricted Securities: The Securities; provided that the Securities shall cease to be Transfer Restricted Securities on the earliest to occur of (i) the date on which a Registration Statement with respect to such Securities has become effective under the Securities Act and such Securities have been exchanged and are entitled to be resold to the public by the Holder thereof

3

without complying with the prospectus delivery requirements of the Securities Act, or such Security has been disposed of pursuant to such Registration Statement, (ii) if a Shelf Registration Statement is required to be filed in accordance with Section 4 hereof, the expiration of the period set forth in the final sentence of Section 4(a), (iii) the date upon which such Security is sold pursuant to Rule 144 under circumstances in which any legend borne by such Security relating to restrictions on the transferability thereof, under the Securities Act or otherwise, is removed, or the restrictive CUSIP number is redesignated as non-restrictive by the Issuer or pursuant to the Indenture or (iv) the date on which such Securities cease to be outstanding.

     Trust Indenture Act: The Trust Indenture Act of 1939, as amended.

     Underwritten Registration or Underwritten Offering: A registration in which securities of the Issuers are sold to an underwriter for reoffering to the public.

     SECTION 2. Securities Subject to This Agreement.

     (a) Transfer Restricted Securities. The securities entitled to the benefits of this Agreement are the Transfer Restricted Securities.

     (b) Holders of Transfer Restricted Securities. A Person is deemed to be a holder of Transfer Restricted Securities (each, a “Holder”) whenever such Person owns Transfer Restricted Securities.

     SECTION 3. Registered Exchange Offer.

     (a) Unless the Exchange Offer shall not be permissible under applicable law or Commission policy (after the procedures set forth in Section 6(a) hereof have been complied with), or there are no Transfer Restricted Securities outstanding, the Issuers and the Guarantors shall (i) cause to be filed with the Commission an Exchange Offer Registration Statement, (ii) use their commercially reasonable efforts to cause such Exchange Offer Registration Statement to be declared effective, (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause such Exchange Offer Registration Statement to become effective, (B) if applicable, file a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Securities Act and (C) use their commercially reasonable efforts to cause all necessary filings in connection with the registration and qualification of the Exchange Securities to be made under the state securities or blue sky laws of such jurisdictions to permit Consummation of the Exchange Offer; provided, however, that none of the Issuers or the Guarantors shall be required to (x) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(a) or (y) take any action which would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence the Exchange Offer. Each of the Issuers and the Guarantors shall use their commercially reasonable efforts to Consummate the Exchange Offer not later than 360 days following the Closing Date (or if such 360th day is not a Business Day, the next succeeding Business Day) (the “Exchange Date”). The Exchange Offer Registration Statement shall be on the appropriate form permitting registration of the Exchange Securities to be offered

4

in exchange for the Transfer Restricted Securities and to permit resales of Transfer Restricted Securities held by Broker-Dealers as contemplated by Section 3(c) hereof.

     (b) The Issuers and the Guarantors shall use their commercially reasonable efforts to cause the Exchange Offer Registration Statement to be effective continuously and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 Business Days after the date notice of the Exchange Offer is mailed to the Holders; provided, further, that such period shall be extended by the number of days in any Suspension Period. The Issuers shall cause the Exchange Offer to comply in all material respects with all applicable federal and state securities laws. No securities other than the Exchange Securities shall be included in the Exchange Offer Registration Statement. The Issuers shall use their commercially reasonable efforts to cause the Exchange Offer to be Consummated by the Exchange Date.

     (c) The Issuers shall indicate in a “Plan of Distribution” section contained in the Prospectus forming a part of the Exchange Offer Registration Statement that any Broker-Dealer who holds Transfer Restricted Securities that were acquired for its own account as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly from the Issuers), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be an “underwriter” within the meaning of the Securities Act and must, therefore, deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of the Exchange Securities received by such Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may be satisfied by the delivery by such Broker-Dealer of the Prospectus contained in the Exchange Offer Registration Statement. Such “Plan of Distribution” section shall also contain all other information with respect to such resales by Broker-Dealers that the Commission may require in order to permit such resales pursuant thereto, but such “Plan of Distribution” shall not name any such Broker-Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer except to the extent required by the Commission as a result of a change in policy after the date of this Agreement.

     The Issuers and the Guarantors shall use their commercially reasonable efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(c) hereof to the extent necessary to ensure that it is available for resales of Transfer Restricted Securities acquired by Broker-Dealers for their own accounts as a result of market-making activities or other trading activities, and to ensure that it conforms in all material respects with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the Commission as announced from time to time, for a period ending on the earlier of (i) one year from the date on which the Exchange Offer Registration Statement is declared effective and (ii) the date on which a Broker-Dealer is no longer required to deliver a prospectus in connection with market-making or other trading activities.

     The Issuers shall provide sufficient copies of the latest version of such Prospectus to Broker-Dealers promptly upon request at any time during such one year (or shorter as provided in the foregoing sentence) period in order to facilitate such resales.

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     SECTION 4. Shelf Registration.

     (a) Shelf Registration. If (i) the Issuers are not required to file an Exchange Offer Registration Statement or to consummate the Exchange Offer solely because the Exchange Offer is not permitted by applicable law or Commission policy (after the procedures set forth in Section 6(a) hereof have been complied with), (ii) for any reason the Exchange Offer is not Consummated by the Exchange Date, or (iii) prior to the Exchange Date: (A) the Initial Purchasers request from the Issuers with respect to Transfer Restricted Securities held by them not eligible to be exchanged for Exchange Securities in the Exchange Offer, (B) with respect to any Holder of Transfer Restricted Securities such Holder notifies the Issuers that (i) such Holder is prohibited by applicable law or Commission policy from participating in the Exchange Offer, (ii) such Holder may not resell the Exchange Securities acquired by it in the Exchange Offer to the public without delivering a prospectus and that the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder, or (iii) such Holder is a Broker-Dealer and holds Transfer Restricted Securities acquired directly from the Issuers or one of their affiliates or (C) in the case of any Initial Purchaser, such Initial Purchaser notifies the Issuers it will not receive Exchange Securities in exchange for Transfer Restricted Securities constituting any portion of such Initial Purchaser’s unsold allotment, the Issuers and the Guarantors shall:

     (x) use their commercially reasonable efforts to cause to be filed a shelf registration statement pursuant to Rule 415 under the Securities Act, which may be an amendment to the Exchange Offer Registration Statement (in either event, the “Shelf Registration Statement”), on or prior to the 45th day after the date on which the Issuers receive such notice from a Holder of Transfer Restricted Securities or an Initial Purchaser (such date being the “Shelf Filing Deadline”), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities the Holders of which shall have provided the information required pursuant to Section 4(b) hereof; and

     (y) use their commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective as promptly as practicable, but no later than (A) 120 days (or if such 120th day is not a Business Day the next succeeding Business Day), or (B) 180 days if the Shelf Registration Statement is not reviewed by the Commission (or if such 180th day is not a Business Day, the next succeeding Business Day), after such time such obligation to file first arises; provided that the Issuers and the Guarantors shall not be required to cause such Shelf Registration Statement to be declared effective earlier than the 360th day following the Closing Date (or if such 360th day is not a Business Day, the next succeeding Business Day).

     Each of the Issuers and the Guarantors shall use their commercially reasonable efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is available for resales of Transfer Restricted Securities by the Holders of such Securities entitled to the benefit of this Section 4(a), and to ensure that it conforms in all material respects with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the Commission as announced from time to time, from the date on which the Shelf Registration Statement is declared effective by the Commission until the expiration of the one-year period

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referred to in Rule 144 applicable to securities held by non-affiliates under the Securities Act (or shorter period that will terminate when all the Transfer Restricted Securities covered by such Shelf Registration Statement have been sold pursuant to such Shelf Registration Statement.

     (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Issuers in writing, within 10 Business Days after receipt of a request therefor, such information as the Issuers may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such Holder not materially misleading.

     (c) Suspension. Notwithstanding anything to the contrary and subject to the limitation set forth in the next succeeding paragraph, at any time after the effectiveness of the Shelf Registration Statement, the Issuers and the Guarantors shall be entitled to suspend their obligation to file any amendment to the Shelf Registration Statement, furnish any supplement or amendment to a Prospectus included in the Shelf Registration Statement, make any other filing with the Commission, cause the Shelf Registration Statement or other filing with the Commission to remain effective or take any similar action (collectively, “Registration Actions”) upon (A) the issuance by the Commission of a stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of proceedings with respect to the Shelf Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact as a result of which the Shelf Registration Statement would or shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or the related Prospectus would or shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or (C) the occurrence or existence of any corporate development that, in the good faith determination of the Board of Directors of the general partner of Parent, makes it appropriate to postpone or suspend the availability of the Shelf Registration Statement and the related Prospectus. Upon the occurrence of any of the conditions described in clause (A), (B) or (C) above, the Issuers shall give prompt notice (a “Suspension Notice”) thereof to the Holders. Upon the termination of such condition, the Issuers shall give prompt notice thereof to the Holders and shall promptly proceed with all Registration Actions that were suspended pursuant to this paragraph.

     The Issuers may only suspend Registration Actions pursuant to the preceding paragraph for one or more periods (each, a “Suspension Period”) not to exceed, in the aggregate, (x) forty-five (45) days in any three month period or (y) ninety (90) days in any twelve month period. Any Suspension Period will not alter the obligations of the Issuers to pay Additional Interest under the circumstances set forth in Section 5 hereof, if applicable. Each Suspension Period shall be deemed to begin on the date the relevant Suspension Notice is given to the Holders and shall be deemed to end on the earlier to occur of (1) the date on which the Issuers give the Holders a notice that the Suspension Period has terminated and (2) the date on which the number

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of days during which a Suspension Period has been in effect exceeds, in the aggregate, (x) forty-five (45) days in any three month period or (y) ninety (90) days in any twelve month period.

     SECTION 5. Additional Interest.

     If (i) the Exchange Offer has not been Consummated on or prior to the date specified for such consummation in this Agreement, (ii) any Shelf Registration Statement, if required hereby, has not been declared effective by the Commission on or prior to the date specified for such effectiveness in this Agreement or (iii) any Registration Statement required by this Agreement has been declared effective but ceases to be effective at any time at which it is required to be effective under this Agreement (other than during a Suspension Period), as applicable (each such event referred to in clauses (i) through (iii), a “Registration Default”), the Issuers hereby agree that the interest rate borne by the Transfer Restricted Securities shall be increased by 1.00% per annum following the occurrence of any Registration Default (such increase, “Additional Interest”). Following the cure of all Registration Defaults relating to the particular Transfer Restricted Securities the interest rate borne by the relevant Transfer Restricted Securities will be reduced to the original interest rate borne by such Transfer Restricted Securities; provided, however, that, if after any such reduction in interest rate, a different Registration Default occurs, the interest rate borne by the relevant Transfer Restricted Securities shall again be increased pursuant to the foregoing provisions.

     Notwithstanding the foregoing, (i) the amount of Additional Interest pursuant to this Section 5 shall not increase because more than one Registration Default has occurred and is continuing and (ii) a Holder of Transfer Restricted Securities who is not entitled to the benefits of the Shelf Registration Statement shall not be entitled to Additional Interest with respect to a Registration Default that pertains to the Shelf Registration Statement.

     All accrued Additional Interest shall be payable to the Holders entitled thereto, in the manner provided for the payment of interest in the Indenture, as more fully set forth in the Indenture and the Securities. All obligations of the Issuers and the Guarantors set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security shall have been satisfied in full.

     SECTION 6. Registration Procedures.

     (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Issuers and the Guarantors shall comply with all of the provisions of Section 6(c) hereof, shall use their commercially reasonable efforts to effect such exchange to permit the sale of Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof set forth in the Registration Statement. As a condition to its participation in the Exchange Offer pursuant to the terms of this Agreement, each Holder of Transfer Restricted Securities shall furnish, upon the request of the Issuers, prior to the Consummation thereof, a written representation to the Issuers (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an affiliate of any of the Issuers, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any Person to participate in, a distribution of the

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Exchange Securities to be issued in the Exchange Offer and (C) it is acquiring the Exchange Securities in its ordinary course of business. In addition, all such Holders of Transfer Restricted Securities shall otherwise cooperate in the Issuers’ preparations for the Exchange Offer. Each Holder hereby acknowledges and agrees that any Broker-Dealer and any such Holder using the Exchange Offer to participate in a distribution of the securities to be acquired in the Exchange Offer (1) could not under Commission policy as in effect on the date of this Agreement rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission’s letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (which may include any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction and that such a secondary resale transaction should be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K if the resales are of Exchange Securities obtained by such Holder in exchange for Transfer Restricted Securities acquired by such Holder directly from the Issuers.

     (b) Shelf Registration Statement. If required pursuant to Section 4, in connection with the Shelf Registration Statement, each of the Issuers and the Guarantors shall comply with all the provisions of Section 6(c) hereof and shall use its commercially reasonable efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof set forth in such Shelf Registration Statement, and pursuant thereto each of the Issuers and the Guarantors will as promptly as practicable prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Securities Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof set forth in such Shelf Registration Statement.

     (c) General Provisions. Except as otherwise provided herein, in connection with any Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities (including, without limitation, any Registration Statement and the related Prospectus required to permit resales of Transfer Restricted Securities by Broker-Dealers), each of the Issuers and the Guarantors shall:

     (i) use its commercially reasonable efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 3 or 4 hereof, as applicable; upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for re-sale of Transfer Restricted Securities during the period required by this Agreement, the Issuers shall file as promptly as practicable an appropriate amendment to such Registration Statement, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use their commercially reasonable efforts to cause such amendment to be declared effective and such Registration Statement and the related Prospectus to become usable for their intended purpose(s) as soon as practicable thereafter;

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     (ii) prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as applicable, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner; and comply in all material respects with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus;

     (iii) advise the underwriter(s), if any, and selling Holders as promptly as practicable and, if requested by such Persons, to confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein (with respect to the Prospectus, in light of the circumstances under which they were made) not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or blue sky laws, each of the Issuers and the Guarantors shall use its commercially reasonable efforts to obtain the withdrawal or lifting of such order at the earliest practicable time;

     (iv) in the case of a Shelf Registration Statement or if a Prospectus is required to be delivered by any Broker-Dealer in the case of an Exchange Offer, furnish without charge to each of the Initial Purchasers, each selling Holder named in any Registration Statement, and each of the underwriter(s), if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), and permit one legal counsel to the Initial Purchasers and such Holders and underwriter(s), if any, with an opportunity to review and comment upon any such

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Registration Statement or Prospectus (including all such documents incorporated by reference) at least five (5) Business Days prior to their filing with the Commission and upon all amendments and supplements thereto such lesser period prior to their filing with the Commission as shall be reasonable and appropriate under the circumstances, and the Issuers shall not file any documents to which such legal counsel to the Initial Purchasers and such Holders and underwriter(s), if any, reasonably objects in writing (it being agreed that such writing may for this purpose be in electronic format). Notwithstanding the foregoing, the Issuers shall not be required to take any actions under this Section 6(c)(iv) that are not, in the reasonable opinion of counsel for the Issuers, in compliance with applicable law or to include any disclosure which at the time would have an adverse effect on the business or operations of the Issuers and/or their subsidiaries, as determined in good faith by the Issuers;

     (v) in the case of a Shelf Registration Statement or if a Prospectus is required to be delivered by any Broker-Dealer in the case of an Exchange Offer, make available at reasonable times for inspection by the Initial Purchasers, the managing underwriter(s), if any, participating in any disposition pursuant to such Registration Statement and one firm of legal counsel or accountant retained by such Initial Purchasers or any of the underwriter(s), all financial and other records, pertinent corporate documents and properties of each of the Issuers and the Guarantors reasonably requested by any such Persons and cause the Issuers’ and the Guarantors’ officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney or accountant in connection with such Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness and to participate in meetings with investors to the extent reasonably requested by the managing underwriter(s), if any;

     (vi) if requested by any selling Holders or the underwriter(s), if any, promptly incorporate in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and underwriter(s), if any, may reasonably request to have included therein, including, without limitation, information relating to the “Plan of Distribution” of the Transfer Restricted Securities, information with respect to the principal amount of Transfer Restricted Securities being sold to such underwriter(s), the purchase price being paid therefor and any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Issuers are notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment;

     (vii) use its commercially reasonable efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Securities covered thereby or the underwriter(s), if any;

     (viii) in the case of a Shelf Registration Statement, furnish to each selling Holder and each of the underwriter(s), if any, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment

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thereto, including financial statements and schedules (without documents incorporated by reference therein or exhibits thereto, unless requested);

     (ix) deliver to (A) in the case of an Exchange Offer, each Broker-Dealer who submits a written request to the Issuers and (ii) in the case of a Shelf Registration Statement, each selling Holder and each of the underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; each of the Issuers and the Guarantors hereby consents to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders and each of the underwriter(s), if any, in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto;

     (x) in the case of a Shelf Registration Statement, enter into such agreements (including an underwriting agreement), and make such customary representations and warranties, and take all such other customary and appropriate actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any Shelf Registration Statement contemplated by this Agreement, all to such extent as may be reasonably requested by any Holder of Transfer Restricted Securities or underwriter in connection with any sale or resale pursuant to any Shelf Registration Statement contemplated by this Agreement; and whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration, each of the Issuers and the Guarantors shall:

     (A) to the extent reasonably requested, furnish to each Initial Purchaser, each selling Holder and each underwriter, if any, in such substance and scope as they may reasonably request and as are customarily made by issuers to underwriters in primary underwritten offerings, upon the effectiveness of the Shelf Registration Statement:

     (1) a certificate, dated the date of effectiveness of the Shelf Registration Statement signed by (y) the President or any Vice President and (z) a principal financial or accounting officer of each of the Issuers and the Guarantors, confirming, as of the date thereof, the matters set forth in paragraphs (g) and (h) of Section 6 of the Purchase Agreement and such other matters as such parties may reasonably request;

     (2) an opinion of counsel for the Issuers and the Guarantors, covering substantially the subject matter of the opinion delivered pursuant to Section 6(a) of the Purchase Agreement, dated the date of effectiveness of the Shelf Registration Statement; and

     (3) a customary comfort letter, dated the date of effectiveness of the Shelf Registration Statement, from the Issuers’ independent accountants, in the customary form and covering matters of the type customarily requested to be covered in comfort letters by underwriters in connection with primary underwritten offerings, and covering or affirming

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the matters set forth in the comfort letters delivered pursuant to Section 6(c) of the Purchase Agreement;

     (B) set forth in full or incorporate by reference in the underwriting agreement, if any, the indemnification provisions and procedures of Section 8 hereof with respect to all parties to be indemnified pursuant to said Section; and

     (C) deliver such other documents and certificates as may be reasonably requested by such parties and as are customarily delivered in similar offerings to evidence compliance with Section 6(c)(x)(A) hereof and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Issuers or any of the Guarantors pursuant to this Section 6(c)(x), if any.

     If at any time the representations and warranties of the Issuers and the Guarantors contemplated by the certificate furnished pursuant to Section 6(c)(x)(A)(1) hereof cease to be true and correct, the Issuers or the Guarantors shall so advise the Initial Purchasers and the underwriter(s), if any, and each selling Holder promptly and, if requested by such Persons, shall confirm such advice in writing;

     (xi) in the case of a Shelf Registration Statement, prior to any public offering of Transfer Restricted Securities, use its commercially reasonable efforts to cooperate with the selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities under the state securities or blue sky laws of such jurisdictions as the selling Holders or underwriter(s), if any, may reasonably request in writing by the time the Shelf Registration Statement is declared effective by the Commission, and use its commercially reasonable efforts to do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that none of the Issuers nor the Guarantors shall be required to register or qualify as a foreign corporation where it is not then so qualified or to take any action that would subject it to the service of process in suits or to taxation in any jurisdiction where it is not then so subject;

     (xii) issue, upon the request of any Holder of Transfer Restricted Securities covered by the Exchange Offer Registration Statement, Exchange Securities having an aggregate principal amount equal to the aggregate principal amount of Transfer Restricted Securities surrendered to the Issuers by such Holder in exchange therefor or being sold by such Holder; such Exchange Securities to be registered in the name of such Holder or in the name of the purchaser(s) of such Securities, as the case may be; in return, the Transfer Restricted Securities held by such Holder, if in certificated form, shall be surrendered to the Issuers for cancellation;

     (xiii) cooperate with the selling Holders and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names

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as the Holders or the underwriter(s), if any, may request at least three Business Days prior to any sale of Transfer Restricted Securities made by such Holders or underwriter(s);

     (xiv) use its commercially reasonable efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in Section 6(c)(xi) hereof;

     (xv) if any fact or event contemplated by Section 6(c)(iii)(D) hereof shall exist or have occurred, use its commercially reasonable efforts to prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain at the time of such delivery any untrue statement of any material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;

     (xvi) provide a CUSIP number for all Securities not later than the effective date of the Registration Statement covering such Securities and provide the Trustee under the Indenture with printed certificates for such Securities which are in a form eligible for deposit with the Depository Trust Company and take all other action necessary to ensure that all such Securities are eligible for deposit with the Depository Trust Company;

     (xvii) reasonably cooperate and assist in any filings required to be made with FINRA and in the performance of any due diligence investigation by any underwriter (including any “qualified independent underwriter”) that is required to be retained in accordance with the rules and regulations of FINRA;

     (xviii) otherwise use its commercially reasonable efforts to comply in all material respects with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 under the Securities Act (which need not be audited) for the twelve-month period (A) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to underwriters in a firm commitment or best efforts Underwritten Offering or (B) if not sold to underwriters in such an offering, beginning with the first month of the Issuers’ first fiscal quarter commencing after the effective date of the Registration Statement;

     (xix) cause the Indenture to be qualified under the Trust Indenture Act not later than the effective date of the first Registration Statement required by this Agreement, and, in connection therewith, cooperate with the Trustee and the Holders of Securities to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the Trust Indenture Act; and to execute and use its commercially reasonable efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be

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filed with the Commission to enable such Indenture to be so qualified in a timely manner; and

     (xx) in the case of a Shelf Registration Statement, cause all Securities covered by the Registration Statement to be listed on each securities exchange or automated quotation system on which similar securities issued by Issuers are then listed if reasonably requested by the Holders of a majority in aggregate principal amount of Securities or the managing underwriter(s), if any.

     Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice from the Issuers of (i) the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof or (ii) the commencement of a Suspension Period, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until such Holder’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof, or until it is advised in writing (the “Advice”) by the Issuers that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. If so directed by the Issuers, each Holder will deliver to the Issuers (at the Issuers’ expense) all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice. In the event the Issuers shall give any such notice, the time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(c)(iii)(D) or Section 4(c), as the case may be, hereof to and including the date when each selling Holder covered by such Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof or shall have received the Advice.

     SECTION 7. Registration Expenses.

     (a) All expenses incident to the Issuers’ and the Guarantor’s performance of or compliance with this Agreement will be borne by the Issuers and the Guarantors, jointly and severally, regardless of whether a Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees and expenses (including filings made by any Initial Purchaser or Holder with FINRA (and, if applicable, the fees and expenses of any “qualified independent underwriter” and its counsel that may be required by the rules and regulations of FINRA)); (ii) all fees and expenses of compliance with federal securities and state securities or blue sky laws; (iii) all expenses of printing (including printing certificates for the Exchange Securities to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Issuers and the Guarantors and, subject to Section 7(b) hereof, the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing the Exchange Securities on a securities exchange or automated quotation system pursuant to the requirements thereof; and (vi) all fees and disbursements of independent certified public accountants of the Issuers and the Guarantors (including the expenses of any special audit and comfort letters required by or incident to such performance).

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     Each of the Issuers and the Guarantors will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Issuers or the Guarantors.

     (b) In connection with any Shelf Registration Statement, the Issuers and the Guarantors, jointly and severally, will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities being registered pursuant to the Shelf Registration Statement, as applicable, for the reasonable and documented fees and disbursements of not more than one counsel, who shall be Vinson & Elkins L.L.P. or such other counsel as may be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Shelf Registration Statement is being prepared.

     Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder’s Transfer Restricted Securities pursuant to a Shelf Registration Statement.

     SECTION 8. Indemnification.

     (a) The Issuers and the Guarantors, jointly and severally, agree to indemnify and hold harmless (i) each Holder and (ii) each Person, if any, who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) any Holder (any of the Persons referred to in this clause (ii) being hereinafter referred to as a “controlling person”) and (iii) the officers, directors and employees of any Holder (any Person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an “Indemnified Holder”) from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including, without limitation, and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing, settling, compromising, paying or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable and documented out-of-pocket fees and expenses of outside counsel to any Indemnified Holder), joint or several, directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (or any amendment or supplement thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the indemnification provided for in this Section 8 does not apply to any loss, claim, damage, liability or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission that is made in reliance upon and in conformity with information furnished in writing to the Issuers or Guarantors by any Holder or any underwriter, expressly for use therein. This indemnity agreement shall be in addition to any liability which the Issuers or any of the Guarantors may otherwise have.

In case any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any of the Indemnified Holders with respect to which indemnity may be sought against the Issuers or the Guarantors, such Indemnified Holder (or the Indemnified Holder controlled by such controlling person) shall promptly notify the

16

Issuers and the Guarantors in writing; provided, however, that the failure to give such notice shall not relieve any of the Issuers or the Guarantors of its obligations pursuant to this Agreement to the extent it is not materially prejudiced as a result of such failure. If such Indemnified Holder is entitled to indemnification under this Section 8 with respect to any action or proceeding brought by a third party, the Issuers and the Guarantors shall be entitled to assume the defense of any such action or proceeding with counsel reasonably satisfactory to such Indemnified Holder. Upon assumption by the Issuers and the Guarantors of the defense of any such action or proceeding, such Indemnified Holder shall have the right to participate in such action or proceeding and to retain its own counsel but the Issuers and the Guarantors shall not be liable for any legal fees and expenses of other counsel subsequently incurred by the Indemnified Holder in connection with the defense thereof unless (i) the Issuers and the Guarantors have agreed to pay such fees and expenses, (ii) the Issuers and the Guarantors shall have failed to employ counsel reasonably satisfactory to such Indemnified Holder in a timely manner or (iii) such Indemnified Holder shall have been advised by counsel that there are actual or potential conflicting interests between the Issuers, the Guarantors and the Indemnified Holder, including situations in which there are one or more legal defenses available to the Indemnified Holder that are inconsistent with or additional to those available to the Issuers and the Guarantors; provided, however, that the Issuers and the Guarantors shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such Indemnified Holders. The Issuers and the Guarantors shall not consent to the terms of any compromise or settlement of any action defended by the Issuers and the Guarantors in accordance with the foregoing without the prior written consent of the Indemnified Holder unless such compromise or settlement (i) includes an unconditional release of the Indemnified Holder from all liability arising out of such action, claim, litigation or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of the Indemnified Holder. The Issuers and the Guarantors shall not be required to indemnify the Indemnified Holders under this Section 8 for any amount paid or payable by the Indemnified Holders in connection with the settlement of any action, proceeding or investigation without the written consent of the Issuers and the Guarantors, which consent shall not be unreasonably withheld.

     (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Issuers, the Guarantors and their respective directors, officers of the Issuers and the Guarantors who sign a Registration Statement, and any Person controlling (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) the Issuers or any of the Guarantors, and the respective officers, directors and employees, representatives and agents of each such Person, to the same extent as the foregoing indemnity from the Issuers and the Guarantors to each of the Indemnified Holders, but only with respect to claims and actions based on information furnished in writing by such Holder expressly for use in any Registration Statement. In case any action or proceeding shall be brought against the Issuers, the Guarantors or their respective directors or officers or any such controlling person in respect of which indemnity may be sought against a Holder of Transfer Restricted Securities, such Holder shall have the rights and duties given the Issuers and the Guarantors, and the Issuers, the Guarantors, their respective directors and officers and any such controlling person shall have the rights and duties given to each Holder by the preceding paragraph.

17

     (c) If the indemnification provided for in this Section 8 is unavailable to an indemnified party under Section 8(a) or (b) hereof (other than by reason of exceptions provided in those Sections) in respect of any losses, claims, damages, liabilities, judgments, actions or expenses referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative benefits received by the Issuers and the Guarantors, on the one hand, and the Holders, on the other hand, from the Initial Placement (which in the case of the Issuers and the Guarantors shall be deemed to be equal to the total gross proceeds to the Issuers and the Guarantors from the Initial Placement), the amount of Additional Interest which did not become payable as a result of the filing of the Registration Statement resulting in such losses, claims, damages, liabilities, judgments actions or expenses, and such Registration Statement, or if such allocation is not permitted by applicable law, the relative fault of the Issuers and the Guarantors, on the one hand, and the Holders, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of the Issuers, on the one hand, and of the Indemnified Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers or any of the Guarantors, on the one hand, or the Indemnified Holders, on the other hand, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of Section 8(a) hereof, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim.

     The Issuers, the Guarantors and each Holder of Transfer Restricted Securities agree that it would not be just and equitable if contribution pursuant to this Section 8(c) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, none of the Holders (and the related Indemnified Holders) shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total discount received by such Holder with respect to the Initial Securities exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders’ obligations to contribute pursuant to this Section 8(c) are several in proportion to the respective principal amount of Initial Securities held by each of the Holders hereunder and not joint.

     SECTION 9. Rule 144A.

18

     Each of the Issuers and the Guarantors hereby agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding, to make available to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A under the Securities Act.

     SECTION 10. Participation in Underwritten Registrations.

     No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder’s Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements.

     SECTION 11. Selection of Underwriters.

     The Holders of Transfer Restricted Securities covered by the Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering. In any such Underwritten Offering, the investment banker(s) and managing underwriter(s) that will administer such offering will be selected by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in such offering; provided, however, that such investment banker(s) and managing underwriter(s) must be reasonably satisfactory to the Issuers.

     SECTION 12. Miscellaneous.

     (a) Remedies. Each of the Issuers, the Guarantors and the Initial Purchasers hereby agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agree to waive the defense in any action for specific performance that a remedy at law would be adequate.

     (b) No Inconsistent Agreements. Each of the Issuers and the Guarantors will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of an Issuer’s or any of the Guarantors’ securities under any agreement in effect on the date hereof.

     (c) Adjustments Affecting the Securities. The Issuers will not take any action, or permit any change to occur, with respect to the Securities that would materially and adversely affect the ability of the Holders to Consummate any Exchange Offer.

     (d) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless the Issuers have (i) in the case of Section 5 hereof and this Section 12(d)(i), obtained the written consent of Holders of all outstanding Transfer

19

Restricted Securities and (ii) in the case of all other provisions hereof, obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding any Transfer Restricted Securities held by the Issuers or their respective Affiliates). Notwithstanding the foregoing, a waiver or consent or departure from the provisions hereof that relates exclusively to the rights of Holders whose securities are being tendered pursuant to the Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose securities are not being tendered pursuant to such Exchange Offer may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities being tendered or registered; provided, however, that, with respect to any matter that directly or indirectly affects the rights of any Initial Purchaser hereunder, the Issuers shall obtain the written consent of each such Initial Purchaser with respect to which such amendment, qualification, supplement, waiver, consent or departure is to be effective.

     (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery:

     (i) if to a Holder, at the address set forth on the records of the Trustee under the Indenture, with a copy to the Trustee under the Indenture; and

     (ii) if to the Issuers or the Guarantors:

Alta Mesa Holdings, LP
15415 Katy Freeway, Suite 800
Houston, Texas 77094
Attention: Harlan H. Chappelle
Telephone: 281-530-0991
Internet electronic mail: hchappelle@altamesa.net

     (iii) with a copy to (which shall not constitute notice or service of process pursuant to this Agreement):

Haynes & Boone L.L.P.
1221 McKinney, Suite 2100
Houston, Texas 77010
Facsimile: (713) 236-5557
Attention: William B. Nelson
Internet electronic mail: bill.nelson@haynesboone.com

     All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery.

20

     Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture.

     (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without limitation, and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder. Nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms of the Purchase Agreement or the Indenture.

     (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

     (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

     (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW RULES THEREOF.

     (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.

     (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Issuers with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

[The remainder of this page intentionally left blank.]

21

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

ALTA MESA HOLDINGS, LP
By:	Alta Mesa Holdings GP, LLC,
	as general partner
By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Chief Executive Officer
ALTA MESA FINANCE SERVICES CORP.
By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Chief Executive Officer

S-1

GUARANTORS: ARI DEVELOPMENT, LLC ALTA MESA DRILLING, LLC ALTA MESA GP, LLC ALTA MESA ACQUISITION SUB, LLC ALTA MESA SERVICES, LP CAIRN ENERGY USA, LLC HILLTOP ACQUISITION LLC LOUISIANA ONSHORE PROPERTIES LLC THE MERIDIAN PRODUCTION, LLC THE MERIDIAN RESOURCE, LLC THE MERIDIAN RESOURCE &      EXPLORATION LLC TMR DRILLING, LLC VIRGINIA OIL AND GAS, LLC SUNDANCE ACQUISITION, LLC TE TMR,LLC TMR EQUIPMENT, LLC NEW EXPLORATION TECHNOLOGIES      COMPANY, L.L.C. FBB ANADARKO, LLC LOUISIANA EXPLORATION & ACQUISITION      PARTNERHIP, LLC BRAYTON MANAGEMENT GP, LLC BRAYTON MANAGEMENT GP II, LLC
Each by:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Its Chief Executive Officer

S-2

GUARANTORS (cont’d.):

ARANSAS RESOURCES, L.P.
BUCKEYE PRODUCTION COMPANY, LP
LOUISIANA EXPLORATION &
     ACQUISITIONS, LP
NAVASOTA RESOURCES, LTD., LLP
NUECES RESOURCES, LP
OKLAHOMA ENERGY ACQUISITIONS, LP
TEXAS ENERGY ACQUISITIONS, LP
GALVESTON BAY RESOURCES, LP
PETRO ACQUISITIONS, LP
PETRO OPERATING COMPANY, LP

Each by: Alta Mesa GP, LLC
 

By:	/s/ Harlan H. Chappelle
	Harlan H. Chappelle
	Chief Executive Officer

S-3

     The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written:

WELLS FARGO SECURITIES, LLC
Acting severally on behalf of themselves
   and as Representative of the several Initial Purchasers

By:	/s/ Jeff Gore
	Name:	Jeff Gore
	Title:	Managing Director

S-4

EX-5.1

Exhibit 5.1

April 27, 2011

Alta Mesa Holdings, LP
Alta Mesa Finance Services Corp.

15415 Katy Freeway, Suite 800
Houston, TX 77094

Re: Registration Statement on Form S-4; Offer to Exchange up to $300,000,000 of 9 5/8% Senior Notes due 2018 that have not been registered under the Securities Act of 1933 for up to $300,000,000 of 9 5/8% Senior Notes due 2018 that have been registered under the Securities Act of 1933.

Ladies and Gentlemen:

     We have acted as counsel for Alta Mesa Holdings, LP, a Texas limited partnership (the “Partnership"), Alta Mesa Finance Services Corp., a Delaware corporation (the “Co-Issuer” and together with the Partnership, the “Issuers"), and the guarantors listed on Schedule I hereto (the “Guarantors") in connection with the proposed issuance by the Issuers of up to $300,000,000 aggregate principal amount of 9 5/8% Senior Notes due 2018, Series B (the “Exchange Notes") in exchange for an equivalent amount of the Issuers’ outstanding 9 5/8% Senior Notes due 2018, Series A (the “Existing Notes"). The terms of the offer to exchange are described in the Registration Statement on Form S-4 (the “Registration Statement") filed with the Securities and Exchange Commission for the registration of the Exchange Notes under the Securities Act of 1933, as amended (the “Act"). The Existing Notes have been, and the Exchange Notes will be, issued pursuant to an indenture dated as of October 13, 2010, as amended (the “Indenture"), among the Issuers, the guarantors named therein and Wells Fargo Bank, N.A., as trustee (the “Trustee").

     In connection with the foregoing, we have examined the Indenture, the Registration Statement and such corporate records and instruments of the Issuers and each of the Guarantors as we have deemed necessary or appropriate for purposes of this opinion.

     In making the foregoing examination, we have assumed the genuineness of all signatures and the authenticity of all documents submitted to us as originals, and the conformity to original documents of all documents submitted to us as certified or photostatic copies. As to questions of fact material to this opinion, where such facts have not been independently established, and as to the content and form of the organizational documents, minutes, records, resolutions and other documents or writings of the Issuers and the Guarantors, we have relied, to the extent we deem reasonably appropriate, upon representations or certificates of officers or directors of the Issuers and the Guarantors and upon documents, records and instruments furnished to us by the Issuers and the Guarantors, without independent check or verification of their accuracy.

     We are opining herein as to the effect on the proposed issuance of the Exchange Notes of the federal laws of the United States, the laws of the State of Texas, the General Corporation Law of the State of Delaware and the laws of the State of New York (all of the foregoing being referred to as the “Opined on Law"). We do not express any opinion with respect to the laws of any jurisdiction other than the Opined on Law or as to the effect of any such laws on the opinions herein stated.

SPECIFIC LIMITATIONS AND QUALIFICATIONS ON
OPINIONS REGARDING ENFORCEABILITY OF THE EXCHANGE NOTES

     The enforceability of the Exchange Notes is subject to the effects of (i) applicable bankruptcy, insolvency, reorganization, moratorium, rearrangement, liquidation, conservatorship or similar laws and court decisions of general application (including, without limitation, statutory or other laws regarding fraudulent or preferential transfers) now or hereafter in effect relating to or affecting the rights or remedies of creditors generally, and (ii) general equity principles (regardless of whether enforcement is sought in a proceeding in equity or law).

     We express no opinion as to the enforceability of provisions of the Exchange Notes to the extent that such provisions: (i) state that any party’s failure or delay in exercising rights, powers, privileges or remedies under the Exchange Notes shall not operate as a waiver thereof; (ii) purport to preclude the amendment, waiver, release or discharge of obligations except by an instrument in writing; (iii) purport to indemnify any person for (A) such person’s violations of federal or state securities laws or environmental laws, or (B) any obligation to the extent such obligation arises from or is a result of such person’s own negligence; (iv) purport to establish or satisfy certain factual standards or conditions; (v) purport to sever unenforceable provisions from the Exchange Notes, to the extent that the enforcement of remaining provisions would frustrate the fundamental intent of the parties to such instrument; (vi) restrict access to legal or equitable remedies; or (vii) purport to waive any claim arising out of, or in any way related to, the Exchange Notes.

     We express no opinion as to: (i) whether a court would grant specific performance or any other equitable remedy with respect to enforcement of any provision contained in the Exchange Notes; or (ii) the enforceability of any provision contained in the Indenture relating to the appointment of a receiver, to the extent that appointment of a receiver is governed by applicable statutory requirements, and to the extent that such provision may not be in compliance with such requirements.

     We express no opinion as to: (a) any provisions of the Exchange Notes or the Indenture regarding the remedies available to any person (i) to take action that is arbitrary, unreasonable or capricious or is not taken in good faith or in a commercially reasonable manner, whether or not such action is permitted by the Exchange Notes or the Indenture or (ii) for violations or breaches that are determined by a court to be non-material or without substantially adverse effect upon the ability of the Issuers or the Guarantors to perform their material obligations under the Exchanges Notes or the Indenture; or (b) the provisions of the Exchange Notes or the Indenture that may provide for interest on interest or penalty interest.

     Based upon the foregoing and subject to the qualifications stated herein, it is our opinion that, when (i) the Registration Statement has been declared effective under the Act, (ii) the Existing Notes have been validly exchanged by the Issuers, and (iii) the Exchange Notes have been executed and delivered by the Issuers and authenticated by the Trustee, all in accordance with the terms of the Indenture and the Registration Statement, the Exchange Notes will constitute binding obligations of the Issuers and each Guarantor’s guarantee will constitute binding obligations of such Guarantor.

     To the extent that the obligations of the Issuers and the Guarantors under the Indenture may be dependent upon such matters, we assume for purposes of this opinion that the Trustee is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; that the Trustee is duly qualified to engage in the activities contemplated by the Indenture; that the Indenture has been duly authorized, executed and delivered by the Trustee and constitutes the legally valid and binding obligation of the Trustee, enforceable against the Trustee in accordance with its terms; that the Trustee is in compliance, generally and with respect to acting as a trustee under the Indenture, with all applicable laws and regulations; and that the Trustee has the requisite organizational and legal power and authority to perform its obligations under the Indenture.

     We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm contained therein under the heading “Legal Matters.”

Very truly yours,

/s/ Haynes and Boone, LLP

HAYNES AND BOONE, LLP

- 2 -

Schedule I

GUARANTORS

Name	Jurisdiction of Formation
1. Alta Mesa Acquisition Sub, LLC	Texas
2. Alta Mesa Drilling, LLC	Texas
3. Alta Mesa Energy LLC	Texas
4. Alta Mesa GP, LLC	Texas
5. Alta Mesa Services, LP	Texas
6. Aransas Resources, L.P.	Texas
7. ARI Development, LLC	Delaware
8. Brayton Management GP II, LLC	Texas
9. Brayton Management GP, LLC	Texas
10. Brayton Resources II, L.P.	Texas
11. Brayton Resources, L.P.	Texas
12. Buckeye Production Company, LP	Texas
13. Cairn Energy USA, LLC	Delaware
14. FBB Anadarko, LLC	Delaware
15. Galveston Bay Resources, LP	Texas
16. LEADS Resources, L.L.C.	Texas
17. Louisiana Exploration & Acquisition Partnership, LLC	Delaware
18. Louisiana Exploration & Acquisitions, LP	Texas
19. Louisiana Onshore Properties LLC	Delaware
20. Navasota Resources, Ltd., LLP	Texas
21. New Exploration Technologies Company, L.L.C.	Texas
22. Nueces Resources, LP	Texas
23. Oklahoma Energy Acquisitions, LP	Texas
24. Orion Operating Company, LP	Texas
25. Petro Acquisitions, LP	Texas
26. Petro Operating Company, LP	Texas
27. Sundance Acquisition, LLC	Texas
28. TE TMR, LLC	Texas
29. Texas Energy Acquisitions, LP	Texas
30. The Meridian Production, LLC	Texas
31. The Meridian Resource & Exploration LLC	Delaware
32. The Meridian Resource, LLC	Delaware
33. TMR Drilling, LLC	Texas
34. TMR Equipment, LLC	Texas
35. Virginia Oil and Gas, LLC	Delaware

- 3 -

EX-10.1

Exhibit 10.1

EXECUTION VERSION

$500,000,000

SIXTH AMENDED AND RESTATED CREDIT AGREEMENT

Among

ALTA MESA HOLDINGS, LP

as Borrower,

THE LENDERS PARTY HERETO FROM TIME TO TIME

as Lenders,

and

WELLS FARGO BANK, N.A.

as Administrative Agent and as Issuing Lender

May 13, 2010

Wells Fargo Securities, LLC and Union Bank, N.A.
as Co-Lead Arrangers

Union Bank, N.A.
as Syndication Agent

Toronto Dominion (New York) LLC
as Documentation Agent

TABLE OF CONTENTS

	Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS		2
Section 1.01 Certain Defined Terms		2
Section 1.02 Computation of Time Periods		23
Section 1.03 Accounting Terms; Changes in GAAP		23
Section 1.04 Types of Advances		24
Section 1.05 Miscellaneous		24
ARTICLE II CREDIT FACILITIES		24
Section 2.01 Commitment for Advances		24
Section 2.02 Borrowing Base		25
Section 2.03 Method of Borrowing		28
Section 2.04 Reduction of the Commitments		31
Section 2.05 Prepayment of Advances		31
Section 2.06 Repayment of Advances		34
Section 2.07 Letters of Credit		34
Section 2.08 Fees		38
Section 2.09 Interest		38
Section 2.10 Payments and Computations		39
Section 2.11 Sharing of Payments, Etc.		40
Section 2.12 Breakage Costs		40
Section 2.13 Increased Costs		41
Section 2.14 Taxes		42
Section 2.15 Designation of a Different Lending Office		43
Section 2.16 Replacement of Lender		44
Section 2.17 Payments and Deductions to a Defaulting Lender		44
ARTICLE III CONDITIONS		46
Section 3.01 Conditions Precedent to Effectiveness		46
Section 3.02 Conditions Precedent to All Borrowings		51
ARTICLE IV REPRESENTATIONS AND WARRANTIES		52
Section 4.01 Existence; Restricted Subsidiaries		52
Section 4.02 Power		52
Section 4.03 Authorization and Approvals		52
Section 4.04 Enforceable Obligations		53

-i-

TABLE OF CONTENTS
(continued)

	Page
Section 4.05 Financial Statements		53
Section 4.06 True and Complete Disclosure		53
Section 4.07 Litigation; Compliance with Laws		53
Section 4.08 Use of Proceeds		54
Section 4.09 Investment Company Act		54
Section 4.10 Taxes		54
Section 4.11 Pension Plans		55
Section 4.12 Condition of Property; Casualties		55
Section 4.13 No Burdensome Restrictions; No Defaults		56
Section 4.14 Environmental Condition		56
Section 4.15 Permits, Licenses, Etc.		56
Section 4.16 Gas Contracts		57
Section 4.17 Liens; Titles, Leases, Etc.		57
Section 4.18 Solvency and Insurance		57
Section 4.19 Material Agreements		57
Section 4.20 Hedging Agreements		58
Section 4.21 OFAC		58
ARTICLE V AFFIRMATIVE COVENANTS		58
Section 5.01 Compliance with Laws, Etc.		58
Section 5.02 Maintenance of Insurance		58
Section 5.03 Preservation of Corporate Existence, Etc.		59
Section 5.04 Payment of Taxes, Etc.		60
Section 5.05 Visitation Rights		60
Section 5.06 Reporting Requirements		60
Section 5.07 Maintenance of Property		63
Section 5.08 Agreement to Pledge		63
Section 5.09 Use of Proceeds		64
Section 5.10 Title Evidence		64
Section 5.11 Further Assurances; Cure of Title Defects		64
Section 5.12 Material Agreements		65
Section 5.13 Leases; Development and Maintenance		65
Section 5.14 Designations with Respect to Subsidiaries		65

-ii-

TABLE OF CONTENTS
(continued)

	Page
Section 5.15 Designation of Senior Debt		66
ARTICLE VI NEGATIVE COVENANTS		66
Section 6.01 Liens, Etc.		66
Section 6.02 Debts, Guaranties, and Other Obligations		68
Section 6.03 Agreements Restricting Liens and Distributions		69
Section 6.04 Merger or Consolidation; Asset Sales; Hedge Terminations		70
Section 6.05 Restricted Payments		70
Section 6.06 Investments		71
Section 6.07 Affiliate Transactions		71
Section 6.08 Compliance with ERISA		71
Section 6.09 Sale-and-Leaseback		72
Section 6.10 Change of Business		72
Section 6.11 Organizational Documents, Name Change; Change in Accounting		72
Section 6.12 Use of Proceeds; Letters of Credit		72
Section 6.13 Gas Imbalances, Take-or-Pay or Other Prepayments		73
Section 6.14 Limitation on Hedging		73
Section 6.15 Reserved		74
Section 6.16 Additional Subsidiaries		74
Section 6.17 Current Ratio		74
Section 6.18 Leverage Ratio		74
Section 6.19 Interest Coverage Ratio		74
Section 6.20 Orion		74
Section 6.21 Account Payables		74
Section 6.22 Subordinated Debt		74
Section 6.23 Additional Subordinated Debt		75
ARTICLE VII EVENTS OF DEFAULT; REMEDIES		75
Section 7.01 Events of Default		75
Section 7.02 Optional Acceleration of Maturity		77
Section 7.03 Automatic Acceleration of Maturity		78
Section 7.04 Right of Set-off		78
Section 7.05 Non-exclusivity of Remedies		78
Section 7.06 Application of Proceeds		79

-iii-

TABLE OF CONTENTS
(continued)

	Page
ARTICLE VIII THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER		79
Section 8.01 Authorization and Action		79
Section 8.02 Administrative Agent’s Reliance, Etc.		80
Section 8.03 The Administrative Agent and Its Affiliates		80
Section 8.04 Lender Credit Decision		80
Section 8.05 Indemnification		80
Section 8.06 Successor Administrative Agent and Issuing Lender		81
Section 8.07 Additional Agents		82
Section 8.08 Collateral Matters		82
ARTICLE IX MISCELLANEOUS		83
Section 9.01 Amendments, Etc.		83
Section 9.02 Notices, Etc.		84
Section 9.03 No Waiver; Remedies		84
Section 9.04 Costs and Expenses		84
Section 9.05 Binding Effect		84
Section 9.06 Lender Assignments and Participations		84
Section 9.07 Indemnification; Waiver		86
Section 9.08 Confidentiality		87
Section 9.09 Execution in Counterparts		88
Section 9.10 Survival of Representations, Etc.		88
Section 9.11 Severability		88
Section 9.12 Business Loans		88
Section 9.13 Governing Law; Submission to Jurisdiction		88
Section 9.14 WAIVER OF JURY TRIAL		89
Section 9.15 Subordination and Intercreditor Agreement; Fortis Assignment		89
Section 9.16 USA Patriot Act		89
Section 9.17 PRIOR OR ORAL AGREEMENTS		89

EXHIBITS:
Exhibit A	—	Form of Assignment and Acceptance
Exhibit B	—	Form of Compliance Certificate
Exhibit C-1	—	Form of Guaranty
Exhibit C-2	—	Form of Limited Recourse Guaranty
Exhibit D	—	Form of Mortgage

-iv-

TABLE OF CONTENTS
(continued)

	Page
Exhibit E	—	Form of Note
Exhibit F	—	Form of Notice of Borrowing
Exhibit G	—	Form of Notice of Conversion or Continuation
Exhibit H	—	Form of Pledge Agreement
Exhibit I	—	Form of Security Agreement
Exhibit J	—	Form of Transfer Letters
Exhibit K	—	Form of Borrower's Counsel Opinion
Exhibit L	—	Form of Subordination and Intercreditor Agreement
SCHEDULES:
Schedule I	—	Borrower, Administrative Agent, and Lender Information
Schedule II	—	Initial Borrowing Base and Pro Rata Shares
Schedule 1.01	—	CIT/Orion Collateral
Schedule 4.01	—	Equity Interests
Schedule 4.05	—	Permitted Debt
Schedule 4.19	—	Material Agreements
Schedule 4.20	—	Hedging Agreements

-v-

SIXTH AMENDED AND RESTATED CREDIT AGREEMENT

     This Sixth Amended and Restated Credit Agreement dated as of May 13, 2010 (the “Credit Agreement”) is among Alta Mesa Holdings, LP, a Texas limited partnership (“Borrower”), the lenders party hereto from time to time (“Lenders”), and Wells Fargo Bank, N.A., as administrative agent for such Lenders (in such capacity, the “New Administrative Agent”) and as issuing lender for such Lenders (in such capacity, the “New Issuing Lender”).

     A. The Borrower is a party to that certain Fifth Amended and Restated Credit Agreement dated November 13, 2008 among the Borrower, the lenders party thereto on the date hereof (the “Existing Lenders”), and Union Bank, N.A. (f/k/a Union Bank of California, N.A.), as administrative agent for such Existing Lenders (in such capacity, the “Existing Administrative Agent”) and as issuing lender for such Existing Lenders (in such capacity, the “Existing Issuing Lender”), as heretofore amended (as so amended, the “Existing Credit Agreement”).

     B. In order to secure the full and punctual payment and performance of the loans under the Existing Credit Agreement, the Borrower and its Restricted Subsidiaries (as defined below) executed and delivered mortgages, collateral assignments, security agreements and financing statements (collectively, the “Existing Security Instruments”) granting a mortgage lien and continuing security interest in and to the collateral described in such Existing Security Instruments.

     C. Pursuant to that certain Assignment (as defined below), inter alia, (i) the Existing Administrative Agent has resigned as “Administrative Agent” under the Existing Credit Agreement and has assigned all Existing Liens (as defined below) held by the Existing Administrative Agent under the Existing Security Instruments to the New Administrative Agent as the “Administrative Agent” thereunder, and (ii) the Existing Issuing Lender has resigned as the “Issuing Lender” under the Existing Credit Agreement.

     D. Furthermore, in connection with the Merger (as defined below), and if the Fortis Assignment is entered into, concurrent with the entering into of this Agreement (i) the Merger Company Debt (as defined below) is being assigned to the Lenders, (ii) all liens and security interests securing the Merger Company Debt is being assigned to the New Administrative Agent, and (iii) the Borrower is assuming the Merger Company Debt.

     E. The Borrower, the Lenders, the New Issuing Lender (hereinafter referred to as the “Issuing Lender”), the New Administrative Agent (hereinafter referred to as the “Administrative Agent”) and the New Lenders (as hereinafter defined), desire to (i) amend and restate (but not extinguish) the Existing Credit Agreement in its entirety as hereinafter set forth herein, (ii) have the obligations of the Borrower hereunder continue to be secured by the liens and security interests created under the Existing Security Instruments, (iii) if the Fortis Assignment is entered into, the Merger Company Debt is renewed and rearranged under this Agreement as part of the Obligations (as defined below) as set forth herein, and (iv) have the Obligations be secured by the liens and security interest previously securing the Merger Company Debt.

     F. It is the intention of the parties hereto that this Credit Agreement is an amendment and restatement of the Existing Credit Agreement, and is not a new or substitute credit agreement or novation of the Existing Credit Agreement.

     NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto (i) do hereby agree that the Existing Credit Agreement is amended

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and restated (but not substituted or extinguished) in its entirety as set forth herein, and (ii) do hereby agree as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

     Section 1.01 Certain Defined Terms. As used in this Agreement, the terms defined above shall have the meanings set forth therein and the following terms shall have the following meanings (unless otherwise indicated, such meanings to be equally applicable to both the singular and plural forms of the terms defined):

     “Acceptable Security Interest” in any Property means a Lien which (a) exists in favor of the Administrative Agent for the benefit of the Secured Parties, (b) is superior to all Liens or rights of any other Person in the Property encumbered thereby, other than Permitted Subject Liens, (c) secures the Obligations, and (d) is perfected and enforceable.

     “Acquisition” means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Restricted Subsidiaries (a) acquires any going business or all or substantially all of the assets of any firm, corporation, general partnership, limited liability partnership or limited liability company, or division thereof, whether through the purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company.

     “Additional Subordinated Debt” means any term (and not “revolving”) indebtedness of the Borrower for borrowed money, including any such Debt evidenced by bonds, debentures, notes or other similar instruments, or any redeemable preferred equity of the Borrower, in any event, issued after the Effective Date; provided that:

     (a) the agreements and instruments governing such Debt shall not contain (i) any affirmative or negative covenant (including financial covenants) that is materially more restrictive than those set forth in this Agreement; provided that the inclusion of any covenant that is customary with respect to such type of Debt and that is not found in this Agreement shall not be deemed to be more restrictive for purposes of this clause (a)(i), (ii) any restriction on the ability of the Borrower or any of its Restricted Subsidiaries to amend, modify, restate or otherwise supplement this Agreement or the other Loan Documents, (iii) any restrictions on the ability of any Subsidiary of the Borrower to guarantee the Obligations (as such Obligations may be amended, supplemented, modified, or amended and restated but not increased), provided that a requirement that any such Subsidiary also guarantee such Debt shall not be deemed to be a violation of this clause (ii), (iv) any restrictions on the ability of any Subsidiary or the Borrower to pledge assets as collateral security for the Obligations (as such Obligations may be amended, supplemented, modified, or amended and restated but not increased) other than, with respect to such Debt that is secured, any such restrictions that are no less favorable to the Lenders than restrictions in the Subordination and Intercreditor Agreement or which are otherwise satisfactory to the Administrative Agent and the Required Lenders; provided that, in any event, a requirement that such Debt be secured in compliance with clause (b) below shall not be deemed to be a violation of this clause (iv), (v) any restrictions on the ability of any Subsidiary or the Borrower to incur Debt under this Agreement or any other Loan Document other than a restriction as to the outstanding principal amount of such Debt in excess of $500,000,000; and (vi) a scheduled maturity date that is earlier than November 13, 2013, (vii) any amortization or other mandatory

2

principal payments other than at the scheduled maturity thereof, or (viii) any Lien securing such Debt unless such Lien covers the same assets which serve as collateral for the Obligations pursuant to Loan Documents and such Lien is subordinated to the Liens securing the Obligations; provided that, any Debt issued under the Subordinated Credit Agreement as in effect on the date hereof shall be deemed to satisfy this clause (a);

     (b) if such Debt is secured, such Debt and the Liens securing such Debt are subordinated to the Obligations and the Liens securing the Obligations pursuant to a subordination agreement the terms of which are no less favorable to the Lenders than the terms of the Subordination and Intercreditor Agreement or which are otherwise satisfactory to the Administrative Agent and the Required Lenders; and

     (c) if such Debt is preferred equity, such Debt shall not be secured and shall not, by its terms (or by the terms of any security or instrument into which it is convertible or for which it is exchangeable or exercisable), or upon the happening of any event, (i) mature (excluding any maturity as the result of an optional redemption by the Borrower) or be mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or be redeemable at the option of the holder thereof, in whole or in part, on or prior to November 12, 2013, (ii) be convertible into or exchangeable or exercisable (unless at the sole option of the Borrower) for (A) debt securities or other Debt or (B) any Equity Interests with terms set forth in the immediately preceding clause (ii), in each case at any time on or prior to the first anniversary of the Maturity Date, or (iii) contain any repurchase or payment obligation which may come into effect prior to the first anniversary of the Maturity Date.

     “Adjusted EBITDAX” means:

     (a) for the fiscal quarter ending June 30, 2010, the sum of (a) the EBITDAX for the Borrower and its consolidated Restricted Subsidiaries (other than the Merger Company and its consolidated Subsidiaries) for the four fiscal quarter period then ended plus (b) the EBITDAX of the Merger Company and its consolidated Subsidiaries for the fiscal quarter then ended multiplied by four;

     (b) for the fiscal quarter ending September 30, 2010, the sum of (a) the EBITDAX for the Borrower and its consolidated Restricted Subsidiaries (other than the Merger Company and its consolidated Subsidiaries) for the four fiscal quarter period then ended plus (b) the EBITDAX of the Merger Company and its consolidated Subsidiaries for the two fiscal quarters then ended multiplied by two;

     (c) for the fiscal quarter ending December 31, 2010, the sum of (a) the EBITDAX for the Borrower and its consolidated Restricted Subsidiaries (other than the Merger Company and its consolidated Subsidiaries) for the four fiscal quarter period then ended plus (b) the EBITDAX of the Merger Company and its consolidated Subsidiaries for the three fiscal quarters then ended multiplied by 4/3; and

     (d) for each fiscal quarter ending on or after March 31, 2011, the EBITDAX for the Borrower and its consolidated Restricted Subsidiaries for the four fiscal quarter period then ended.

     “Adjusted Reference Rate” means, for any day, the fluctuating rate per annum of interest equal to the greatest of (a) the Reference Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus ¹/2 of 1% and (c) the Daily One-Month LIBOR plus 1.00%. Any change in the Adjusted Reference Rate due to a change in the Reference Rate, Daily One-Month LIBOR or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate, Daily One-Month LIBOR or the Federal Funds Rate.

3

     “Administrative Agent” means Wells Fargo Bank, N.A. in its capacity as agent pursuant to Article VIII, and any successor agent pursuant to Section 8.06.

     “Administrative Questionnaire” means an administrative questionnaire in a form supplied by the Administrative Agent.

     “Advance” means an advance by a Lender to the Borrower pursuant to Section 2.01(a) or Section 2.01(b) as part of a Borrowing and refers to a Reference Rate Advance or a Eurodollar Rate Advance.

     “Affiliate” means, as to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person or any Subsidiary of such Person. The term “control” (including the terms “controlled by” or “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of a Control Percentage, by contract, or otherwise.

     “Agreement” means this Credit Agreement, as the same may be amended, supplemented, and otherwise modified from time to time.

     “Applicable Margin” means, with respect to any Advance, (a) during any time when an Event of Default under Section 7.01(a) or Section 7.01(e) exists, 3% per annum plus the rate per annum set forth in the pricing grid set forth below for the relevant Type of such Advance based on the present Utilization Level applicable at such time, (b) during any time when any other Event of Default exists and upon election by the Required Lenders (or the Administrative Agent at the direction of the Required Lenders), 3% per annum plus the rate per annum set forth in the pricing grid set forth below for the relevant Type of such Advance based on the present Utilization Level applicable at such time, and (c) at any other time, the rate per annum set forth in the pricing grid set forth below for the relevant Type of such Advance based on the relevant Utilization Level applicable at such time. The Applicable Margin for any Advance shall change when and as the relevant Utilization Level changes.

Borrowing Base Utilization	Applicable Margin
	Eurodollar Rate			Reference Rate
	Advance			Advance
Greater than or equal to 90%		3.25	%		2.25	%
Greater than or equal to 75% but less than 90%		3.00	%		2.00	%
Greater than or equal to 50% but less than 75%		2.75	%		1.75	%
Less than 50%		2.50	%		1.50	%

     “Assignment” means that certain Resignation of Agent and Assignment of Security Instruments and Liens dated as of May 13, 2010 among the Borrower, the Existing Administrative Agent, the Administrative Agent, the Existing Issuing Lender and the Issuing Lender.

     “Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of the attached Exhibit A.

     “Banking Services” means each and any of the following bank services provided to the Borrower or any Restricted Subsidiary by any Lender or any Affiliate of a Lender: (a) commercial credit cards, (b)

4

stored value cards and (c) treasury management services (including, without limitation, controlled disbursement, automated clearinghouse transactions, return items, overdrafts and interstate depository network services).

     “Banking Services Obligations” means any and all obligations of the Borrower or any Restricted Subsidiary, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) in connection with Banking Services.

     “Borrowing” means a borrowing consisting of Advances made on the same day by the Lenders pursuant to Section 2.01(a) or Section 2.01(b).

     “Borrowing Base” means at any particular time, the Dollar amount determined by the Lenders to be the Borrowing Base in accordance with Section 2.02.

     “Borrowing Base Deficiency” means, at any time, an amount equal to the excess of (a) the sum of the aggregate outstanding amount of the Advances plus the Letter of Credit Exposure over (b) the lesser of the Borrowing Base and the aggregate Commitments.

     “Brayton” means Brayton Resources, L.P., a Texas limited partnership.

     “Brayton Pledge Agreement” means the Amended and Restated Pledge Agreement executed by Frio Pecan Farm, LP, Flatmax Energy, L.P. and Brayton Management GP, LLC dated of even date herewith and made in favor of the Administrative Agent.

     “Business Day” means (a) a day of the year other than (i) a Saturday or a Sunday or (ii) a legal holiday on which banks are required or authorized to close in Dallas, Texas or Los Angeles, California and (b) if the applicable Business Day relates to any Eurodollar Rate Advances, then in addition to the requirements of clause (a) above, a day on which dealings are carried on by banks in the London interbank market.

     “Capital Expenditures” means, for the Borrower and its Restricted Subsidiaries for any period, the aggregate of all expenditures and costs paid, or if applicable, budgeted to be paid, by the Borrower and such Restricted Subsidiaries during such period that are for items which should be capitalized in accordance with GAAP, including intangible drilling and development expenditures.

     “Capital Leases” means, as applied to any Person, any lease of any Property by such Person as lessee that would, in accordance with GAAP, be required to be classified and accounted for as a capital lease on the balance sheet of such Person.

     “Cash Collateral Account” means a special interest bearing cash collateral account pledged by the Borrower to the Issuing Lender containing cash deposited pursuant to Sections 2.04(c), 2.05(b), 2.07(j), 7.02(b), or 7.03(b) hereof to be maintained with the Issuing Lender in accordance with Section 2.07(g).

     “CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, state and local analogs, and all rules and regulations and requirements thereunder in each case as now or hereafter in effect.

     “Change in Control” means the occurrence of any of the following events: (a) the General Partner ceases to be the sole general partner of the Borrower, (b) the Borrower, directly or indirectly, ceases to own 100% of the Equity Interests of the Restricted Subsidiaries other than Orion, Brayton and ARI, (c) Michael

5

Ellis and Harlan Chappelle, collectively, ceases to own at least 51% of the Ordinary Units of the Borrower, (d) the Class B Limited Partner ceases to own at least 100% of the Class B Units of the Borrower, or (e) Denham, directly or indirectly, ceases to own at least 50% of the Equity Interests of the Class B Limited Partner.

     “Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

     “CIT/ORION Collateral” shall have the meaning assigned in Schedule 1.01 hereof.

     “Class B Limited Partner” means Alta Mesa Investment Holdings, Inc., a Delaware corporation.

     “Class B Units” means the Class B Shares issued under the Partnership Agreement.

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

     “Collateral” means (a) all “Collateral,” “Pledged Collateral,” and “Mortgaged Properties” (as defined in each of the Mortgages, the Security Agreements, and the Pledge Agreements, as applicable) or similar terms used in the Security Instruments, and (b) all amounts contained in the Borrower’s and its Restricted Subsidiaries’ Cash Collateral Accounts.

     “Commitment” means, for any Lender, the amount set opposite such Lender’s name on the Schedule II hereof as its Commitment, or if such Lender has entered into any Assignment and Acceptance, as set forth for such Lender as its Commitment in the Register maintained by the Administrative Agent pursuant to Section 9.06(c), as such amount may be reduced or terminated pursuant to Section 2.04 or Article VII or otherwise under this Agreement. The aggregate amount of the Commitments on the date hereof is $500,000,000.

     “Commitment Termination Date” means the earlier of (a) the Maturity Date and (b) the earlier termination in whole of the Commitments pursuant to Section 2.04 or Article VII.

     “Compliance Certificate” means a compliance certificate in the form of the attached Exhibit B signed by a Responsible Officer of the Borrower.

     “Consolidated Net Income” means, with respect to any Person and its consolidated Subsidiaries (or in the case of the Borrower, its consolidated Restricted Subsidiaries), for any period, the net income (or loss) for such period after taxes, as determined in accordance with GAAP, excluding, however, (a) extraordinary items, including (i) any net non-cash gain or loss during such period arising from the sale, exchange, retirement or other disposition of capital assets (such term to include all fixed assets and all securities) other than in the ordinary course of business and (ii) any write-up or write-down of assets and (b) the cumulative effect of any change in GAAP.

     “Control Percentage” means, with respect to any Person, the percentage of the outstanding Equity Interest (including any options, warrants or similar rights to purchase such Equity Interest) of such Person having ordinary voting power which gives the direct or indirect holder of such Equity Interest the power to elect a majority of the board of directors (or other applicable governing body) of such Person.

6

     “Controlled Group” means all members of a controlled group of corporations and all businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code.

     “Convert,” “Conversion,” and “Converted” each refers to a conversion of Advances of one Type into Advances of another Type pursuant to Section 2.03(b).

     “Credit Extensions” means (a) an Advance made by any Lender and (b) the issuance, increase, or extension of any Letter of Credit by the Issuing Lender.

     “Daily One-Month LIBOR” means, for any day, the rate of interest equal to the Eurodollar Rate then in effect for delivery of funds for a one (1) month period.

     “Debt,” for any Person, means without duplication:

     (a) indebtedness of such Person for borrowed money, including, without limitation, obligations under letters of credit and agreements relating to the issuance of letters of credit or acceptance financing;

     (b) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;

     (c) obligations of such Person to pay the deferred purchase price of Property or services (including, without limitation, obligations that are non-recourse to the credit of such Person but are secured by the assets of such Person, but excluding trade accounts payable);

     (d) obligations of such Person as lessee under Capital Leases and obligations of such Person in respect of synthetic leases;

     (e) obligations of such Person under any Hedge Contract;

     (f) obligations of such Person owing in respect of redeemable preferred stock or other preferred equity interest of such Person;

     (g) any obligations of such Person owing in connection with any volumetric or production prepayments;

     (h) obligations of such Person under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) of such Person to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (a) through (g) above;

     (i) indebtedness or obligations of others of the kinds referred to in clauses (a) through (h) secured by any Lien on or in respect of any Property of such Person; and

     (j) all liabilities of such Person in respect of unfunded vested benefits under any Plan.

     “Debt Incurrence Proceeds” means, with respect to any Additional Subordinated Debt, all cash and cash equivalent investments received by the Borrower from such Additional Subordinated Debt after payment of, or provision for, all underwriter fees and expenses, original issued discount, securities and exchange commission and blue sky fees, printing costs, fees and expenses of accountants, lawyers and

7

other professional advisors, brokerage commissions and other out-of-pocket fees and expenses actually incurred in connection with such Additional Subordinated Debt; provided that, an original issued discount shall not reduce the amount of such Debt Incurrence Proceeds unless such discount is due and payable at or immediately following the closing of such Additional Subordinated Debt and such discount has not already been taken into account to reduce the amount of proceeds received by the Borrower from such Additional Subordinated Debt.

     “Default” means (a) an Event of Default or (b) any event or condition which with notice or lapse of time or both would become an Event of Default.

     “Defaulting Lender” means any Lender that (a) has failed to fund its Pro Rata Share of any Advance or participation in Letter of Credit Obligations required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder unless such failure has been cured within three Business Days (or such longer time period accepted by the Borrower and the Administrative Agent), (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute or unless such failure has been cured within three Business Days (or such longer time period accepted by the Administrative Agent or such other Lender, as applicable), (c) has notified the Administrative Agent, or has stated publicly, that it will not comply with any such obligations hereunder, or (d) as to which a Lender Insolvency Event has occurred and is continuing with respect to such Lender. Any determination that a Lender is a Defaulting Lender will be made by the Administrative Agent in its sole discretion acting in good faith; provided, that a Lender shall not become a Defaulting Lender solely as the result of the acquisition or maintenance of an ownership interest in such Lender or its Parent Company by a governmental authority or an instrumentality thereof.

     “Denham” means Denham Commodity Partners Fund IV LP, a Delaware limited partnership.

     “Denham Equity Investment” means $50,000,000 in equity capital contribution made by Denham in the Borrower in respect of Class B Units.

     “Disposition” means any sale, lease, transfer, assignment, farm-out, conveyance, or other disposition of any Property (including any working interest, overriding royalty interest, production payments, net profits interest, royalty interest, or mineral fee interest).

     “Dollars” and “$” mean lawful money of the United States of America.

     “EBITDAX” means without duplication, for any Person and its consolidated Subsidiaries (or in the case of the Borrower, its consolidated Restricted Subsidiaries) for any period (it being understood that, for the Borrower, no amounts of the Unrestricted Subsidiaries of the Borrower shall be taken into account in calculating EBITDAX and only such pro-rated amounts of Orion attributable to the Borrower’s equity ownership therein shall be taken into account in calculating EBITDAX), (a) Consolidated Net Income for such period plus (b) to the extent deducted in determining Consolidated Net Income, Interest Expense, income taxes, depreciation, amortization, exploration expenses, and other non-cash charges for such period, including non-cash losses under SFAS 133 as a result of changes in the fair market value of derivatives, minus (c) to the extent included in determining Consolidated Net Income, non-cash income for such period, including non-cash income under SFAS 133 as a result of changes in the fair market value of derivatives; provided that, solely for purposes of determining the leverage ratio required under Section 6.18 below, such EBITDAX shall be subject to pro forma adjustments for Acquisitions (but excluding the Merger) assuming that such Acquisitions had occurred on the first day of the determination period, which adjustments shall be calculated in a manner reasonably acceptable to the Administrative Agent.

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     “Effective Date” means May 13, 2010.

     “Eligible Assignee” means (a) any Lender (other than a Defaulting Lender), (b) any Subsidiary or Affiliate of a Lender (other than a Defaulting Lender), and (c) any commercial bank or other financial institution approved by the Administrative Agent, the Issuing Lender, and provided that no Event of Default is then outstanding, the Borrower, in each case which approval shall not be unreasonably withheld; provided that, in no event shall any natural person or any Subsidiary or any other Affiliate of the Borrower qualify as an Eligible Assignee.

     “Engineering Report” means either an Independent Engineering Report or an Internal Engineering Report.

     “Environment” or “Environmental” shall have the meanings set forth in 43 U.S.C. 9601(8) (1988).

     “Environmental Claim” means any third party (including governmental agencies and employees) action, lawsuit, claim, demand, regulatory action or proceeding, order, decree, consent agreement or notice of potential or actual responsibility or violation (including claims or proceedings under the Occupational Safety and Health Acts or similar laws or requirements relating to health or safety of employees) that seeks to impose liability under any Environmental Law.

     “Environmental Law” means, as to the Borrower or its Restricted Subsidiaries, all Legal Requirements or common law theories applicable to the Borrower or its Restricted Subsidiaries arising from, relating to, or in connection with the Environment, health, or safety, including without limitation CERCLA, relating to (a) pollution, contamination, injury, destruction, loss, protection, cleanup, reclamation or restoration of the air, surface water, groundwater, land surface or subsurface strata, or other natural resources; (b) solid, gaseous or liquid waste generation, treatment, processing, recycling, reclamation, cleanup, storage, disposal or transportation; (c) exposure to pollutants, contaminants, hazardous substances, medical infections, or toxic substances, materials or wastes; (d) the safety or health of employees; or (e) the manufacture, processing, handling, transportation, distribution in commerce, use, storage or disposal of hazardous substances, medical infections, or toxic substances, materials or wastes.

     “Environmental Permit” means any permit, license, order, approval, registration or other authorization under any Environmental Law.

     “Equity Interest” means with respect to any Person, any shares, interests, participation, or other equivalents (however designated) of corporate stock, membership interests or partnership interests (or any other ownership interests) of such Person, including any options, warrants or similar rights to purchase such Equity Interest.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder.

     “Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Federal Reserve Board (or any successor), as in effect from time to time.

     “Eurodollar Base Rate” means (a) in determining Eurodollar Rate for purposes of the “Daily One Month LIBOR”, the rate per annum for Dollar deposits quoted by the Administrative Agent for the purpose of calculating effective rates of interest for loans making reference to the “Daily One-Month LIBOR”, as the inter-bank offered rate in effect from time to time for delivery of funds for one (1) month in amounts approximately equal to the principal amount of the applicable Advances; provided that, the

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Administrative Agent may base its quotation of the inter-bank offered rate upon such offers or other market indicators of the inter-bank market as the Administrative Agent in its reasonable discretion deems appropriate including, but not limited to, the rate determined under the following clause (b), and (b) in determining Eurodollar Rate for all other purposes, the rate per annum (rounded upward to the nearest whole multiple of 1/8th of 1%) equal to the interest rate per annum set forth on the Reuters Reference LIBOR1 page as the London Interbank Offered Rate, for deposits in Dollars at 11:00 a.m. (London, England time) two Business Days before the first day of the applicable Interest Period and for a period equal to such Interest Period; provided that, if such quotation is not available for any reason, then for purposes of this clause (b), Eurodollar Base Rate shall then be the rate determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in immediately available funds in the approximate amount of the Advances being made, continued or converted by the Lenders and with a term equivalent to such Interest Period would be offered by the Administrative Agent’s London Branch (or other branch or Affiliate of the Administrative Agent, or in the event that the Administrative Agent does not have a London branch, the London branch of a Lender chosen by the Administrative Agent) to major banks in the London or other offshore inter-bank market for Dollars at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

     “Eurodollar Rate” means for any Interest Period with respect to any Eurodollar Rate Advance, a rate per annum determined by the Administrative Agent (which determination shall be conclusive in the absence of manifest error) pursuant to the following formula:

Eurodollar Rate =	Eurodollar Base Rate
	1.00 — Eurodollar Rate Reserve Percentage

     “Eurodollar Rate Advance” means an Advance that bears interest as provided in Section 2.09(a)(ii).

     “Eurodollar Rate Reserve Percentage” of any Lender for the Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental, or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period.

     “Event of Default” has the meaning specified in Section 7.01.

     “Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the Issuing Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower hereunder), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other

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than as a result of a Change in Law) to comply with clause (B) of Section 2.14(d)(ii), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.14(a).

     “Expiration Date” means, with respect to any Letter of Credit, the date on which such Letter of Credit will expire or terminate in accordance with its terms.

     “Existing Indebtedness” shall mean the “Obligations” as defined under the Existing Credit Agreement outstanding as of the date hereof.

     “Existing Liens” shall mean the Liens securing the Existing Indebtedness in effect as of the date hereof.

     “Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not so published for any day which is a Business Day, the average of the quotations for any such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

     “Federal Reserve Board” means the Board of Governors of the Federal Reserve System or any of its successors.

     “Fee Letters” means (a) that certain letter agreement dated February 19, 2010 from Wells Fargo Bank, N.A. and Wells Fargo Securities, LLC to the Borrower and (b) that certain administrative agent fee letter agreement dated February 19, 2010 from Wells Fargo Bank, N.A. and Wells Fargo Securities, LLC to the Borrower.

     “Financial Statements” means the audited financial statements including the balance sheet of the Borrower and its consolidated Subsidiaries for the fiscal year ended December 31, 2007 and December 31, 2008, and the related statements of income, cash flow, and retained earnings of the Borrower and its consolidated Subsidiaries for such fiscal year ends (with attached auditor’s report) and referred to in Section 4.05, copies of which have been delivered to the Administrative Agent and the Lenders.

     “Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

     “Fortis Assignment” means that certain Assignment of Deeds of Trust, Notes, Liens and Other Rights and Amendment to Deeds of Trusts dated as of May 13, 2010 among the Borrower, the Administrative Agent and Fortis Capital Corp., in its capacity as the administrative agent under the Merger Company Credit Agreement, and the lenders party thereto.

     “GAAP” means United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the requirements of Section 1.03.

     “General Partner” means Alta Mesa Holdings GP, LLC, a Texas limited liability company.

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     “Governmental Authority” means, as to any Person in connection with any subject, any foreign, national, state or provincial governmental authority, or any political subdivision of any state thereof, or any agency, department, commission, board, authority or instrumentality, bureau or court, in each case having jurisdiction over such Person or such Person’s Property in connection with such subject.

     “Guarantor” means each entity executing a Guaranty, including (a) General Partner and (b) each Restricted Subsidiary of the Borrower.

     “Guaranty” means (a) a Guaranty in substantially the form of the attached Exhibit C-1 and executed by a Guarantor other than Orion, (b) a Limited Recourse Guaranty in substantially the form of the attached Exhibit C-2 and executed by Orion, and (c) such other forms of guaranty acceptable to the Administrative Agent whereby the guarantors named therein guaranties the Obligations, and “Guaranties” shall mean all such guaranties collectively.

     “Hazardous Substance” means the substances identified as such pursuant to CERCLA and those regulated under any other Environmental Law, including without limitation pollutants, contaminants, petroleum, petroleum products, radionuclides, radioactive materials, and medical and infectious waste.

     “Hazardous Waste” means the substances regulated as such pursuant to any Environmental Law.

     “Hedge Contract” means (a) any and all interest rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, deferred premium commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”).

     “Hydrocarbon Hedge Agreement” means a Hedge Contract that is intended to reduce or eliminate the risk of fluctuations in the price of Hydrocarbons.

     “Hydrocarbons” means oil, gas, coal seam gas, coalbed methane, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons produced or to be produced in conjunction therewith from a well bore and all products, by-products, and other substances derived therefrom or the processing thereof, and all other minerals and substances produced in conjunction with such substances, including, but not limited to, sulfur, geothermal steam, water, carbon dioxide, helium, and any and all minerals, ores, or substances of value and the products and proceeds therefrom.

     “Indemnified Taxes” means Taxes other than Excluded Taxes.

     “Independent Engineer” means T.J. Smith & Company, Inc., Von Gonten & Associates, or another independent, third-party engineering firm acceptable to the Administrative Agent in its reasonable judgment.

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     “Independent Engineering Report” means a report, in form and substance satisfactory to the Administrative Agent and each of the Lenders, prepared by an Independent Engineer, addressed to the Administrative Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or its Restricted Subsidiaries (or to be acquired by the Borrower or any of its Restricted Subsidiaries, as applicable) that are or are to be included in the Borrowing Base, which report shall (a) specify the location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the net operating revenues to be derived from the production and sale of Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions specified by the Administrative Agent and the Lenders, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Administrative Agent or any Lender.

     “Interest Expense” means, for any Person and its consolidated Subsidiaries (or in the case of the Borrower, its consolidated Restricted Subsidiaries) for any period, total interest, letter of credit fees, and other fees and expenses incurred in connection with any Debt for such period, whether paid or accrued, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Interest Hedge Agreements, all as determined in conformity with GAAP.

     “Interest Hedge Agreement” means a Hedge Contract between the Borrower and one or more financial institutions providing for the exchange of nominal interest obligations between the Borrower and such financial institution or the cap of the interest rate on any Debt of the Borrower.

     “Interest Period” means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Reference Rate Advance into a Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.03 and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below and Section 2.03. The duration of each such Interest Period shall be one month, three months, or six months, in each case as the Borrower may, upon notice received by the Administrative Agent not later than 12:00 p.m. (noon) (Dallas, Texas time) / 10:00 a.m. (Los Angeles time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that:

     (a) the Borrower may not select any Interest Period that ends after the Maturity Date;

     (b) Interest Periods commencing on the same date for Advances comprising part of the same Borrowing shall be of the same duration;

     (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and

     (d) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month in which it would have ended if there were a numerically corresponding day in such calendar month.

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     “Internal Engineering Report” means a report, in form and substance satisfactory to the Administrative Agent and each Lender, prepared by the Borrower and certified by a Responsible Officer of the Borrower, addressed to the Administrative Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or any Restricted Subsidiary (or to be acquired by the Borrower or any Restricted Subsidiary, as applicable), that are or are to be included in the Borrowing Base, which report shall (a) specify the location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the net operating revenues to be derived from the production and sale of Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions specified by the Administrative Agent and the Lenders, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Administrative Agent or any Lender.

     “Issuing Lender” means Wells Fargo Bank, N.A. and any successor issuing bank pursuant to Section 8.06.

     “Leases” means all oil and gas leases, oil, gas and mineral leases, oil, gas and casinghead gas leases or any other instruments, agreements, or conveyances under and pursuant to which the lessee thereof has or obtains the right to enter upon lands and explore for, drill, and develop such lands for the production of Hydrocarbons.

     “Legal Requirement” means, as to any Person, any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or official interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority, including, but not limited to, Regulations D, T, U, and X, that is applicable to such Person.

     “Lender Insolvency Event” means that (a) a Lender or its Parent Company is insolvent, or is generally unable to pay its debts as they become due, or admits in writing its inability to pay its debts as they become due, or makes a general assignment for the benefit of its creditors, or (b) such Lender or its Parent Company is the subject of a bankruptcy, insolvency, reorganization, liquidation or similar proceeding, or a receiver, trustee, conservator, intervenor or sequestrator or the like has been appointed for such Lender or its Parent Company, or such Lender or its Parent Company has taken any action in furtherance of or indicating its consent to or acquiescence in any such proceeding or appointment.

     “Lenders” means a party hereto that (a) is a lender listed on the signature pages of this Agreement on the date hereof or (b) is an Eligible Assignee that became a lender under this Agreement pursuant to Section 2.15 or 9.06.

     “Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.

     “Letter of Credit” means, individually, any standby letter of credit issued or deemed issued by the Issuing Lender for the account of the Borrower in connection with the Commitments and that is subject to this Agreement, including the Existing Letters of Credit, and “Letters of Credit” means all such letters of credit collectively.

     “Letter of Credit Application” means the Issuing Lender’s standard form letter of credit application for standby letters of credit that has been executed by the Borrower and accepted by the Issuing Lender in connection with the issuance of a Letter of Credit.

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     “Letter of Credit Documents” means all Letters of Credit, Letter of Credit Applications, and agreements, documents, and instruments entered into in connection therewith or relating thereto.

     “Letter of Credit Exposure” means, at any time, the sum of (a) the aggregate undrawn maximum face amount of each Letter of Credit at such time plus (b) the aggregate unpaid amount of all Reimbursement Obligations at such time.

     “Letter of Credit Obligations” means any obligations of the Borrower under this Agreement in connection with the Letters of Credit, including the Reimbursement Obligations.

     “Lien” means any mortgage, lien, pledge, assignment, charge, deed of trust, security interest, hypothecation, preference, deposit arrangement or encumbrance (or other type of arrangement having the practical effect of the foregoing) to secure or provide for the payment of any obligation of any Person, whether arising by contract, operation of law, or otherwise (including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, synthetic lease, Capital Lease, or other title retention agreement).

     “Liquid Investments” means:

     (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States maturing within 180 days from the date of any acquisition thereof;

     (b) (i) negotiable or nonnegotiable certificates of deposit, time deposits, or other similar banking arrangements maturing within 180 days from the date of acquisition thereof (“bank debt securities”), issued by (A) any Lender (or any Affiliate of any Lender) or (B) any other bank or trust company so long as such certificate of deposit is pledged to secure the Borrower’s or any Restricted Subsidiaries’ ordinary course of business bonding requirements, or any other bank or trust company which has primary capital of not less than $500,000,000, if at the time of deposit or purchase, such bank debt securities are rated not less than “AA” (or the then equivalent) by the rating service of Standard & Poor’s Ratings Group or of Moody’s Investors Service, Inc., and (ii) commercial paper issued by (A) any Lender (or any Affiliate of any Lender) or (B) any other Person if at the time of purchase such commercial paper is rated not less than “A-1” (or the then equivalent) by the rating service of Standard & Poor’s Ratings Group or not less than “P-1” (or the then equivalent) by the rating service of Moody’s Investors Service, Inc., or upon the discontinuance of both of such services, such other nationally recognized rating service or services, as the case may be, as shall be selected by the Borrower with the consent of the Required Lenders;

     (c) deposits in money market funds investing exclusively in investments described in clauses (a) and (b) above;

     (d) repurchase agreements relating to investments described in clauses (a) and (b) above with a market value at least equal to the consideration paid in connection therewith, with any Person who regularly engages in the business of entering into repurchase agreements and has a combined capital surplus and undivided profit of not less than $500,000,000, if at the time of entering into such agreement the debt securities of such Person are rated not less than “AA” (or the then equivalent) by the rating service of Standard & Poor’s Ratings Group or of Moody’s Investors Service, Inc.; and

     (e) such other instruments (within the meaning of Article 9 of the Texas Business and Commerce Code) as the Borrower may request and the Administrative Agent may approve in writing.

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     “Loan Documents” means this Agreement, the Notes, the Letter of Credit Documents, the Guaranties, the Security Instruments, the Fee Letters, and each other agreement, instrument, or document executed by the Borrower or any of its Restricted Subsidiaries or any of their officers at any time in connection with this Agreement.

     “Material Adverse Change” means (a) a material adverse change in the business, assets (including the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries (when taken as a whole)), condition (financial or otherwise), or results of operations of the Borrower and its Restricted Subsidiaries, since December 31, 2008, (b) a material adverse effect on the Borrower’s ability to perform its obligations under this Agreement, any Note, any other Loan Document, (c) a material adverse effect on the Borrower’s ability to perform its obligations under Hedge Contracts with Swap Counterparties, taken as a whole, or (d) a material adverse effect on the Restricted Subsidiaries’ (when taken as a whole) ability to perform its obligations under this Agreement, any Guaranty, any Note, any other Loan Document, or any Hedge Contract with a Swap Counterparty.

     “Maturity Date” means November 13, 2012.

     “Maximum Rate” means the maximum nonusurious interest rate under applicable law (determined under such laws after giving effect to any items which are required by such laws to be construed as interest in making such determination, including without limitation if required by such laws, certain fees and other costs).

     “Merger” means the merger of the Merger Company into Alta Mesa Acquisition Sub, LLC, pursuant the Merger Agreement whereby the Merger Company becomes a wholly owned Subsidiary of the Borrower.

     “Merger Agreement” means that certain Agreement and Plan of Merger dated as of December 22, 2009 among the Borrower, Alta Mesa Acquisition Sub, LLC, and the Merger Company as such agreement was filed by the Merger Company under a Form 8-K filing with the Securities and Exchange Commission on December 22, 2009 and as such agreement may have been amended, supplemented or otherwise modified prior to the Effective Date so long as such amendment, supplement, and modification are not materially adverse to the Lenders (unless otherwise approved by the Administrative Agent).

     “Merger Company” means The Meridian Resource Corporation, a Texas corporation.

     “Merger Company Credit Agreement” means that certain Amended and Restated Credit Agreement dated as of December 23, 2004, among the Merger Company, Fortis Capital Corp. as administrative agent, and the lenders party thereto, as heretofore amended.

     “Merger Company Debt” means all outstanding Debt of the Merger Company under the Merger Company Credit Agreement.

     “Mortgage” means any mortgage or deed of trust executed by any one or more of the Borrower or its Restricted Subsidiaries in favor of the Administrative Agent for the ratable benefit of the Secured Parties in substantially the form of the attached Exhibit D or such other form as may be requested by the Administrative Agent, in each case as the same may be amended, modified, partially released or cancelled, restated or supplemented from time-to-time, together with any assumptions or assignments of the obligations thereunder by the Borrower or its Restricted Subsidiaries, and “Mortgages” shall mean all of such Mortgages collectively.

     “Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA.

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     “Net Cash Proceeds” means (a) with respect to any Disposition of Oil and Gas Properties of the Borrower or any Restricted Subsidiary that have a positive value in the most recently delivered Engineering Report or in the Engineering Report evaluated for the then effective Borrowing Base, all cash and Liquid Investments received by the Borrower or any of its Restricted Subsidiaries from such Disposition after payment of, or provision for, all estimated cash taxes attributable to such Disposition and payable by the Borrower or such Restricted Subsidiary, and other reasonable out of pocket fees and expenses actually incurred by the Borrower or such Restricted Subsidiary directly in connection with such Disposition, and (b) with respect to any novation, assignment, unwinding, termination, or amendment of any hedge position or any other Hedging Contract by the Borrower or any Restricted Subsidiary, the sum of the cash and Liquid Investments received by the Borrower or any Restricted Subsidiary in connection with such transaction after giving effect to any netting agreements.

     “Non-Consenting Lender” means any Lender that does not consent to a proposed amendment, waiver, consent or release with respect to this Agreement or any other Loan Document that requires the consent of each Lender.

     “Non-Defaulting Lender” means any Lender that is not then a Defaulting Lender.

     “Note” means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of the attached Exhibit E, evidencing indebtedness of the Borrower to such Lender resulting from Advances owing to such Lender.

     “Notice of Borrowing” means a notice of borrowing in the form of the attached Exhibit F signed by a Responsible Officer of the Borrower.

     “Notice of Conversion or Continuation” means a notice of conversion or continuation in the form of the attached Exhibit G signed by a Responsible Officer of the Borrower.

     “Obligations” means (a) all principal, interest, fees, reimbursements, indemnifications, and other amounts payable by the Borrower or any Restricted Subsidiary to the Administrative Agent, the Issuing Lender or the Lenders under the Loan Documents, including without limitation, the Letter of Credit Obligations, (b) all obligations of the Borrower or any of its Restricted Subsidiaries owing to any Swap Counterparty under any Hedge Contract; provided that, (i) when any Swap Counterparty assigns or otherwise transfers any interest held by it under any Hedge Contract to any other Person pursuant to the terms of such agreement, the obligations thereunder shall constitute Obligations only if such assignee or transferee is also then a Lender or an Affiliate of a Lender and (ii) if a Swap Counterparty ceases to be a Lender hereunder or an Affiliate of a Lender hereunder, obligations owing to such Swap Counterparty shall be included as Obligations only to the extent such obligations arise from transactions under such individual Hedge Contracts (and not the Master Agreement between such parties) entered into at the time such Swap Counterparty was a Lender hereunder or an Affiliate of a Lender hereunder (or lender under the Existing Credit Agreement, or an Affiliate thereof, at the time such Hedge Contract was entered into), without giving effect to any extension, increases, or modifications thereof which are made after such Swap Counterparty ceases to be a Lender hereunder or an Affiliate of a Lender hereunder, and (c) the Banking Services Obligations.

     “OFAC” means The Office of Foreign Assets Control of the U.S. Department of the Treasury.

     “Oil and Gas Properties” means fee mineral interests, term mineral interests, Leases, subleases, farm-outs, royalties, overriding royalties, net profit interests, carried interests, production payments and similar mineral interests, and all unsevered and unextracted Hydrocarbons in, under, or attributable to such oil and gas Properties and interests, or any interest therein.

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     “Ordinary Units” means the general and the limited partnership interests in the Borrower issued under the Partnership Agreement other than the Class B Units.

     “Orion” means Orion Operating Company, LP, a Texas limited partnership.

     “Orion Drilling” means Orion Drilling Company LLC, a Texas limited liability company.

     “Orion EBITDAX” means without duplication, for Orion for any period (a) Orion Net Income for such period plus (b) to the extent deducted in determining Orion Net Income, Orion Interest Expense, income taxes, depreciation, amortization, exploration expenses and other non-cash charges for such period. For purposes of this definition, (i) “Orion Net Income” means, for Orion, for any period, the net income (or loss) for such period after taxes, as determined in accordance with GAAP, excluding, however, (a) extraordinary items, including (i) any net non-cash gain or loss during such period arising from the sale, exchange, retirement or other disposition of capital assets (such term to include all fixed assets and all securities) other than in the ordinary course of business and (ii) any write-up or write-down of assets and (b) the cumulative effect of any change in GAAP, and (ii) “Interest Expense” means, for Orion for any period, total interest, letter of credit fees, and other fees and expenses incurred in connection with any Debt for such period, whether paid or accrued, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers’ acceptance financing and net costs under Interest Hedge Agreements, all as determined in conformity with GAAP.

     “Other Taxes” has the meaning set forth in Section 2.14(b).

     “Parent Company” means, with respect to a Lender, the bank holding company (as defined in Federal Reserve Board Regulation Y), if any, of such Lender, and/or any Person owning, beneficially or of record, directly or indirectly, a majority of the shares of such Lender.

     “Partners” means the General Partner and each of the limited partners party to the Partnership Agreement.

     “Partnership Agreement” means the First Amended and Restated Agreement of Limited Partnership of Alta Mesa Holdings, LP.

     “Patriot Act” means the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)).

     “PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

     “PDNP Reserves” means Proven Reserves which are categorized as both “Developed” and “Non-Producing” in the definitions promulgated by the Society of Petroleum Evaluation Engineers and the World Petroleum Congress as in effect at the time in question.

     “PDP Reserves” means Proven Reserves which are categorized as both “Developed” and “Producing” in the definitions promulgated by the Society of Petroleum Evaluation Engineers and the World Petroleum Congress as in effect at the time in question.

     “Permit” means any approval, certificate of occupancy, consent, waiver, exemption, variance, franchise, order, permit, authorization, right or license of or from any Governmental Authority, including without limitation, an Environmental Permit.

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     “Permitted Liens” means the Liens permitted to exist pursuant to Section 6.01.

     “Permitted Subject Liens” means Permitted Liens other than the judgment Liens permitted under clause (l) of Section 6.01.

     “Person” means an individual, partnership, corporation (including a business trust), joint stock company, limited liability corporation or company, limited liability partnership, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof or any trustee, receiver, custodian or similar official.

     “Plan” (whether or not capitalized) means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Borrower or any member of the Controlled Group and covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code.

     “Pledge Agreements” means (a) the Second Amended and Restated Pledge Agreement in substantially the form of the attached Exhibit H, executed by the Borrower or any of its Restricted Subsidiaries or any of the Guarantors, as the same may be amended, modified, restated or supplemented from time to time, and (b) the Brayton Pledge Agreement.

     “Pro Rata Share” means, with respect to any Lender, (a) with respect to amounts owing under the Commitments, (i) if such Commitments have not been canceled, the ratio (expressed as a percentage) of such Lender’s uncancelled Commitment at such time to the aggregate uncancelled Commitments at such time or (ii) if the aggregate Commitments have been terminated, the Pro Rata Share of such Lender as determined pursuant to the preceding clause (i) immediately prior to such termination, or (b) with respect to amounts owing generally under this Agreement and the other Loan Documents, the ratio (expressed as a percentage) of the Commitment of such Lender to the aggregate Commitments of all the Lenders (or if such Commitments have been terminated, the ratio (expressed as a percentage) of Credit Extensions owing to such Lender to the aggregate Credit Extensions owing to all such Lenders).

     “Property” of any Person means any property or assets (whether real, personal, or mixed, tangible or intangible) of such Person.

     “Proven Reserves” means, at any particular time, the estimated quantities of Hydrocarbons which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs attributable to Oil and Gas Properties under then existing economic and operating conditions (i.e., prices and costs as of the date the estimate is made).

     “PUD Reserves” means Proven Reserves which are categorized as “Undeveloped” in the definitions promulgated by the Society of Petroleum Evaluation Engineers and the World Petroleum Congress as in effect at the time in question.

     “Reference Rate” means the fluctuating per annum rate of interest established from time to time by the Administrative Agent at its principal office in San Francisco as its prime rate, which rate may not be the lowest rate of interest charged by such Lender to its customers and whether or not the Borrower has notice thereof.

     “Reference Rate Advance” means an Advance which bears interest as provided in Section 2.09(a)(i).

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     “Refinancing Debt” means Additional Subordinated Debt which is the result of either (i) a refinancing or other restructuring of all or any portion of the Obligations as a term loan facility, or (ii) any refinancing of the Subordinated Debt outstanding on the Effective Date.

     “Register” has the meaning set forth in paragraph (c) of Section 9.06.

     “Regulations D, T, U, and X” mean Regulations D, T, U, and X of the Federal Reserve Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof.

     “Reimbursement Obligations” means all of the obligations of the Borrower to reimburse the Issuing Lender for amounts paid by the Issuing Lender under Letters of Credit as established by the Letter of Credit Applications and Section 2.07(d).

     “Release” has the meaning set forth in CERCLA or under any other Environmental Law.

     “Required Lenders” means, at any time, Lenders holding 66-2/3% of the Commitments or, if the Commitments have been terminated, the outstanding principal amount of the Advances and Letter of Credit Exposure; provided that, if there are two or more Lenders, the Commitment of, and the portion of the Advances and Letter of Credit Exposure held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders unless all Lenders are Defaulting Lenders.

     “Response” has the meaning set forth in CERCLA or under any other Environmental Law.

     “Responsible Officer” means (a) with respect to any Person that is a corporation, such Person’s Chief Executive Officer, President, Chief Financial Officer (or other financial officer), or Vice President, (b) with respect to any Person that is a limited liability company, a manager or the Responsible Officer of such Person’s managing member or manager, and (c) with respect to any Person that is a general partnership or a limited liability partnership, the Responsible Officer of such Person’s general partner or partners.

     “Restricted Payment” means, with respect to any Person, (a) any direct or indirect dividend or distribution (whether in cash, securities or other Property) in respect of the Equity Interest of such Person or any direct or indirect payment of any kind or character (whether in cash, securities or other Property) in consideration for or otherwise in connection with any retirement, purchase, redemption or other acquisition of any Equity Interest of such Person, or any options, warrants or rights to purchase or acquire any such Equity Interest of such Person or (b) principal or interest payments (in cash, Property or otherwise) on, or redemptions of, subordinated debt of such Person; provided that the term “Restricted Payment” shall not include any dividend or distribution payable solely in Equity Interests of the Borrower or warrants, options or other rights to purchase such Equity Interests.

     “Restricted Subsidiary” means each Subsidiary of the Borrower that is not an Unrestricted Subsidiary.

     “Sanctioned Entity” means (a) a country or a government of a country, (b) an agency of the government of a country, (c) an organization directly or indirectly controlled by a country or its government, (d) a Person resident in a country, in each case, that is subject to a country sanctions program administered and enforced by OFAC.

     “Sanctioned Person” means a person named on the list of Specially Designated Nationals maintained by OFAC.

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     “Secured Parties” means the Administrative Agent, the Issuing Lender, the Lenders, and the Swap Counterparties.

     “Security Agreements” means the Security Agreements, each in substantially the form of the attached Exhibit I, executed by the Borrower or any Restricted Subsidiary, as the same may be amended, modified, partially released, or supplemented from time to time.

     “Security Instruments” means, collectively, (a) the Mortgages, (b) the Transfer Letters, (c) the Pledge Agreements, (d) the Security Agreements, (e) the WI/NRI Agreement, (f) each other agreement, instrument or document executed at any time in connection with the Pledge Agreements, the Security Agreements, or the Mortgages, (g) each agreement, instrument or document executed in connection with the Cash Collateral Account, and (h) each other agreement, instrument or document executed at any time in connection with securing the Obligations.

     “Senior Unsecured Notes” means Additional Subordinated Debt issued by the Borrower in the form of senior, unsecured notes offered after the Effective Date.

     “Solvent” means, with respect to any Person as of the date of any determination, that on such date (a) the fair value of the Property of such Person (both at fair valuation and at present fair saleable value) is greater than the total liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations, and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s Property would constitute unreasonably small capital after giving due consideration to current and anticipated future capital requirements and current and anticipated future business conduct and the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, such liabilities shall be computed at the amount which, in light of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

     “Specified Representations”: means (a) the representations made by the Merger Company in the Merger Agreement, but only to the extent that such representations are material to the interests of the Lenders and the Borrower or its Subsidiary has the right to terminate its obligations under the Merger Agreement in the event that any such representations are not true and (b) the representations and warranties set forth in Sections 4.01, 4.02, 4.03, 4.04, 4.08, 4.09, 4.18, 4.20 and 4.21.

     “Subsidiary” of a Person means any corporation or other entity of which more than 50% of the outstanding Equity Interests having ordinary voting power under ordinary circumstances to elect a majority of the board of directors or similar governing body of such corporation or other entity (irrespective of whether at such time Equity Interests of any other class or classes of such corporation or other entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person. Unless otherwise indicated herein, each reference to the term “Subsidiary” shall mean a Subsidiary of the Borrower.

     “Subordinated Agent” means UnionBanCal Equities Inc., or such other Subordinated Lender serving in the capacity as the “administrative agent” under the Subordinated Credit Agreement to the

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extent permitted under the Subordinated Credit Agreement and the Subordination and Intercreditor Agreement.

     “Subordinated Credit Agreement” means the Subordinated Credit Agreement dated as of November 13, 2008 among the Borrower, the Subordinated Agent and the Subordinated Lenders, as amended, restated, supplemented or otherwise modified but only to the extent permitted under the terms of the Subordination and Intercreditor Agreement.

     “Subordinated Debt” means the “Obligations” as defined in the Subordinated Credit Agreement.

     “Subordinated Lenders” means the lenders party to the Subordinated Credit Agreement from time to time.

     “Subordinated Loan Documents” means the Subordinated Credit Agreement, the promissory notes executed and delivered pursuant to the Subordinated Credit Agreement, and each other agreement, instrument, or document executed by the Borrower or any of its Subsidiaries or any of their Responsible Officers in connection with the Subordinated Credit Agreement.

     “Subordination and Intercreditor Agreement” mean that certain Amended and Restated Subordination and Intercreditor Agreement substantially in the form of the attached Exhibit L and dated the date hereof, and as in effect on the date hereof and thereafter as amended from time to time in accordance with the terms hereof and thereof.

     “Swap Counterparty” means (a) any Lender or Affiliate of a Lender that is a counterparty to any Hedge Contract with the Borrower or any Restricted Subsidiary listed on Schedule 4.20 and (b) any counterparty to any other Hedge Contract with the Borrower or any Restricted Subsidiary; provided that such counterparty is a Lender or an Affiliate of a Lender. For the avoidance of doubt, “Swap Counterparty” shall not include any participant of a Lender pursuant to Section 9.06(e) other than to the extent such participant is otherwise a Lender or an Affiliate of a Lender.

     “Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

     “Termination Event” means (a) a Reportable Event described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), (b) the withdrawal of the Borrower or any of its Affiliates from a Plan during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.

     “Transactions” means, collectively, (a) the Merger, (b) the initial borrowings and other extensions of credit under this Agreement, including the renewal, extension, and rearrangement (but not substitution or extinguishment) of advances under the Existing Credit Agreement as Advances under this Agreement pursuant to the terms of this Agreement, (c) either, (i) the assignment of the Merger Company Debt pursuant to the Fortis Assignment, or (ii) the payment in full of the Merger Company Debt and (d) the payment of fees, commissions and expenses in connection with each of the foregoing.

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     “Transfer Letters” means, collectively, the letters in lieu of transfer orders in substantially the form of the attached Exhibit J and executed by the Borrower or any Restricted Subsidiary executing a Mortgage, as each of the same may be amended, modified or supplemented from time-to-time.

     “Triggering Event” means (a) the Disposition of Oil and Gas Properties of the Borrower or any Restricted Subsidiary that have a positive value in the most recently delivered Engineering Report or in the Engineering Report evaluated for the then effective Borrowing Base, and (b) the novation, assignment, unwinding, termination, or amendment of a hedge position or Hedge Contract considered by the Administrative Agent in determining the then effective Borrowing Base.

     “Type” has the meaning set forth in Section 1.04.

     “Unrestricted Subsidiary” means (a) LEADS Resources, LLC, (b) Louisiana Exploration & Acquisition Partnership, LLC, (c) Alta Mesa Drilling, LLC, (d) Sundance Acquisition Corporation, (e) TE TMR Corp., (f) TMR Equipment Corporation, (g) FBB Anadarko Corp., (h) New Exploration Technologies Co., LLC, and (i) any other Subsidiary of the Borrower that has been designated as an Unrestricted Subsidiary in compliance with Section 5.14.

     “Unused Commitment Amount” means, with respect to a Lender at any time, (a) the lesser of (i) such Lender’s Commitment at such time and (ii) such Lender’s Pro Rata Share of the Borrowing Base in effect at such time minus, in each case, (b) the sum of (i) the aggregate outstanding principal amount of all Advances owed to such Lender at such time plus (ii) such Lender’s Pro Rata Share of the aggregate Letter of Credit Exposure at such time (including any such Letter of Credit Exposure that has been reallocated pursuant to Section 2.17(c)(i)).

     “Utilization Level” means the applicable category (being Level I, Level II, Level III, or Level IV) of pricing criteria contained in Schedule I, which is based, at any time of its determination, on the percentage obtained by dividing (a) the outstanding principal amount of the Advances and the Letter of Credit Exposure at such time by (b) the lesser of (i) the aggregate Commitments and (ii) the Borrowing Base in effect at such time.

     “WI/NRI Agreement” means that certain WI/NRI Agreement dated of even date herewith and entered into among the Borrower, the Restricted Subsidiaries party thereto and the Administrative Agent and setting forth therein certain representations and warranties of the Restricted Subsidiaries as to the quantum and nature of the record title interests of such Restricted Subsidiaries in and to certain Oil and Gas Properties.

     Section 1.02 Computation of Time Periods. In this Agreement, with respect to the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding.”

     Section 1.03 Accounting Terms; Changes in GAAP. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof) be prepared, in accordance with GAAP applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Lenders hereunder (which prior to the delivery of the first financial statements under Section 5.06 hereof, shall mean the Financial Statements). All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with those used in the preparation of the annual or quarterly financial statements furnished to the Lenders pursuant to Section 5.06 hereof most

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recently delivered prior to or concurrently with such calculations (or, prior to the delivery of the first financial statements under Section 5.06 hereof, used in the preparation of the Financial Statements). If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth herein, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein, and (b) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. In addition, all calculations and defined accounting terms used herein shall, unless expressly provided otherwise, when referring to any Person, refer to such Person on a consolidated basis and mean such Person and its consolidated Subsidiaries.

     Section 1.04 Types of Advances. Advances are distinguished by “Type”. The “Type” of an Advance refers to the determination whether such Advance is a Eurodollar Rate Advance or Reference Rate Advance.

     Section 1.05 Miscellaneous. Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Agreement, unless otherwise specified. All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise modified from time to time, unless otherwise specified and shall include all schedules and exhibits thereto unless otherwise specified. The words “hereof,” “herein,” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term “including” means “including, without limitation,”. Paragraph headings have been inserted in this Agreement as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Agreement and shall not be used in the interpretation of any provision of this Agreement.

ARTICLE II

CREDIT FACILITIES

     Section 2.01 Commitment for Advances.

     (a) Advances. Each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Advances to the Borrower from time to time on any Business Day during the period from the date of this Agreement until the Commitment Termination Date in an amount for each Lender not to exceed such Lender’s Unused Commitment Amount. Each Borrowing shall, in the case of Borrowings consisting of Reference Rate Advances, be in an aggregate amount not less than the lesser of (i) $500,000 and (ii) the Unused Commitment Amount, and in integral multiples of $100,000 in excess thereof, and in the case of Borrowings consisting of Eurodollar Rate Advances, be in an aggregate amount not less than $1,000,000 and in integral multiples of $500,000 in excess thereof, and in each case shall consist of Advances of the same Type made on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender’s Commitment, and subject to the terms of this Agreement, the Borrower may from time to time borrow, prepay, and reborrow Advances.

     (b) Outstanding Advances under Existing Credit Agreement and Merger Company Debt. The parties hereto acknowledge and agree that, effective as of the date hereof, (i) in order to

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accommodate and orderly effect the reallocations, adjustments, acquisitions and decreases effected under clause (c) below, all outstanding Advances under the Existing Credit Agreement on the date hereof will be refinanced with the initial Advances to be made under this Agreement on the Effective Date; and (iii) if the Fortis Assignment is entered into, the outstanding principal amount of loans constituting Merger Company Debt are being acquired with the initial Advances to be made under this Agreement on the Effective Date. Such Existing Indebtedness under the Existing Credit Agreement, and if the Fortis Assignment is entered into, the Merger Company Debt shall be assigned, renewed, extended, and rearranged as Obligations outstanding pursuant to the terms of this Agreement.

     (c) Assignments, New Lenders and Reallocation of Commitments and Advances. The Lenders have agreed among themselves, in consultation with the Borrower, to reallocate their respective Commitments (as defined in the Existing Credit Agreement) and to, among other things, allow each of Capital One, N.A., Texas Capital Bank, N.A., Toronto Dominion (New York) LLC, and ING Capital LLC to become a party to this Agreement as a Lender, (each a “New Lender”) by acquiring an interest in the aggregate Commitments (as defined in the Existing Credit Agreement), and to adjust such Commitment of the other Lenders (each an “Adjusting Lender”). The Administrative Agent and the Borrower hereby consent to such reallocation and each New Lender’s acquisition of, and each Adjusting Lender’s adjustment of, an interest in the Commitments and the Existing Lenders’ partial assignments of their respective Commitments (as defined in the Existing Credit Agreement). On the Effective Date and after giving effect to such reallocations, adjustments, acquisitions and decreases, the Commitment of each Lender shall be as set forth on Schedule II. With respect to such reallocations, adjustments, acquisitions and decreases, each New Lender and Adjusting Lender shall be deemed to have acquired the Commitment allocated to it from each of the other Lenders pursuant to the terms of the Assignment and Acceptance attached as an exhibit to the Existing Credit Agreement as if each such New Lender and Adjusting Lender had executed such Assignment and Acceptance with respect to such allocation, adjustment, acquisition and decrease. The Lenders shall make all appropriate adjustments and payments between and among themselves to account for the revised Pro Rata Shares resulting from the Lenders’ Commitments under this Agreement.

     (d) Notes. The indebtedness of the Borrower to each Lender resulting from the Advances owing to such Lender shall be evidenced by a Note of the Borrower payable to the order of such Lender.

     Section 2.02 Borrowing Base.

     (a) Borrowing Base. The initial Borrowing Base in effect as of the date of this Agreement has been set by the Administrative Agent and the Lenders and acknowledged by the Borrower as $285,000,000 and each Lender’s Pro Rata Share of such initial Borrowing Base, as of the date of this Agreement, are set forth on Schedule II. Such initial Borrowing Base shall remain in effect until the next redetermination made pursuant to this Section 2.02. The Borrowing Base shall be determined in accordance with the standards set forth in Section 2.02(d) and is subject to periodic redetermination pursuant to Sections 2.02(b) and 2.02(c) and is subject to mandatory reductions pursuant to Section 2.02(e).

     (b) Calculation of Borrowing Base.

          (i) The Borrower shall deliver to the Administrative Agent and each of the Lenders on or before May 1, 2010, an Independent Engineering Report dated effective as of the immediately preceding January 1, and, in any case, such other information as may be reasonably requested by the Administrative Agent or any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base. On or before June 1, 2010, and based on such Independent Engineering Report and other information, (A) the Administrative Agent shall deliver to each Lender the

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Administrative Agent’s recommendation for the redetermined Borrowing Base, (B) the Administrative Agent and the Required Lenders shall redetermine the Borrowing Base in accordance with Section 2.02(d) (except that any increase in the Borrowing Base shall require the consent of all the Lenders), and (C) the Administrative Agent shall promptly notify the Borrower in writing of the amount of the Borrowing Base as so redetermined. The Borrower shall deliver to the Administrative Agent and each of the Lenders on or before each April 1, beginning April 1, 2011, an Independent Engineering Report dated effective as of the immediately preceding January 1, and, in any case, such other information as may be reasonably requested by the Administrative Agent or any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base. Within 30 days after the Administrative Agent and the Lenders’ receipt of such Independent Engineering Report and other information, (A) the Administrative Agent shall deliver to each Lender the Administrative Agent’s recommendation for the redetermined Borrowing Base, (B) the Administrative Agent and the Required Lenders shall redetermine the Borrowing Base in accordance with Section 2.02(d) (except that any increase in the Borrowing Base shall require the consent of all the Lenders), and (C) the Administrative Agent shall promptly notify the Borrower in writing of the amount of the Borrowing Base as so redetermined.

          (ii) The Borrower shall deliver to the Administrative Agent and each Lender on or before each October 1, beginning October 1, 2010, an Internal Engineering Report dated effective as of the immediately preceding July 1, and such other information as may be reasonably requested by the Administrative Agent or any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base. Within 30 days after the Administrative Agent and the Lenders’ receipt of such Internal Engineering Report and other information, (A) the Administrative Agent shall deliver to each Lender the Administrative Agent’s recommendation for the redetermined Borrowing Base, (B) the Administrative Agent and the Required Lenders shall redetermine the Borrowing Base in accordance with Section 2.02(d) (except that any increase in the Borrowing Base shall require the consent of all the Lenders), and (C) the Administrative Agent shall promptly notify the Borrower in writing of the amount of the Borrowing Base as so redetermined.

          (iii) In the event that the Borrower does not furnish to the Administrative Agent and the Lenders the Independent Engineering Report, Internal Engineering Report, or other information specified in clauses (i) and (ii) above by the date specified therein, the Administrative Agent and the Required Lenders (except that any increase in the Borrowing Base shall require the consent of all the Lenders) may nonetheless redetermine the Borrowing Base and redesignate the Borrowing Base from time-to-time thereafter in their sole discretion until the Administrative Agent and the Lenders receive the relevant Independent Engineering Report, Internal Engineering Report, or other information, as applicable, whereupon the Administrative Agent and the Required Lenders (except that any increase in the Borrowing Base shall require the consent of all the Lenders) shall redetermine the Borrowing Base as otherwise specified in this Section 2.02.

          (iv) Each delivery of an Engineering Report by the Borrower to the Administrative Agent and the Lenders shall constitute a representation and warranty by the Borrower to the Administrative Agent and the Lenders that (A) the Borrower and its Restricted Subsidiaries, as applicable, own the Oil and Gas Properties specified therein with at least 85% (by value) of the Proven Reserves covered therein subject to an Acceptable Security Interest and free and clear of any Liens (except Permitted Liens), (B) on and as of the date of such Engineering Report, the PDP Reserves identified therein were developed for Hydrocarbons, and the wells pertaining to such Oil and Gas Properties that are described therein as producing wells (“Wells”), were each producing Hydrocarbons in paying quantities, except for Wells that were utilized as water or gas injection wells or as water disposal wells, (C) the descriptions of quantum and nature of the record title interests of the Borrower and its Restricted Subsidiaries, as applicable, set forth in such Engineering Report include the entire record title interests of the Borrower and its Restricted Subsidiaries in such Oil and Gas Properties, are complete and

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accurate in all respects, and take into account all Permitted Liens, (D) there are no “back-in” or “reversionary” interests held by third parties which could reduce the interests of the Borrower or any of its Subsidiaries in such Oil and Gas Properties except as set forth in Engineering Report, (E) no operating or other agreement to which the Borrower or any of its Restricted Subsidiaries is a party or by which the Borrower or any of its Restricted Subsidiaries is bound affecting any part of such Oil and Gas Properties requires the Borrower or any of its Restricted Subsidiaries to bear any of the costs relating to such Oil and Gas Properties greater than the record title interest of the Borrower or any of its Restricted Subsidiaries in such portion of the such Oil and Gas Properties as set forth in such Engineering Report, except in the event the Borrower or any of its Restricted Subsidiaries is obligated under an operating agreement to assume a portion of a defaulting party’s share of costs, and (F) the Borrower’s and the Restricted Subsidiaries’ ownership of the Hydrocarbons and the undivided interests in the Oil and Gas Properties as specified in such Engineering Report (i) will, after giving full effect to all Permitted Liens afford the Borrower or the applicable Restricted Subsidiary not less than those net interests (expressed as a fraction, percentage or decimal) in the production from or which is allocated to such Hydrocarbons specified as net revenue interest in such Engineering Report and (ii) will cause the Borrower or the applicable Restricted Subsidiary to bear not more than that portion (expressed as a fraction, percentage or decimal), specified as working interest in such Engineering Report, of the costs of drilling, developing and operating the wells identified in such Engineering Report or identified in the exhibits to the Mortgages encumbering such Oil and Gas Properties.

     (c) Interim Redeterminations. In addition to the Borrowing Base redeterminations provided for in Section 2.02(b) and based on such information as the Administrative Agent and the Lenders deem relevant (but in accordance with Section 2.02(d)):

     (i) at the election of the Required Lenders, the Administrative Agent and the Lenders may make one additional redetermination of the Borrowing Base during any six-month period between scheduled redeterminations;

     (ii) at the request of the Borrower, the Administrative Agent and the Lenders may make one additional redetermination of the Borrowing Base during any six-month period between scheduled redeterminations; and

     (iii) if at any time the Borrower ceases to directly or indirectly own at least 90% of the Equity Interests in Orion or at least 90% of the Equity Interests in Brayton, the Administrative Agent and the Lenders may make additional redeterminations of the Borrowing Base at such times.

The party requesting the redetermination shall give the other party at least 10 days’ prior written notice that a redetermination of the Borrowing Base pursuant to this paragraph (c) is to be performed; provided that, no such prior written notice shall be required for any redetermination made by the Lenders during the existence of an Event of Default. In connection with any redetermination of the Borrowing Base under this Section 2.02(c), the Borrower shall provide the Administrative Agent and the Lenders with such information regarding the Borrower and its Restricted Subsidiaries’ business (including, without limitation, its Oil and Gas Properties, the Proven Reserves, and production relating thereto) as the Administrative Agent or any Lender may request, including an updated Independent Engineering Report. The Administrative Agent shall promptly notify the Borrower in writing of each redetermination of the Borrowing Base pursuant to this Section 2.02(c) and the amount of the Borrowing Base as so redetermined.

     (d) Standards for Redetermination. Each redetermination of the Borrowing Base by the Administrative Agent and the Lenders pursuant to this Section 2.02 shall be made (i) in the sole discretion

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of the Administrative Agent and the Lenders (but in accordance with the other provisions of this Section 2.02(d)), (ii) in accordance with the Administrative Agent’s and the Lenders’ customary internal standards and practices for valuing and redetermining the value of Oil and Gas Properties in connection with reserve based oil and gas loan transactions, (iii) in conjunction with the most recent Independent Engineering Report or Internal Engineering Report, as applicable, or other information received by the Administrative Agent and the Lenders relating to the Proven Reserves of the Borrower and its Restricted Subsidiaries (it being agreed that only such pro-rated amounts of the Proven Reserves of Orion which are attributable to the Borrower’s equity ownership therein shall be considered in calculating the Borrowing Base), and (iv) based upon the estimated value of the Proven Reserves owned by the Borrower and its Restricted Subsidiaries as determined by the Administrative Agent and the Lenders. In valuing and redetermining the Borrowing Base, the Administrative Agent and the Lenders may also consider the business, financial condition, and Debt obligations of the Borrower and its Restricted Subsidiaries and such other factors as the Administrative Agent and the Lenders customarily deem appropriate, including without limitation, commodity price assumptions, projections of production, operating expenses, general and administrative expenses, capital costs, working capital requirements, liquidity evaluations, dividend payments, environmental costs, and legal costs. In that regard, the Borrower acknowledges that the determination of the Borrowing Base contains a value cushion (market value in excess of loan value), which is essential for the adequate protection of the Administrative Agent and the Lenders. No Proven Reserves shall be included or considered for inclusion in the Borrowing Base unless the Administrative Agent shall have received, at the Borrower’s expense, (A) evidence of title reasonably satisfactory in form and substance to the Administrative Agent covering at least 80% (by value) of the Proven Reserves and the Oil and Gas Properties relating thereto (or in the case of the initial Borrowing Base set on the Effective Date, at least 70% (by value) of the Proven Reserves and the Oil and Gas Properties related thereto), and (B) Mortgages and such other Security Instruments requested by the Administrative Agent to the extent necessary to cause the Administrative Agent to have an Acceptable Security Interest in at least 85% (by value) of the Proven Reserves and the Oil and Gas Properties relating thereto. At all times after the Administrative Agent has given the Borrower notification of a redetermination of the Borrowing Base under this Section 2.02, the Borrowing Base shall be equal (i) to the redetermined amount or (ii) such lesser amount designated by the Borrower and disclosed in writing to the Administrative Agent and the Lenders, provided that the Borrower shall not request that the Borrowing Base be reduced to a level that would result in a Borrowing Base Deficiency, until the Borrowing Base is subsequently redetermined in accordance with this Section 2.02.

     (e) Mandatory Reductions in the Borrowing Base. In addition to the Borrowing Base redeterminations provided for otherwise in this Section 2.02, the Borrowing Base shall be automatically reduced as follows:

     (i) Effective immediately upon the issuance of Senior Unsecured Notes by the Borrower or any Restricted Subsidiary, the Borrowing Base shall automatically reduce on the effective date of such issuance by an amount equal to 25% of (A) the Debt Incurrence Proceeds resulting from such issuance minus (B) the amount thereof applied to pay principal, interest, premium, fees and other amounts owed in respect of outstanding Subordinated Debt.

     (ii) Effective immediately upon the issuance of any Additional Subordinated Debt (other than Senior Unsecured Notes and any Refinancing Debt) by the Borrower or any Restricted Subsidiary, the Borrowing Base shall automatically reduce on the effective date of such issuance by an amount equal to 25% of (A) the Debt Incurrence Proceeds resulting from such issuance minus (B) the amount thereof applied to pay principal, interest, premium, fees and other amounts owed in respect of outstanding Subordinated Debt (other than repayments of any increases in principal of Subordinated Debt effected after the Effective Date and any interest accrued on such increased principal amount).

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     (iii) Effective immediately upon the occurrence of a Triggering Event, the Borrowing Base shall automatically reduce on the date such Triggering Event is effected by an amount equal to (A) in the case of a Disposition of Oil and Gas Properties, the value, if any, assigned such Oil and Gas Properties under the then effective Borrowing Base, as reasonably determined by the Administrative Agent, and (B) in the case of a hedge position or Hedge Contract that has been novated, assigned, unwound, terminated, or amended, the value, if any, assigned such hedge position or Hedge Contract under the then effective Borrowing Base, as reasonably determined by the Administrative Agent.

     Section 2.03 Method of Borrowing.

     (a) Notice. Each Borrowing shall be made pursuant to a Notice of Borrowing (or by telephone notice promptly confirmed in writing by a Notice of Borrowing), given not later than 11:00 a.m. (Dallas, Texas time) (i) on the third Business Day before the date of the proposed Borrowing, in the case of a Borrowing comprised of Eurodollar Rate Advances or (ii) on the Business Day of the proposed Borrowing, in the case of a Borrowing comprised of Reference Rate Advances, by the Borrower to the Administrative Agent, which shall in turn give to each Lender prompt notice of such proposed Borrowing by telecopier. Each Notice of a Borrowing shall be given in writing, including by telecopier, specifying the information required therein. In the case of a proposed Borrowing comprised of Eurodollar Rate Advances, the Administrative Agent shall promptly notify each Lender of the applicable interest rate under Section 2.09(a)(ii). Each Lender shall, before 11:00 a.m. (Dallas, Texas time) on the date of such Borrowing, make available for the account of its applicable Lending Office to the Administrative Agent at its address referred to in Section 9.02, or such other location as the Administrative Agent may specify by notice to the Lenders, in same day funds, in the case of a Borrowing, such Lender’s Pro Rata Share of such Borrowing. After the Administrative Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent shall make such funds available to the Borrower at its account with the Administrative Agent.

     (b) Conversions and Continuations. The Borrower may elect to Convert or continue any Borrowing under this Section 2.03 by delivering an irrevocable Notice of Conversion or Continuation to the Administrative Agent at the Administrative Agent’s office no later than 11:00 a.m. (Dallas, Texas time) (i) on the date which is at least three Business Days in advance of the proposed Conversion or continuation date in the case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate Advances and (ii) on the Business Day of the proposed Conversion in the case of a Conversion to a Borrowing comprised of Reference Rate Advances. Each such Notice of Conversion or Continuation shall be in writing or by telephone notice promptly confirmed immediately in writing specifying the information required therein. Promptly after receipt of a Notice of Conversion or Continuation under this Section, the Administrative Agent shall provide each Lender with a copy thereof and, in the case of a Conversion to or a continuation of a Borrowing comprised of Eurodollar Rate Advances, notify each Lender of the applicable interest rate under Section 2.09(a)(ii).

     (c) Certain Limitations. Notwithstanding anything to the contrary contained in paragraphs (a) and (b) above:

          (i) at no time shall there be more than four Interest Periods applicable to outstanding Eurodollar Rate Advances and the Borrower may not select Eurodollar Rate Advances for any Borrowing at any time that a Default has occurred and is continuing;

          (ii) if any Lender shall, at least one Business Day before the date of any requested Borrowing, Conversion, or continuation, notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central

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bank or other Governmental Authority asserts that it is unlawful, for such Lender or its applicable Lending Office to perform its obligations under this Agreement to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances, the right of the Borrower to select Eurodollar Rate Advances from such Lender shall be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and the Advance made by such Lender in respect of such Borrowing, Conversion, or continuation shall be a Reference Rate Advance;

          (iii) if the Administrative Agent is unable to determine the Eurodollar Rate for Eurodollar Rate Advances comprising any requested Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Reference Rate Advance;

          (iv) if the Required Lenders shall, at least one Business Day before the date of any requested Borrowing, notify the Administrative Agent that the Eurodollar Rate for Eurodollar Rate Advances comprising such Borrowing will not adequately reflect the cost to such Lenders of making or funding their respective Eurodollar Rate Advances, as the case may be, for such Borrowing, the right of the Borrower to select Eurodollar Rate Advances for such Borrowing or for any subsequent Borrowing shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist, and each Advance comprising such Borrowing shall be a Reference Rate Advance; and

          (v) if the Borrower shall fail to select the duration or continuation of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of “Interest Period” in Section 1.01 and paragraph (b) above, the Administrative Agent shall forthwith so notify the Borrower and the Lenders and such Advances shall be made available to the Borrower on the date of such Borrowing as Reference Rate Advances or, if existing Eurodollar Rate Advances, Convert into Reference Rate Advances.

     (d) Notices Irrevocable. Each Notice of Borrowing and Notice of Conversion or Continuation shall be irrevocable and binding on the Borrower. In the case of any Borrowing for which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, out-of-pocket cost, or expense incurred by such Lender as a result of any failure by the Borrower to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III including, without limitation, any loss (including any loss of anticipated profits), cost, or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date.

     (e) Administrative Agent Reliance. Unless the Administrative Agent shall have received notice from a Lender before the date of any Borrowing that such Lender shall not make available to the Administrative Agent such Lender’s Pro Rata Share of a Borrowing, the Administrative Agent may assume that such Lender has made its Pro Rata Share of such Borrowing available to the Administrative Agent on the date of such Borrowing in accordance with paragraph (a) of this Section 2.03 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that any Lender shall not have so made its Pro Rata Share of such Borrowing available to the Administrative Agent (the “Non-Funding Lender”), such Non-Funding Lender and the Borrower severally agree to immediately repay to the Administrative Agent on demand such corresponding amount, together with interest on such amount, for each day from the date

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such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable on such day to Advances comprising such Borrowing and (ii) in the case of such Non-Funding Lender, the Federal Funds Rate for such day. If such Non-Funding Lender shall repay to the Administrative Agent such corresponding amount and interest as provided above, such corresponding amount so repaid shall constitute such Non-Funding Lender’s Advance as part of such Borrowing for purposes of this Agreement even though not made on the same day as the other Advances comprising such Borrowing.

     (f) Lender Obligations Several. The failure of any Non-Funding Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, to make its Advance on the date of such Borrowing. No Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

     Section 2.04 Reduction of the Commitments.

     (a) The Borrower shall have the right, upon at least three Business Days’ notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portion of the Commitment; provided that each partial reduction shall be in the aggregate amount of $3,000,000 or in integral multiples of $1,000,000 in excess thereof.

     (b) Other than as provided in Section 2.04(c) below, any reduction and termination of the Commitments pursuant to this Section 2.04 shall be applied ratably to each Lender’s Commitment and shall be permanent, with no obligation of the Lenders to reinstate such Commitments.

     (c) In the event of a Defaulting Lender, the Borrower, at the Borrower’s election may elect to terminate such Defaulting Lender’s Commitment hereunder; provided that (i) such termination must be of the Defaulting Lender’s entire Commitment, (ii) subject to the set-off rights set forth in the immediately following sentence, the Borrower shall pay all amounts owed by the Borrower to such Defaulting Lender under this Agreement and under the other Loan Documents (including principal of and interest on the Advances owed to such Defaulting Lender, accrued commitment fees, and letter of credit fees but specifically excluding any amounts owing under Section 2.12 as result of such payment of Advances) and shall deposit with the Administrative Agent into the Cash Collateral Account cash collateral in the amount equal to such Defaulting Lender’s ratable share of the Letter of Credit Exposure, including any such Letter of Credit Exposure that has been reallocated pursuant to Section 2.17(c)(i); (iii) a Defaulting Lender’s Commitment may be terminated by the Borrower under this Section 2.04(c) if and only if at such time, the Borrower has elected, or is then electing, to terminate the Commitments of all then existing Defaulting Lenders. With respect to the amounts described in clause (ii) above which would be payable by the Borrower to the Defaulting Lender (but not including any deposits that the Borrower is required to make with respect to the Letter of Credit Exposure), the Borrower may set-off and apply any amounts owing from such Defaulting Lender or Affiliate thereof to the Borrower under any Hedge Contract against any such amounts payable to the Defaulting Lender. Upon written notice to the Defaulting Lender and Administrative Agent of the Borrower’s election to terminate a Defaulting Lender’s Commitment pursuant to this clause (c) and the payment and deposit of amounts required to be made by the Borrower under clause (ii) above, (A) such Defaulting Lender shall cease to be a “Lender” hereunder for all purposes except that such Lender’s rights under Sections 2.13, 2.14, and 9.07 shall continue with respect to events and occurrences occurring before or concurrently with its ceasing to be a “Lender” hereunder, (B) such Defaulting Lender’s Commitment shall be deemed terminated, and (C) such Defaulting Lender shall be relieved of its obligations hereunder, provided that, any such termination will not be deemed to be a waiver or release of any claim by Borrower, the Administrative Agent or any Lender may have against such Defaulting Lender.

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     Section 2.05 Prepayment of Advances.

     (a) Optional. The Borrower may prepay the Advances, after giving by 10:00 a.m. (Dallas, Texas time) (i) in the case of Eurodollar Rate Advances, at least three Business Days’ or (ii) in the case of Reference Rate Advances, same Business Day’s, irrevocable prior written notice (or irrevocable telephone notice promptly confirmed in writing) to the Administrative Agent stating the proposed date and aggregate principal amount of such prepayment. If any such notice is given, the Borrower shall prepay the Advances in whole or ratably in part in an aggregate principal amount equal to the amount specified in such notice, together with accrued interest to the date of such prepayment on the principal amount prepaid and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date; provided, however, that each partial prepayment with respect to: (A) any amounts prepaid in respect of Eurodollar Rate Advances shall be applied to Eurodollar Rate Advances comprising part of the same Borrowing; (B) any amounts prepaid in respect of Reference Rate Advances shall be made in a minimum amount of $1,000,000 and in integral multiples of $500,000 in excess thereof, and (C) any prepayments made in respect of Borrowings comprised of Eurodollar Rate Advances shall be made in a minimum amount of $3,000,000 and in integral multiples of $1,000,000 in excess thereof and in an aggregate principal amount such that after giving effect thereto such Borrowing shall have a remaining principal amount outstanding with respect to such Borrowings of at least $1,000,000. Full prepayments of any Borrowing are permitted without restriction of amounts.

     (b) Borrowing Base Deficiencies.

          (i) Other than as provided in clause (ii) and clause (iii) below, if a Borrowing Base Deficiency exists, then the Borrower shall, after receipt of written notice from the Administrative Agent regarding such deficiency, take any of the following actions (and the failure of the Borrower to take such actions to remedy such Borrowing Base Deficiency shall constitute an Event of Default):

               (A) prepay the Advances or, if the Advances have been repaid in full, make deposits into the Cash Collateral Account to provide cash collateral for the Letter of Credit Exposure, such that the Borrowing Base Deficiency is cured within 10 days after the date such deficiency notice is received by the Borrower from the Administrative Agent;

               (B) pledge as Collateral for the Obligations additional Oil and Gas Properties acceptable to the Administrative Agent and the Required Lenders such that the applicable Borrowing Base Deficiency is cured within 10 days after the date of such notice by the Administrative Agent is received;

               (C) (1) deliver within 10 days after the date such deficiency notice is received by the Borrower from the Administrative Agent, written notice to the Administrative Agent indicating the Borrower’s election to repay the Advances and make deposits into the Cash Collateral Account to provide cash collateral for the Letters of Credit, each in five monthly installments equal to one-fifth of such Borrowing Base Deficiency with the first such installment due 30 days after the date such deficiency notice is received by the Borrower from the Administrative Agent and each following installment due 30 days after the preceding installment and (2) to make such payments and deposits within such time period; or

               (D) (1) deliver within 10 days after the date such deficiency notice is received by the Borrower to the Administrative Agent written notice to the Administrative Agent indicating the Borrower’s election to combine the options provided in clause (B) and clause (C) above, and also indicating the amount to be prepaid in installments and the amount to be provided as additional

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Collateral, and (2) make such five equal consecutive monthly installments and deliver such additional Collateral within the time required under clause (B) and clause (C) above.

The failure of the Borrower to deliver an election notice pursuant to the terms of this clause (b)(i) shall be deemed to be an election by the Borrower of the option set forth in clause (C) above.

          (ii) Upon each reduction of the Borrowing Base under Section 2.02(e)(i) or (ii) resulting from the issuance of Additional Subordinated Debt, if a Borrowing Base Deficiency then exists or results therefrom, then the Borrower shall prepay the Advances or, if the Advances have been repaid in full, make deposits into the Cash Collateral Account to provide cash collateral for the Letter of Credit Exposure, in an amount equal to (A) such portion of the Borrowing Base Deficiency resulting from such reduction plus (B) if a Borrowing Base Deficiency exists prior to such reduction, then an amount equal to the lesser of (i) the Debt Incurrence Proceeds of such Additional Subordinated Debt and (ii) such portion of the Borrowing Base Deficiency in existence immediately prior to such reduction.

          (iii) Upon each reduction of the Borrowing Base under Section 2.02(e)(iii) from the occurrence of a Triggering Event, if a Borrowing Base Deficiency then exists or results therefrom, then the Borrower shall prepay the Advances or, if the Advances have been repaid in full, make deposits into the Cash Collateral Account to provide cash collateral for the Letter of Credit Exposure, in an amount equal to (A) such portion of the Borrowing Base Deficiency resulting from such reduction plus (B) if a Borrowing Base Deficiency exists prior to such reduction, then an amount equal to the lesser of (i) the Net Cash Proceeds of such Triggering Event and (ii) such portion of the Borrowing Base Deficiency in existence immediately prior to such reduction.

          (iv) Each prepayment pursuant to this Section 2.05(b) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date. Each prepayment under this Section 2.05(b) shall be applied to the Advances as determined by the Administrative Agent.

     (c) Reduction of Commitments.

          (i) On the date of each reduction of the aggregate Commitments pursuant to Section 2.04, the Borrower agrees to make a prepayment in respect of the outstanding amount of the Advances to the extent, if any, that the aggregate unpaid principal amount of all Advances plus the Letter of Credit Exposure exceeds the lesser of (A) the aggregate Commitments, as so reduced, and (B) the Borrowing Base.

          (ii) Each prepayment pursuant to this Section 2.05(c) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment being made on such date. Each prepayment under this Section 2.05(c) shall be applied to the Advances as determined by the Administrative Agent and agreed to by the Lenders in their sole discretion.

     (d) Illegality. If any Lender shall notify the Administrative Agent and the Borrower that the adoption of or any change in any applicable Legal Requirement or in the interpretation of any applicable Legal Requirement by any Governmental Authority makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for such Lender or its applicable Lending Office to perform its obligations under this Agreement to maintain any Eurodollar Rate Advances of such Lender then outstanding hereunder, (i) the Borrower shall, no later than 11:00 a.m. (Dallas, Texas time) and if not prohibited by law, (A) on the last day of the Interest Period for each outstanding Eurodollar Rate Advance made by such Lender, or (B) if required by such notice, on the second Business Day following its receipt

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of such notice, either prepay all of the Eurodollar Rate Advances made by such Lender then outstanding or Convert all of the Eurodollar Rate Advances made by such Lender then outstanding to Reference Rate Advances, and, in either case, pay all accrued interest on the principal amount prepaid or Converted to the date of such prepayment or Conversion and amounts, if any, required to be paid pursuant to Section 2.12 as a result of such prepayment or Conversion being made on such date, (ii) to the extent the principal amount of Eurodollar Rate Advances are prepaid, such Lender shall simultaneously make a Reference Rate Advance to the Borrower on such date in an amount equal to the aggregate principal amount of the Eurodollar Rate Advances prepaid to such Lender, and (iii) the right of the Borrower to select Eurodollar Rate Advances from such Lender for any subsequent Borrowing shall be suspended until such Lender giving notice referred to above shall notify the Administrative Agent that the circumstances causing such suspension no longer exist.

     (e) No Additional Right; Ratable Prepayment. The Borrower shall have no right to prepay any principal amount of any Advance except as provided in Section 2.04(c) and this Section 2.05, and all notices given pursuant to this Section 2.05 shall be irrevocable and binding upon the Borrower. Each payment of any Advance pursuant to this Section 2.05 shall be made in a manner such that all Advances comprising part of the same Borrowing are paid in whole or ratably in part other than Advances owing to a Defaulting Lender as provided in Section 2.17.

     Section 2.06 Repayment of Advances. The Borrower shall repay to the Administrative Agent for the ratable benefit of the Lenders the outstanding principal amount of each Advance, together with any accrued interest on the Commitment Termination Date or such earlier date pursuant to Section 7.02 or Section 7.03.

     Section 2.07 Letters of Credit.

     (a) Commitment. From time to time from the date of this Agreement until 30 days prior to the Commitment Termination Date, at the request of the Borrower, the Issuing Lender shall, on the terms and conditions hereinafter set forth, issue, increase, or extend the Expiration Date of, Letters of Credit for the account of the Borrower on any Business Day. No Letter of Credit will be issued, increased, or extended:

          (i) if such issuance, increase, or extension would cause the Letter of Credit Exposure to exceed the lesser of (A) $15,000,000 and (B) the lesser of (1) the aggregate Commitments at such time and (2) the Borrowing Base in effect at such time minus, in each case under this clause (B), the sum of the aggregate outstanding principal amount of all Advances at such time;

          (ii) if such Letter of Credit has an Expiration Date later than the earlier of (A) one year after the date of issuance thereof (or, in the case of any extension thereof, one year after the date of such extension) and (B) ten days prior to the Commitment Termination Date;

          (iii) unless the Letter of Credit Documents are in form and substance acceptable to the Issuing Lender in its sole discretion;

          (iv) unless such Letter of Credit is a standby letter of credit not supporting the repayment of indebtedness for borrowed money of any Person;

          (v) unless the Borrower has delivered to the Issuing Lender a completed and executed Letter of Credit Application; provided that, if the terms of any such Letter of Credit Application conflicts with the terms of this Agreement, the terms of this Agreement shall control;

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          (vi) unless such Letter of Credit is governed by (A) the Uniform Customs and Practice for Documentary Credits (2007 Revision), International Chamber of Commerce Publication No. 600, or (B) the International Standby Practices (ISP98), International Chamber of Commerce Publication No. 590, in either case, including any subsequent revisions thereof approved by a Congress of the International Chamber of Commerce and adhered to by the Issuing Lender;

          (vii) if any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Lender from issuing such Letter of Credit, or any Legal Requirement applicable to the Issuing Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Lender shall prohibit, or request that the Issuing Lender refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Lender with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Lender is not otherwise compensated hereunder) not in effect on the date hereof, or shall impose upon the Issuing Lender any unreimbursed loss, cost or expense which was not applicable on the date hereof and which the Issuing Lender in good faith deems material to it;

          (viii) if the issuance of such Letter of Credit would violate one or more policies of the Issuing Lender applicable to letters of credit generally;

          (ix) except as otherwise agreed by the Issuing Lender, if Letter of Credit is to be denominated in a currency other than Dollars; or

          (x) a default of any Lender’s obligations to fund under Section 2.07(d) exists or any Lender is at such time a Defaulting Lender hereunder, unless the Issuing Lender has entered into satisfactory arrangements with the Borrower or such Lender to eliminate the Issuing Lender’s risk with respect to such Lender.

     (b) Participations. Upon (A) the date of the issuance or increase of a Letter of Credit, and (B) the date hereof as to the deemed issuance of the Existing Letters of Credit under Section 2.07(h), the Issuing Lender shall be deemed to have sold to each other Lender having a Commitment and each other Lender having a Commitment shall have been deemed to have purchased from the Issuing Lender a participation in the related Letter of Credit Obligations equal to such Lender’s Pro Rata Share at such date and such sale and purchase shall otherwise be in accordance with the terms of this Agreement. The Issuing Lender shall promptly notify each such participant Lender having a Commitment by telephone or telecopy of each Letter of Credit issued, increased, or extended or converted and the actual dollar amount of such Lender’s participation in such Letter of Credit.

     (c) Issuing. Each Letter of Credit shall be issued, increased, or extended pursuant to a Letter of Credit Application (or by telephone notice promptly confirmed in writing by a Letter of Credit Application), given not later than 10:00 a.m. (Dallas, Texas time) on the fifth Business Day before the date of the proposed issuance, increase, or extension of the Letter of Credit, and the Issuing Lender shall give to each other Lender prompt notice thereof by telex, telephone or telecopy. Each Letter of Credit Application shall be delivered by facsimile or by mail specifying the information required therein; provided that if such Letter of Credit Application is delivered by facsimile, the Borrower shall follow such facsimile with an original by mail. After the Issuing Lender’s receipt of such Letter of Credit Application (by facsimile or by mail) and upon fulfillment of the applicable conditions set forth in Article III, the Issuing Lender shall issue, increase, or extend such Letter of Credit for the account of the Borrower. Each Letter of Credit Application shall be irrevocable and binding on the Borrower.

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     (d) Reimbursement. The Borrower hereby agrees to pay on demand to the Issuing Lender an amount equal to any amount paid by the Issuing Lender under any Letter of Credit. In the event the Issuing Lender makes a payment pursuant to a request for draw presented under a Letter of Credit and such payment is not promptly reimbursed by the Borrower upon demand, the Issuing Lender shall give the Administrative Agent notice of the Borrower’s failure to make such reimbursement and the Administrative Agent shall promptly notify each Lender having a Commitment of the amount necessary to reimburse the Issuing Lender. Upon such notice from the Administrative Agent, each Lender shall promptly reimburse the Issuing Lender for such Lender’s Pro Rata Share of such amount, and such reimbursement shall be deemed for all purposes of this Agreement to be an Advance to the Borrower transferred at the Borrower’s request to the Issuing Lender. If such reimbursement is not made by any Lender to the Issuing Lender on the same day on which the Administrative Agent notifies such Lender to make reimbursement to the Issuing Lender hereunder, such Lender shall pay interest on its Pro Rata Share thereof to the Issuing Lender at a rate per annum equal to the Federal Funds Rate. The Borrower hereby unconditionally and irrevocably authorizes, empowers, and directs the Administrative Agent and the Lenders to record and otherwise treat such reimbursements to the Issuing Lender as Reference Rate Advances under a Borrowing requested by the Borrower to reimburse the Issuing Lender that have been transferred to the Issuing Lender at the Borrower’s request.

     (e) Obligations Unconditional. The obligations of the Borrower under this Agreement in respect of each Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances:

          (i) any lack of validity or enforceability of any Letter of Credit Documents;

          (ii) any amendment or waiver of, or any consent to or departure from, any Letter of Credit Documents;

          (iii) the existence of any claim, set-off, defense, or other right which the Borrower may have at any time against any beneficiary or transferee of such Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Lender, or any other person or entity, whether in connection with this Agreement, the transactions contemplated in this Agreement or in any Letter of Credit Documents, or any unrelated transaction;

          (iv) any statement or any other document presented under such Letter of Credit proving to be forged, fraudulent, invalid, or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

          (v) payment by the Issuing Lender under such Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit; or

          (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

provided, however, that nothing contained in this paragraph (e) shall be deemed to constitute a waiver of the Borrower’s rights under Section 2.07(f) below.

     (f) Liability of Issuing Lender. The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Lender nor any of its officers or directors shall be liable or responsible for:

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          (i) the use which may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith;

          (ii) the validity, sufficiency, or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent, or forged;

          (iii) payment by the Issuing Lender against presentation of documents which do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the relevant Letter of Credit; or

          (iv) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit (INCLUDING THE ISSUING LENDER’S OWN NEGLIGENCE),

except that the Borrower shall have a claim against the Issuing Lender, and the Issuing Lender shall be liable to the Borrower, to the extent of any direct, as opposed to consequential, damages suffered by the Borrower which a court determines in a final, non-appealable judgment were caused by the Issuing Lender’s willful misconduct or gross negligence in determining whether documents presented under a Letter of Credit comply with the terms of such Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Lender may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary.

     (g) Cash Collateral Account.

          (i) If the Borrower is required to deposit funds in the Cash Collateral Account pursuant to Sections 2.04(c), 2.05(b), 2.17, 7.02(b), or 7.03(b), then the Borrower and the Administrative Agent shall establish the Cash Collateral Account and the Borrower shall execute any documents and agreements, including the Administrative Agent’s standard form assignment of deposit accounts, that the Administrative Agent requests in connection therewith to establish the Cash Collateral Account and grant the Administrative Agent a first priority security interest in such account and the funds therein. The Borrower hereby pledges to the Administrative Agent and grants the Administrative Agent a security interest in the Cash Collateral Account, whenever established, all funds held in the Cash Collateral Account from time to time, and all proceeds thereof as security for the payment of the Obligations.

          (ii) So long as no Default or Event of Default exists, (A) the Administrative Agent may apply the funds held in the Cash Collateral Account only to the reimbursement of any Letter of Credit Obligations, and (B) the Administrative Agent shall release to the Borrower at the Borrower’s written request any funds held in the Cash Collateral Account in an amount up to but not exceeding the excess, if any (immediately prior to the release of any such funds), of the total amount of funds held in the Cash Collateral Account over the Letter of Credit Exposure. During the existence of any Default or Event of Default, the Administrative Agent may apply any funds held in the Cash Collateral Account to the Obligations in any order determined by the Administrative Agent, regardless of any Letter of Credit Exposure that may remain outstanding. The Issuing Lender may in its sole discretion at any time direct the Administrative Agent to release to the Borrower any funds held in the Cash Collateral Account.

          (iii) The Administrative Agent shall exercise reasonable care in the custody and preservation of any funds held in the Cash Collateral Account which may bear interest or be invested in the Administrative Agent’s reasonable discretion and the Administrative Agent shall be deemed to have exercised such care if such funds are accorded treatment substantially equivalent to that which the Administrative Agent accords its own Property, it being understood that the Administrative Agent shall

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not have any responsibility for taking any necessary steps to preserve rights against any parties with respect to any such funds.

     (h) Existing Letters of Credit. The Issuing Lender, the Lenders and the Borrower agree that effective as of the Effective Date, the Existing Letters of Credit shall be deemed to have been issued and maintained under, and to be governed by the terms and conditions of, this Agreement.

     (i) Defaulting Lender. If, at any time, a Defaulting Lender exists hereunder, then, at the request of the Issuing Lender subject to Section 2.17(c), the Borrower shall deposit funds with Administrative Agent into the Cash Collateral Account an amount equal to such Defaulting Lender’s Pro Rata Share of the Letter of Credit Exposure.

     Section 2.08 Fees.

     (a) Commitment Fees. The Borrower agrees to pay to the Administrative Agent for the account of each Lender having a Commitment a commitment fee equal to 0.50% per annum of the daily Unused Commitment Amount of such Lender, from the date of this Agreement until the Commitment Termination Date; provided that, no Commitment Fee shall accrue on the Commitment of a Defaulting Lender during the period such Lender remains a Defaulting Lender. The commitment fees shall be due and payable quarterly in arrears on the last day of each March, June, September, and December commencing on June 30, 2010 and continuing thereafter through and including the Commitment Termination Date.

     (b) Letter of Credit Fees.

          (i) Letter of Credit Fees. Subject to Sections 2.17(c)(iii) and (iv), the Borrower agrees to pay (A) to the Administrative Agent for the pro rata benefit of the Lenders having a Commitment a per annum letter of credit fee for each Letter of Credit issued hereunder in an amount equal to the greater of (1) Applicable Margin for Eurodollar Rate Advances times the daily maximum amount available to be drawn under such Letter of Credit and (2) $750, and (B) to the Issuing Lender, a fronting fee for each Letter of Credit equal to 0.25% per annum times on the face amount of such Letter of Credit. The fronting fee shall be payable annually in advance on the date of the issuance of the Letter of Credit, and, in the case of an increase or extension only, on the date of such increase or such extension. The fee set forth in (A) above shall be computed on a quarterly basis in arrears and be due and payable on the last day of each March, June, September, and December commencing June 30, 2010.

          (ii) The Borrower also agrees to pay to the Issuing Lender such other usual and customary fees associated with any transfers, amendments, drawings, negotiations or reissuances of any Letters of Credit.

     (c) Facility and Other Fees. To the extent not otherwise included under Section 2.08(a) and (b), the Borrower agrees to pay to the Administrative Agent the fees required to be paid under the Fee Letters.

     Section 2.09 Interest.

     (a) Applicable Interest Rates. The Borrower shall pay interest on the unpaid principal amount of each Advance made by each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:

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          (i) Reference Rate Advances. If such Advance is a Reference Rate Advance, a rate per annum equal at all times to the Adjusted Reference Rate in effect from time to time plus the Applicable Margin in effect from time to time, payable quarterly in arrears on the last day of each calendar quarter and on the date such Reference Rate Advance shall be paid in full.

          (ii) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during the Interest Period for such Advance to the Eurodollar Rate for such Interest Period plus the Applicable Margin in effect from time to time, payable on the last day of such Interest Period, and, in the case of six-month Interest Periods, on the day that occurs during such Interest Period three months from the first day of such Interest Period.

     (b) Usury Recapture.

          (i) If, with respect to any Lender, the effective rate of interest contracted for under the Loan Documents, including the stated rates of interest and fees contracted for hereunder and any other amounts contracted for under the Loan Documents that are deemed to be interest, at any time exceeds the Maximum Rate, then the outstanding principal amount of the loans made by such Lender hereunder shall bear interest at a rate which would make the effective rate of interest for such Lender under the Loan Documents equal the Maximum Rate until the difference between the amounts which would have been due at the stated rates and the amounts that were due at the Maximum Rate (the “Lost Interest”) has been recaptured by such Lender.

          (ii) If, when the loans made hereunder are repaid in full, the Lost Interest has not been fully recaptured by such Lender pursuant to the preceding paragraph, then, to the extent permitted by law, for the loans made hereunder by such Lender the interest rates charged under Section 2.09 hereunder shall be retroactively increased such that the effective rate of interest under the Loan Documents was at the Maximum Rate since the effectiveness of this Agreement to the extent necessary to recapture the Lost Interest not recaptured pursuant to the preceding sentence and, to the extent allowed by law, the Borrower shall pay to such Lender the amount of the Lost Interest remaining to be recaptured by such Lender.

          (III) NOTWITHSTANDING THE FOREGOING OR ANY OTHER TERM IN THIS AGREEMENT AND THE LOAN DOCUMENTS TO THE CONTRARY, IT IS THE INTENTION OF EACH LENDER AND THE BORROWER TO CONFORM STRICTLY TO ANY APPLICABLE USURY LAWS. ACCORDINGLY, IF ANY LENDER CONTRACTS FOR, CHARGES, OR RECEIVES ANY CONSIDERATION THAT CONSTITUTES INTEREST IN EXCESS OF THE MAXIMUM RATE, THEN ANY SUCH EXCESS SHALL BE CANCELED AUTOMATICALLY AND, IF PREVIOUSLY PAID, SHALL AT SUCH LENDER’S OPTION BE APPLIED TO THE OUTSTANDING AMOUNT OF THE ADVANCES MADE HEREUNDER BY SUCH LENDER OR BE REFUNDED TO THE BORROWER.

     Section 2.10 Payments and Computations.

     (a) Payment Procedures. The Borrower shall make each payment under this Agreement and under the Notes not later than 12:00 p.m. (noon) (Dallas, Texas time) on the day when due in Dollars to the Administrative Agent at the location referred to in the Notes (or such other location as the Administrative Agent shall designate in writing to the Borrower) in same day funds without deduction, setoff, or counterclaim of any kind. The Administrative Agent shall promptly thereafter cause to be distributed like funds relating to the payment of principal, interest or fees ratably (other than amounts payable solely to the Administrative Agent, the Issuing Lender, or a specific Lender pursuant to Section 2.08(c), 2.12, 2.13, 2.14, 8.05, or 9.07, but after taking into account payments effected pursuant to Section 9.04) in accordance with each Lender’s Pro Rata Share to the Lenders for the account of their

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respective applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender or the Issuing Lender to such Lender for the account of its applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.

     (b) Computations. All computations of interest and fees shall be made by the Administrative Agent, on the basis of a year of 360 days for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest rate or fee shall be conclusive and binding for all purposes, absent manifest error.

     (c) Non-Business Day Payments. Whenever any payment shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

     (d) Administrative Agent Reliance. Unless the Administrative Agent shall have received written notice from the Borrower prior to the date on which any payment is due to the Lenders that the Borrower shall not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender, together with interest, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate for such day.

     Section 2.11 Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances or Letter of Credit Obligations made by it in excess of its Pro Rata Share of payments on account of the Advances or Letter of Credit Obligations obtained by all the Lenders (other than as a result of a termination of a Defaulting Lender’s Commitment under Section 2.04(c)), such Lender shall notify the Administrative Agent and forthwith purchase from the other Lenders such participations in the Advances made by them or Letter of Credit Obligations held by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender’s ratable share (according to the proportion of (a) the amount of the participation sold by such Lender to the purchasing Lender as a result of such excess payment to (b) the total amount of such excess payment) of such recovery, together with an amount equal to such Lender’s ratable share (according to the proportion of (i) the amount of such Lender’s required repayment to the purchasing Lender to (ii) the total amount of all such required repayments to the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.11 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. The provisions of this Section 2.11 shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Advances or participations in Letter of Credit

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Exposure to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this Section 2.11 shall apply).

     Section 2.12 Breakage Costs. If (a) any payment of principal of any Eurodollar Rate Advance or any Conversion of a Eurodollar Rate Advance is made other than on the last day of the Interest Period for such Advance, whether as a result of any payment or Conversion pursuant to Section 2.05, the acceleration of the maturity of the Notes pursuant to Article VII, or otherwise, or (b) the Borrower fails to make a principal or interest payment with respect to any Eurodollar Rate Advance on the date such payment is due and payable, the Borrower shall, within 10 days of any written demand sent by any Lender to the Borrower through the Administrative Agent, pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, out-of-pocket costs or expenses that it may reasonably incur as a result of such payment or nonpayment, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance.

     Section 2.13 Increased Costs. If any Change in Law shall (a) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in the Eurodollar Rate) or the Issuing Lender; (b) subject any Lender or the Issuing Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Eurodollar Rate Advance made by it, or change the basis of taxation of payments to such Lender or the Issuing Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 2.14 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the Issuing Lender); or (c) impose on any Lender or the Issuing Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Advances made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Advance (or of maintaining its obligation to make any such Advance), or to increase the cost to such Lender or the Issuing Lender of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the Issuing Lender hereunder (whether of principal, interest or any other amount) then, within thirty (30) days after demand by such Lender or the Issuing Lender, the Borrower will pay to such Lender or the Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender, as the case may be, for such additional costs incurred or reduction suffered. A certificate as to the amount of such increased cost and detailing the calculation of such cost submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error.

     (a) Capital Adequacy. If any Lender or the Issuing Lender determines that any Change in Law affecting such Lender or the Issuing Lender or any lending office of such Lender or such Lender’s or the Issuing Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Lender’s capital or on the capital of such Lender’s or the Issuing Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Advances made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the Issuing Lender, to a level below that which such Lender or the Issuing Lender or such Lender’s or the Issuing Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing Lender’s policies and the policies of such Lender’s or the Issuing Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or the Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender or such

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Lender’s or the Issuing Lender’s holding company for any such reduction suffered. A certificate as to such amounts and detailing the calculation of such amounts submitted to the Borrower by such Lender or the Issuing Lender shall be conclusive and binding for all purposes, absent manifest error. The Borrower shall pay such Lender or the Issuing Lender, as the case may be, the amount shown as due on any such certificate within thirty (30) days after receipt thereof.

     (b) Letters of Credit. If any Change in Law shall either (i) impose, modify, or deem applicable any reserve, special deposit, or similar requirement against letters of credit issued by, or assets held by, or deposits in or for the account of, the Issuing Lender or (ii) impose on the Issuing Lender any other condition regarding the provisions of this Agreement relating to the Letters of Credit or any Letter of Credit Obligations, and the result of any event referred to in the preceding clause (i) or (ii) shall be to increase the cost to the Issuing Lender of issuing or maintaining any Letter of Credit (which increase in cost shall be determined by the Issuing Lender’s reasonable allocation of the aggregate of such cost increases resulting from such event), then, upon demand by the Issuing Lender, the Borrower shall pay to the Issuing Lender, from time to time as specified by the Issuing Lender, additional amounts which shall be sufficient to compensate the Issuing Lender for such increased cost. A certificate as to such increased cost incurred by the Issuing Lender, as a result of any event mentioned in clause (i) or (ii) above, and detailing the calculation of such increased costs submitted by the Issuing Lender to the Borrower, shall be conclusive and binding for all purposes, absent manifest error.

     (c) Delay in Requests. Failure or delay on the part of any Lender or the Issuing Lender to demand compensation pursuant to this Section 2.13 shall not constitute a waiver of such Lender’s or the Issuing Lender’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender or the Issuing Lender pursuant to this Section 2.13 for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or the Issuing Lender, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the Issuing Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

     Section 2.14 Taxes.

     (a) No Deduction for Certain Taxes. Any and all payments by or on account of any obligation of the Borrower hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if the Borrower shall be required by applicable Legal Requirement to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or Issuing Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with Legal Requirement.

     (b) Other Taxes. Without limiting the provisions of clause (a) above, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement, the Notes, or the other Loan Documents (hereinafter referred to as “Other Taxes”).

     (c) Indemnification. THE BORROWER INDEMNIFIES EACH LENDER, THE ISSUING LENDER, AND THE ADMINISTRATIVE AGENT FOR THE FULL AMOUNT OF INDEMNIFIED

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TAXES OR OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY INDEMNIFIED TAXES OR OTHER TAXES IMPOSED BY ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 2.14) PAID BY SUCH LENDER, THE ISSUING LENDER, OR THE ADMINISTRATIVE AGENT (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. EACH PAYMENT REQUIRED TO BE MADE BY THE BORROWER IN RESPECT OF THIS INDEMNIFICATION SHALL BE MADE TO THE ADMINISTRATIVE AGENT FOR THE BENEFIT OF ANY PARTY CLAIMING SUCH INDEMNIFICATION WITHIN 30 DAYS FROM THE DATE THE BORROWER RECEIVES WRITTEN DEMAND THEREFOR FROM THE ADMINISTRATIVE AGENT ON BEHALF OF ITSELF AS ADMINISTRATIVE AGENT, THE ISSUING LENDER, OR ANY SUCH LENDER.

     (d) Status of Lenders. Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding. Without limiting the generality of the foregoing, in the event that the Borrower is resident for tax purposes in the United States of America, any Foreign Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable: (i) duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States of America is a party; (ii) duly completed copies of Internal Revenue Service Form W-8ECI, (iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or (v) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower to determine the withholding or deduction required to be made.

     (e) Treatment of Certain Refunds. If the Administrative Agent, a Lender or the Issuing Lender determines, in its reasonable discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.14, it shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.14 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or the Issuing Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower, upon the request of the Administrative Agent, such Lender or the Issuing Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or the Issuing Lender in the event the Administrative Agent, such Lender or the Issuing Lender is required to repay such refund to such Governmental Authority. This paragraph shall not be construed to require

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the Administrative Agent, any Lender or the Issuing Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person.

     Section 2.15 Designation of a Different Lending Office. If any Lender requests compensation under Section 2.13, or requires the Borrower to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Advances hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.14, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

     Section 2.16 Replacement of Lender. If (i) any Lender requests compensation under Section 2.13 or requires that the Borrower pay any additional amount pursuant to Section 2.14, (ii) any Lender suspends its obligation to continue, or Convert Advances into, Eurodollar Rate Advances pursuant to Section 2.03(c)(ii) or Section 2.11, (iii) any Lender is a Defaulting Lender, or (iv) any Lender is a Non-Consenting Lender (any such Lender, a “Subject Lender”), then (A) in the case of a Defaulting Lender, the Administrative Agent may, upon notice to the Subject Lender and the Borrower, require such Subject Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 9.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which Eligible Assignee may be another Lender, if a Lender accepts such assignment) and (B) in the case of any Subject Lender, including a Defaulting Lender, the Borrower may, upon notice to the Subject Lender and the Administrative Agent and at the Borrower’s sole cost and expense, require such Subject Lender to assign, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 9.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

(A) as to assignments required by the Borrower, the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 9.06;

(B) such Subject Lender shall have received payment of an amount equal to the outstanding principal of its Advances and participations in outstanding Letter of Credit Obligations, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 2.12) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Applicable Borrower (in the case of all other amounts);

(C) in the case of any such assignment resulting from a claim for compensation under Section 2.13, such assignment will result in a reduction in such compensation or payments thereafter;

(D) such assignment does not conflict with applicable Legal Requirements; and

(E) with respect to a Non-Consenting Lender, the proposed amendment, waiver, consent or release with respect to this Agreement or any other Loan Document has been approved by the Required Lenders and such amendment, waiver, consent or release can be effected as a result of the assignment contemplated by this Section.

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A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. Solely for purposes of effecting the assignment required for a Defaulting Lender under this Section 2.15 and to the extent permitted under applicable Legal Requirements, each Lender hereby designates and appoints the Administrative Agent as true and lawful agent and attorney-in-fact, with full power and authority, for and on behalf of and in the name of such Lender to execute, acknowledge and deliver the Assignment and Acceptance required hereunder if such Lender was a Defaulting Lender and such Lender shall be bound thereby as fully and effectively as if such Lender had personally executed, acknowledged and delivered the same. In lieu of the Borrower or the Administrative Agent replacing a Defaulting Lender as provided in this Section 2.16, the Borrower may terminate such Defaulting Lender’s Commitment as provided in Section 2.04.

     Section 2.17 Payments and Deductions to a Defaulting Lender.

     (a) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.01(a), Section 2.07(d), or Section 2.10(d) then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid in cash.

     (b) If a Defaulting Lender as a result of the exercise of a set-off shall have received a payment in respect of its outstanding Advances or pro rata share of Letter of Credit Exposure which results in its outstanding Advances and share of Letter of Credit Exposure being less than its Pro Rata Share of the aggregate outstanding Advances and Letter of Credit Exposure, then no payments will be made to such Defaulting Lender until such time as all amounts due and owing to the Lenders have been equalized in accordance with each Lender’s respective pro rata share of the aggregate outstanding Advances and Letter of Credit Exposure. Further, if at any time prior to the acceleration or maturity of the Advances, the Administrative Agent shall receive any payment in respect of principal of an Advance or a Reimbursement Obligation while one or more Defaulting Lenders shall be party to this Agreement, the Administrative Agent shall apply such payment first to the Borrowings for which such Defaulting Lender(s) shall have failed to fund its pro rata share until such time as such Borrowing(s) are paid in full or each Lender (including each Defaulting Lender) is owed its Pro Rata Share of all Advances then outstanding. After acceleration or maturity of the Advances, subject to the first sentence of this Section 2.17(b), all principal will be paid ratably as provided in Section 2.11.

     (c) If any Letter of Credit Exposure exists at the time a Lender becomes a Defaulting Lender then:

     (i) such Letter of Credit Exposure shall be automatically reallocated among the Non-Defaulting Lenders in accordance with their respective Pro Rata Share of such Defaulting Lender’s share of the Letter of Credit Exposure (and each Lender is deemed to have purchased and assigned such participation interest in such reallocated portion of the Letter of Credit Exposure) but only to the extent that (A) the sum of each Non-Defaulting Lender’s outstanding Advances plus its share of the Letter of Credit Exposure, after giving effect to the reallocation provided herein, does not exceed the lesser of such Non-Defaulting Lender’s Pro Rata Share of the Borrowing Base and such Non-Defaulting Lender’s Commitment, and (B) the conditions set forth in Section 3.02 are satisfied at such time; provided that, such reallocation will constitute a waiver or release of any claim the Borrower, the Administrative Agent, the Issuing Lender or any other Lender may have against such Defaulting Lender or cause such Defaulting Lender to be a Non-Defaulting Lender;

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          (ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, then the Borrower shall, within one Business Day following notice by the Administrative Agent, cash collateralize such Defaulting Lender’s share of the Letter of Credit Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.07(g) for so long as such Letter of Credit Exposure is outstanding;

          (iii) if the Borrower cash collateralizes any portion of such Defaulting Lender’s Letter of Credit Exposure pursuant to this Section 2.17 then the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 2.08 (b) with respect to such Defaulting Lender’s Letter of Credit Exposure during the period such Defaulting Lender’s Letter of Credit Exposure is cash collateralized;

          (iv) if the Letter of Credit Exposure of the Non-Defaulting Lenders is reallocated pursuant to clause (i) above, then the fees payable to the Lenders pursuant to Section 2.08(b) shall be adjusted in accordance with such Non-Defaulting Lenders’ Pro Rata Share;

          (v) if any Defaulting Lender’s share of the Letter of Credit Exposure is neither cash collateralized nor reallocated pursuant to the preceding provisions, then, without prejudice to any rights or remedies of the Issuing Lender or any Lender hereunder, all letter of credit fees payable under Section 2.08(b) with respect to such Defaulting Lender’s share of the Letter of Credit Exposure shall be payable to the Issuing Lender until such Letter of Credit Exposure is cash collateralized and/or reallocated.

     (d) In the event that the Administrative Agent, the Borrower and the Issuing Lender each agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then (i) the Letter of Credit Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment and on such date such Lender shall be deemed to have purchased at par such of the Advances or participations in Letters of Credit of the other Lenders as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Advances and Letter of Credit Exposure in accordance with its Pro Rata Share, and (ii) if no Default exists, then any cash collateral posted by the Borrower pursuant to clause (c)(ii) above with respect to such Lender shall be returned to the Borrower.

ARTICLE III

CONDITIONS

     Section 3.01 Conditions Precedent to Effectiveness. The effectiveness of this Agreement and the amendment and restatement of the Existing Credit Agreement is subject to the conditions precedent that:

     (a) Documentation. The Administrative Agent shall have received the following duly executed by all the parties thereto, in form and substance satisfactory to the Administrative Agent, and where applicable, in sufficient copies for each Lender:

          (i) this Agreement, a Note payable to the order of each Lender in the amount of its Commitment, the Guaranties, the Pledge Agreements, the Security Agreements, the Subordination and Intercreditor Agreement, and new Mortgages or reaffirmation of existing Mortgages which collectively (A) encumber at least 85% of all of the Borrower’s and its Restricted Subsidiaries’ (including the Merger Company’s) Proven Reserves and Oil and Gas Properties (other than the Proven Reserves of Orion), and (B) encumber such percentage of Orion’s Proven Reserves and Oil and Gas Properties attributable to the

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Borrower’s equity ownership therein, and each of the other Loan Documents, and all attached exhibits and schedules;

          (ii) a favorable opinion of the Borrower’s and the Restricted Subsidiaries’ counsel dated as of the date of this Agreement and substantially in the form of the attached Exhibit K, covering the matters discussed in such Exhibit and such other matters as the Administrative Agent, on behalf of the Lenders, may reasonably request;

          (iii) copies, certified as of the date of this Agreement by a Responsible Officer of the Borrower of (A) the resolutions of the board of directors of the General Partner, as general partner of the Borrower, approving the Loan Documents to which the Borrower is a party and authorizing the entering into of Hedge Contracts, (B) the Partnership Agreement, (C) the certificate of limited partnership of the Borrower duly certified by the Secretary of State of the State of Texas, and (D) the limited liability company agreement of the General Partner, (E) the certificate of formation of the General Partner duly certified by the Secretary of State of the State of Texas, (F) all other documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, the Note, and the other Loan Documents;

          (iv) certificates of a Responsible Officer of the Borrower certifying the names and true signatures of the officers authorized to sign this Agreement, the Notes, Notices of Borrowing, Notices of Conversion or Continuation, and the other Loan Documents and Hedge Contracts to which the Borrower is a party;

          (v) copies, certified as of the date of this Agreement by a Responsible Officer or the secretary or an assistant secretary of each Restricted Subsidiary (including the Merger Company, after giving effect to the Merger) of (A) the resolutions of the board of directors or managers (or other applicable governing body) of such Restricted Subsidiary approving the Loan Documents to which it is a party and authorizing the entering into of Hedge Contracts, (B) the articles or certificate (as applicable) of incorporation (or organization) of such Restricted Subsidiary certified by the Secretary of State for the state of organization, (C) the bylaws or other governing documents of such Restricted Subsidiary, and (D) all other documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Guaranty, the Security Instruments, and the other Loan Documents and Hedge Contracts to which such Restricted Subsidiary is a party;

          (vi) a certificate of a Responsible Officer of each Restricted Subsidiary certifying the names and true signatures of officers of such Restricted Subsidiary authorized to sign the Guaranty, Security Instruments and the other Loan Documents and Hedge Contracts to which such Restricted Subsidiary is a party;

          (vii) certificates of good standing for the Borrower, the General Partner, and each Restricted Subsidiary in each state in which each such Person is organized or qualified to do business, which certificate shall be (A) dated a date not sooner than 14 days prior to the date of this Agreement or (B) otherwise effective on the Effective Date;

          (viii) a certificate dated as of the date of this Agreement from the Responsible Officer of the Borrower stating that (A) all representations and warranties of the Borrower set forth in this Agreement are true and correct in all material respects as of such date (except in the case of representations and warranties that are made solely as of an earlier date or time, which representations and warranties shall be true and correct in all material respects as of such earlier date or time); (B) no Default has occurred and is continuing; and (C) the conditions in clauses (a), (b), (c), and (h) — (n) of this Section 3.01 have been met;

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          (ix) appropriate UCC-1 and UCC-3 Financing Statements covering the Collateral for filing with the appropriate authorities and any other documents, agreements or instruments necessary to create an Acceptable Security Interest in such Collateral;

          (x) certificates evidencing the Equity Interests required in connection with the Pledge Agreements and powers executed in blank for each such certificate;

          (xi) insurance certificates naming the Administrative Agent loss payee or additional insured, as applicable, and evidencing insurance that meet the requirements of this Agreement and the Security Instruments, and that are otherwise satisfactory to the Administrative Agent;

          (xii) the initial Engineering Report dated effective a date acceptable to the Administrative Agent;

          (xiii) a certificate of the chief financial officer of the Borrower, in form and substance reasonably satisfactory to the Administrative Agent, attesting to the Solvency (i) of the Borrower and its Restricted Subsidiaries (other than the Merger Company), taken as a whole, immediately before giving effect to the Transactions, and (ii) of the Borrower and its Restricted Subsidiaries (including the Merger Company), taken as a whole, immediately after giving effect to the Transactions; and

          (xiv) such other documents, governmental certificates, agreements and lien searches as the Administrative Agent or any Lender may reasonably request.

     (b) Payment of Fees. On or prior to the date of this Agreement, the Borrower shall have paid the fees required by Section 2.08(c) and all costs and expenses that have been invoiced and are payable pursuant to Section 9.04.

     (c) Delivery of Financial Statements. The Administrative Agent and the Lenders shall have received true and correct copies of (i) satisfactory audited consolidated financial statements for the Borrower and its Subsidiaries for the fiscal years 2007 and 2008, and interim unaudited financial statements for each fiscal quarter ended since the last audited financial statements, (ii) satisfactory audited consolidated financial statements for the Merger Company and its subsidiaries for the three fiscal years most recently ended for which financial statements are available and interim unaudited financial statements for each quarterly period ended since the last audited financial statements for which financial statements are available, (iii) pro forma consolidated financial statements for the Borrower and its Subsidiaries for the four-quarter period most recently ended prior to the Effective Date for which financial statements are available giving pro forma effect to the Transactions and a pro forma balance sheet of the Borrower and its Subsidiaries as of the Effective Date giving pro forma effect to the Transactions and (iv) projections prepared by management of balance sheets, income statements and cashflow statements of the Borrower and its Subsidiaries, which will be quarterly for the first year after the Effective Date and annually thereafter until the Maturity Date (and which projections shall not be inconsistent with information provided to the Administrative Agent prior to February 19, 2010).

     (d) Security Instruments. The Administrative Agent shall have received all appropriate evidence required by the Administrative Agent and the Lenders in their sole discretion necessary to determine that the Administrative Agent (for its benefit and the benefit of the Secured Parties) shall have an Acceptable Security Interest in the Collateral (which shall include at least 85% of all of the Borrower’s and its Restricted Subsidiaries’ Proven Reserves and Oil and Gas Properties (as set forth in the Independent Engineering Report dated as of January 1, 2010 covering Oil and Gas Properties of the Borrower and its Subsidiaries (excluding the Merger Company) and the Independent Engineering Report dated as of February 1, 2010 prepared by T.J. Smith covering Oil and Gas Properties of the Merger

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Company and its Subsidiaries)) and that all actions or filings necessary to protect, preserve and validly perfect such Liens have been made, taken or obtained, as the case may be, and are in full force and effect.

     (e) Title. The Administrative Agent shall be satisfied in its sole discretion with the title to the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries and that such Oil and Gas Properties constitute at least 70% of the present value of the Proven Reserves categorized as “total proved” of the Borrower and its Restricted Subsidiaries as determined by the Administrative Agent in its sole discretion.

     (f) Environmental. The Administrative Agent shall have received such environmental assessments or other reports as it may reasonably require and shall be satisfied with the condition of the Oil and Gas Properties with respect to the Borrower’s compliance with Environmental Laws.

     (g) No Default. No Default shall have occurred and be continuing.

     (h) Representations and Warranties. The representations and warranties contained in Article IV hereof and in each other Loan Document shall be true and correct in all material respects as of the Effective Date (except in the case of representations and warranties which are made solely as of an earlier date or time, which representations and warranties shall be true and correct in all material respects as of such earlier date or time); provided that, in any event, such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof.

     (i) Material Adverse Change. Since December 31, 2008, there shall not having occurred (A) any material adverse condition or material adverse change in or affecting, or the occurrence of any circumstance or condition that could reasonably be expected to result in a material adverse change in, or have a material adverse effect on, the business, operations, condition (financial or otherwise), assets, liabilities (whether actual or contingent) or prospects of the Borrower and its Subsidiaries, taken as a whole or the Merger Company and its Subsidiaries, taken as a whole, except to the extent any such change or event is disclosed in public filings made by the Merger Company with the Securities and Exchange Commission since such date but prior to February 19, 2010 (including any such disclosure in respect of the nature, magnitude or consequences of such change or event) or (B) any event or occurrence that is reasonably likely to prevent or materially delay the consummation of the Merger. Furthermore, (1) no event or circumstance that could cause a “Target Material Adverse Effect” as defined in the Merger Agreement, shall have occurred, and (2) the Administrative Agent shall not have become aware since February 19, 2010 of any material information or other matter that is inconsistent in a material and adverse manner with any due diligence, information or matter (including any financial information and projections previously delivered to the Administrative Agent) disclosed or known to the Administrative Agent prior to February 19, 2010.

     (j) No Proceeding or Litigation; No Injunctive Relief. No action, suit, investigation or other proceeding (including, without limitation, the enactment or promulgation of a statute or rule) by or before any arbitrator or any Governmental Authority shall be threatened or pending and no preliminary or permanent injunction or order by a state or federal court shall have been entered (i) in connection with (A) any of the Oil and Gas Properties or other Properties of the Borrower and its Restricted Subsidiaries or (B) this Agreement or any transaction contemplated hereby, (ii) in connection with the Acquisition or any other portion of the Transactions, or (iii) which, in any case, in the judgment of the Administrative Agent, could reasonably be expected to result in a Material Adverse Change.

     (k) Consents, Licenses, Approvals, etc. The Administrative Agent shall have received true copies (certified to be such by the Borrower or other appropriate party) of all consents, licenses and

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approvals required in accordance with applicable Legal Requirements, or in accordance with any document, agreement, instrument or arrangement to which the Borrower, or any the Restricted Subsidiary is a party, in connection with the execution, delivery, performance, validity and enforceability of this Agreement, the other Loan Documents, and the Merger Agreement. In addition, the Borrower and each Restricted Subsidiary shall have all such material consents, licenses and approvals required in connection with the continued operation of the Borrower or any Restricted Subsidiary, and such approvals shall be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on this Agreement and the actions contemplated hereby, including the Transactions.

     (l) Material Contracts. The Borrower shall have delivered to the Administrative Agent copies of all material contracts, agreements, or instruments listed on Schedule 4.19.

     (m) Notice of Borrowing. The Administrative Agent shall have received a Notice of Borrowing from the Borrower in the form of Exhibit F, with appropriate insertions and executed by a duly authorized Responsible Officer of the Borrower.

     (n) Subordinated Facility. The Administrative Agent shall have received evidence satisfactory to it that the Subordinated Credit Agreement has been amended to conform the covenants set forth therein to be consistent with the changes to the covenants effected by this Agreement.

     (o) Equity Commitment. The Administrative Agent shall have received evidence satisfactory to it that Denham (or such other holder of common equity of the Borrower acceptable to the Administrative Agent) has made, contemporaneously with the initial funding hereunder, the Denham Equity Investment.

     (p) Payment or Assignment of Other Debt. The Administrative Agent shall have received evidence satisfactory to it that, contemporaneously with the initial funding hereunder, either (i) the Fortis Assignment is effective or (ii) the Merger Company Debt shall have been paid in full and the Administrative Agent shall have received “pay-off” letters in form and substance reasonably satisfactory to the Administrative Agent with respect to such Debt evidencing such payment in full and the termination of any commitments to lend in connection therewith; and arrangements satisfactory to the Administrative Agent shall have been made for the termination and release of all Liens securing such Debt.

     (q) Merger. The Merger shall have been, or shall contemporaneously with the Effective Date be, consummated substantially pursuant to the terms of the Merger Agreement. Furthermore, the Administrative Agent shall have received (i) a true and complete copy of the Merger Agreement and each other agreement, instrument, or document executed by the Borrower or any of its Subsidiaries or any of their Responsible Officers at any time in connection with the Merger Agreement on or before the date hereof, certified as such by the Borrower, and (ii) evidence of all consents and approvals received pursuant to the Merger Agreement.

     (r) Availability. The Administrative Agent shall be satisfied that as of the Effective Date, after giving effect to Transactions, the aggregate Unused Commitment Amount is greater than or equal to 10% of the lesser of the Borrowing Base and the aggregate Commitments in effect on the Effective Date.

     (s) Hedging Agreements. Schedule 4.20 shall have set forth therein a complete list of all Hedge Contracts in effect on the Effective Date unless otherwise agreed by the Administrative Agent in its reasonable discretion. The Borrower shall have entered into Hedge Contracts to effect the hedge positions for the volumes, years and forecasted production set forth in Schedule 4.20.

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     (t) Corporate Structure. The corporate and capital structure of the Borrower and its Subsidiaries upon the Effective Date, after giving effect to the Transactions, shall be reasonably satisfactory to the Administrative Agent.

     (u) USA Patriot Act. The Administrative Agent shall have received all documentation and other information that is required by regulatory authorities under applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the Patriot Act.

     (v) Use of Proceeds. The Administrative Agent shall be satisfied that as of the Effective Date, the proceeds of the initial funding hereunder and the proceeds of the cash equity contribution required under clause (o) above shall be applied as detailed by the Borrower to the Administrative Agent prior to the Effective Date.

     Section 3.02 Conditions Precedent to All Borrowings. The obligation of each Lender to make an Advance on the occasion of each Borrowing and of the Issuing Lender to issue, increase, or extend any Letter of Credit and of any reallocation of Letter of Credit Exposure provided in Section 2.17(c)(i), shall be subject to the further conditions precedent that on the date of such Borrowing or the date of the issuance, increase, or extension of such Letter of Credit or the date of such reallocation:

     (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing, Notice of Conversion or Continuation, or Letter of Credit Application and the acceptance by the Borrower of the proceeds of such Borrowing or the issuance, increase, or extension of such Letter of Credit shall constitute a representation and warranty by the Borrower or the reallocation of the Letter of Credit Exposure that on the date of such Borrowing or on the date of such issuance, increase, or extension of such Letter of Credit or the date of such reallocation, as applicable, such statements are true):

     (i) (A) with respect to the Advances made and/or the Letters of Credit to be issued on the Effective Date, the Specified Representations shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) and (B) with respect to any Borrowings made and/or Letters of Credit issued, amended, renewed or extended and/or reallocations of Letter of Credit Exposure made after the Effective Date, all representations and warranties contained in Article IV of this Agreement and the representations and warranties contained in the Security Instruments, the Guaranties, and each of the other Loan Documents are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) on and as of the date of such Borrowing or the date of the issuance, increase, or extension of such Letter of Credit, before and after giving effect to such Borrowing or to the issuance, increase, or extension of such Letter of Credit and to the application of the proceeds from such Borrowing, as though made on and as of such date (except in the case of representations and warranties which are made solely as of an earlier date or time, which representations and warranties shall be true and correct in all material respects as of such earlier date or time, except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof); and

     (ii) (A) in respect of Borrowings to occur on the Effective Date, no Event of Default shall have occurred and be continuing; provided that, the existence or non-existence of any Event of Default with respect to a breach of representations and warranties as of the Effective Date shall relate only to a breach of the Specified Representations, and (B) at all other times, no Default has occurred and is continuing or would result from such Borrowing or from the application of the proceeds therefrom, or would result from the issuance, increase, or extension of such Letter of Credit;

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     (b) the Administrative Agent shall have received such other approvals, opinions, or documents as any Lender through the Administrative Agent may reasonably request.

Each request for a Borrowing and each request for the issuance, amendment, renewal or extension of any Letter of Credit and each reallocation of Letter of Credit Exposure shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in this Section 3.02. Notwithstanding anything herein to the contrary, even though the making of representations and warranties that are not Specified Representations is not a condition to the Borrowings made on the Effective Date, the Borrower shall be deemed to have made all the representations and warranties contained in this Agreement in connection with such Borrowings, and the making of the Advances consisting of the Borrowings by the Lenders shall not constitute a waiver by the Lenders of any Event of Default that occurs by reason of breach of any such representation and warranty.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants as follows:

     Section 4.01 Existence; Restricted Subsidiaries. The Borrower is (a) a limited partnership duly organized and validly existing under the laws of Texas and (b) in good standing and qualified to do business as a foreign corporation in each jurisdiction where its ownership or lease of Property or conduct of its business requires such qualification. Each Restricted Subsidiary of the Borrower is (i) duly organized, validly existing, and in good standing (if applicable) under the laws of its jurisdiction of formation and (ii) in good standing and qualified to do business as a foreign corporation or other foreign business entity in each jurisdiction where its ownership or lease of Property or conduct of its business requires such qualification. As of the date of this Agreement, the Borrower has no Subsidiaries other than listed on Schedule 4.01 and the Borrower owns no other Equity Interests in any Person except in such Subsidiaries and otherwise as set forth in Schedule 4.01.

     Section 4.02 Power. The execution, delivery, and performance by the Borrower and by each Restricted Subsidiary of this Agreement, the Notes, and the other Loan Documents to which it is a party, and the Merger Agreement and the consummation of the transactions contemplated hereby and thereby, including the Transactions, (a) are within the Borrower’s and such Restricted Subsidiaries’ governing powers, (b) have been duly authorized by all necessary governing action, (c) do not contravene (i) the Borrower’s or any Restricted Subsidiary’s certificate or articles of incorporation or formation, limited partnership agreement, bylaws, limited liability company agreement, or other similar governance documents or (ii) any law or any contractual restriction binding on or affecting the Borrower or any Restricted Subsidiary, and (d) will not result in or require the creation or imposition of any Lien prohibited by this Agreement. At the time of each Advance and the issuance, extension or increase of a Letter of Credit, such Advance and such Letter of Credit, and the use of the proceeds of such Advance and such Letter of Credit, will be within the Borrower’s governing powers, will have been duly authorized by all necessary partnership action, will not contravene (i) the Borrower’s certificate of limited partnership, limited partnership agreement, or other organizational documents, or (ii) any law or any contractual restriction binding on or affecting the Borrower and will not result in or require the creation or imposition of any Lien prohibited by this Agreement.

     Section 4.03 Authorization and Approvals. No consent, order, authorization, or approval or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required for the due execution, delivery, and performance by the Borrower of this Agreement, the Notes, or the other Loan Documents to which the Borrower is a party, or the Merger Agreement, or by each

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Restricted Subsidiary of its Guaranty or the other Loan Documents to which it is a party or the consummation of the transactions contemplated thereby, including the Transactions, except for (a) the filing of UCC-1 Financing Statements and the Mortgages in the state and county filing offices and (b) those consents and approvals that have been obtained or made on or prior to the date of this Agreement and that are in full force and effect. At the time of each Borrowing and each issuance, increase or extension of a Letter of Credit, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required for such Borrowing or such issuance, increase or extension of such Letter of Credit or the use of the proceeds of such Borrowing or such Letter of Credit, except for (i) the filing of any additional UCC-1 Financing Statements and the Mortgages in the state and county filing offices and (ii) those consents and approvals that have been obtained or made on or prior to the date of such Borrowing, which are, as of the date of such Borrowing, in full force and effect.

     Section 4.04 Enforceable Obligations. This Agreement, the Notes, and the other Loan Documents to which the Borrower is a party have been duly executed and delivered by the Borrower and the other Loan Documents to which each Restricted Subsidiary is a party have been duly executed and delivered by its Restricted Subsidiaries. Each Loan Document is the legal, valid, and binding obligation of the Borrower and each Restricted Subsidiary that is a party to it, enforceable against the Borrower and each such Restricted Subsidiary in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors’ rights generally and by general principles of equity. As of the Effective Date, the Denham Equity Investment is the legal, valid, and binding obligation of the Class B Limited Partner enforceable against the Class B Limited Partner in accordance with the terms of the Partnership Agreement, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors’ rights generally and by general principles of equity.

     Section 4.05 Financial Statements.

     (a) The Borrower has delivered to the Administrative Agent and the Lenders copies of the Financial Statements, and the Financial Statements are accurate and complete in all material respects and present fairly in all material respects the consolidated financial condition of Borrower and its Subsidiaries as of their respective dates and for their respective periods in accordance with GAAP. All projections, estimates, and pro forma financial information furnished by the Borrower, whether pursuant to financial statements or in connection with other information delivered to any Lender or the Administrative Agent, were prepared on the basis of assumptions, data, information, tests, or conditions believed to be reasonable at the time such projections, estimates, and pro forma financial information were made in light of current and foreseeable conditions (it being understood that projections as to future events are not to be viewed as facts and that actual results may differ from projected results).

     (b) Since December 31, 2008, no event or circumstance that could cause a Material Adverse Change has occurred.

     (c) As of the date of this Agreement and after giving effect to the making of the initial Advances or the issuance of the initial Letters of Credit, neither the Borrower nor any Restricted Subsidiary has any Debt other than (i) the Debt listed on Schedule 4.05, (ii) the Obligations under this Agreement and “Obligations” under the Subordinated Credit Agreement and (iii) the Obligations arising under the Hedge Contracts described under Schedule 4.20.

     Section 4.06 True and Complete Disclosure. All factual information (excluding estimates) heretofore or contemporaneously furnished by or on behalf of the Borrower or any of its Restricted Subsidiaries in writing to any Lender or the Administrative Agent for purposes of or in connection with this Agreement, any other Loan Document or any transaction contemplated hereby or thereby is, and all

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other such factual information hereafter furnished by or on behalf of the Borrower and its Restricted Subsidiaries in writing to the Administrative Agent or any of the Lenders shall be, true and accurate in all material respects on the date as of which such information is dated or certified and does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements contained therein not misleading at such time.

     Section 4.07 Litigation; Compliance with Laws.

     (a) There is no pending or, to the knowledge of the Borrower, threatened action or proceeding affecting the Borrower or any of its Restricted Subsidiaries before any court, Governmental Authority or arbitrator that could reasonably be expected to cause a Material Adverse Change or which purports to affect the legality, validity, binding effect or enforceability of this Agreement, any Note, or any other Loan Document. Additionally, there is no pending or, to the best knowledge of the Borrower, threatened action or proceeding instituted against the Borrower or any of its Restricted Subsidiaries which seeks to adjudicate the Borrower or any of its Restricted Subsidiaries as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its Property.

     (b) The Borrower and its Restricted Subsidiaries have complied in all material respects with all material statutes, rules, regulations, orders, and restrictions of any Governmental Authority having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property. The offer, sale, and issuance of all outstanding Equity Interests in the Borrower have been made in compliance with all applicable Legal Requirements, including without limitation federal and state Legal Requirements relating to the offer and sale of securities.

     Section 4.08 Use of Proceeds. The proceeds of the Advances will be used by the Borrower for the purposes described in Section 5.09. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U). No proceeds of any Advance will be used to purchase or carry any margin stock in violation of Regulation T, U or X.

     Section 4.09 Investment Company Act. Neither the Borrower nor any of its Restricted Subsidiaries is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

     Section 4.10 Taxes.

     (a) Reports and Payments. All Returns (as defined below in clause (c) of this Section) required to be filed by or on behalf of the Borrower, its Restricted Subsidiaries, or any member of the Controlled Group (hereafter collectively called the “Tax Group”) have been duly filed on a timely basis or appropriate extensions have been obtained, except where the failure to so file would not be reasonably expected to cause a Material Adverse Change and such Returns are and will be true, complete, and correct in all material respects; and all Taxes shown to be payable on the Returns or on subsequent assessments with respect thereto will have been paid in full on a timely basis, and no other Taxes will be payable by the Tax Group with respect to items or periods covered by such Returns, except in each case to the extent of (i) reserves reflected in the Interim Financial Statements or (ii) taxes that are being contested in good faith. The reserves for accrued Taxes reflected in the financial statements delivered to the Lenders under this Agreement are adequate in the aggregate for the payment of all unpaid Taxes, whether or not disputed, for the period ended as of the date thereof and for any period prior thereto, and for which the

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Tax Group may be liable in its own right, as withholding agent or as a transferee of the assets of, or successor to, any Person.

     (b) Taxes Definition. “Taxes” in this Section 4.10 shall mean all taxes, charges, fees, levies, or other assessments imposed by any federal, state, local, or foreign taxing authority, including without limitation, income, gross receipts, excise, real or personal property, sales, occupation, use, service, leasing, environmental, value added, transfer, payroll, and franchise taxes (and including any interest, penalties, or additions to tax attributable to or imposed on with respect to any such assessment).

     (c) Returns Definition. “Returns” in this Section 4.10 shall mean any federal, state, local, or foreign report, estimate, declaration of estimated Tax, information statement or return relating to, or required to be filed in connection with, any Taxes, including any information return or report with respect to backup withholding or other payments of third parties.

     Section 4.11 Pension Plans. All Plans are in compliance in all material respects with all applicable provisions of ERISA. No Termination Event has occurred with respect to any Plan, and each Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code. No “accumulated funding deficiency” (as defined in Section 302 of ERISA) has occurred and there has been no excise tax imposed under Section 4971 of the Code. No Reportable Event has occurred with respect to any Multiemployer Plan, and each Multiemployer Plan has complied with and been administered in all material respects with applicable provisions of ERISA and the Code. The present value of all benefits vested under each Plan (based on the assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto, exceed the value of the assets of such Plan allocable to such vested benefits. Neither the Borrower nor any member of the Controlled Group has had a complete or partial withdrawal from any Multiemployer Plan for which there is any withdrawal liability. As of the most recent valuation date applicable thereto, neither the Borrower nor any member of the Controlled Group would become subject to any liability under ERISA if the Borrower or any member of the Controlled Group has received notice that any Multiemployer Plan is insolvent or in reorganization. Based upon GAAP existing as of the date of this Agreement and current factual circumstances, the Borrower has no reason to believe that the annual cost during the term of this Agreement to the Borrower or any member of the Controlled Group for post-retirement benefits to be provided to the current and former employees of the Borrower or any member of the Controlled Group under Plans that are welfare benefit plans (as defined in Section 3(1) of ERISA) could, in the aggregate, reasonably be expected to cause a Material Adverse Change.

     Section 4.12 Condition of Property; Casualties. Each of the Borrower and its Restricted Subsidiaries has good and defensible title to, or a valid leasehold interest in, or has the right to use pursuant to valid licenses, all of its Oil and Gas Properties as is customary in the oil and gas industry in all material respects, free and clear of all Liens, except for Permitted Liens. The material Properties owned or leased by the Borrower or any of its Restricted Subsidiaries in the continuing operations of the Borrower and each of its Restricted Subsidiaries are in good repair, working order and operating condition (subject to normal wear and tear). Since December 31, 2008, neither the business nor the material Properties of the Borrower and each of its Restricted Subsidiaries (other than the Properties of the Merger Company), taken as a whole, has been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, Permits, or concessions by a Governmental Authority, riot, activities of armed forces, or acts of God or of any public enemy. Since December 31, 2008, neither the business nor the material properties of the Merger Company and its Subsidiaries, taken as a whole, has been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, Permits, or concessions by a Governmental Authority, riot, activities of

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armed forces, or acts of God or of any public enemy except to the extent any such change or event is disclosed in public filings made by the Merger Company with the Securities and Exchange Commission since such date but prior to February 19, 2010 (including any such disclosure in respect of the nature, magnitude or consequences of such change or event) and no event or circumstance that could cause a “Target Material Adverse Effect” as defined in the Merger Agreement has have occurred. Since the Effective Date, neither the business nor the material Properties of the Borrower and each of its Restricted Subsidiaries, taken as a whole, has been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, Permits, or concessions by a Governmental Authority, riot, activities of armed forces, or acts of God or of any public enemy.

     Section 4.13 No Burdensome Restrictions; No Defaults.

     (a) Neither the Borrower nor any of its Restricted Subsidiaries is a party to any indenture, loan, or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction or provision of applicable law or governmental regulation that could reasonably be expected to cause a Material Adverse Change. Neither the Borrower nor any of its Restricted Subsidiaries is in default in any material respect under or with respect to any contract, agreement, lease, or other instrument to which the Borrower or any Restricted Subsidiary is a party. Neither the Borrower nor any of its Restricted Subsidiaries has received any notice of default under any material contract, agreement, lease, or other instrument to which the Borrower or such Restricted Subsidiary is a party.

     (b) No Default has occurred and is continuing.

     Section 4.14 Environmental Condition.

     (a) Permits, Etc. The Borrower and its Restricted Subsidiaries (i) have obtained all Environmental Permits required under Environmental Law for the ownership and operation of their respective Properties and the conduct of their respective businesses; (ii) have at all times been and are in material compliance with all terms and conditions of such Permits and with all other material requirements of applicable Environmental Laws; (iii) have not received notice of any outstanding material violation or alleged violation of any Environmental Law or Permit; and (iv) are not subject to any actual, pending or to the Borrower’s knowledge, threatened Environmental Claim, that could reasonably be expected to cause a Material Adverse Change.

     (b) Certain Liabilities. To the Borrower’s actual knowledge, none of the present or previously owned, leased or operated Property of the Borrower or any Restricted Subsidiary, wherever located, (i) has been placed on or proposed to be placed on the National Priorities List, the Comprehensive Environmental Response Compensation Liability Information System list, or their state or local analogs, or have been otherwise investigated, designated, listed, or identified as a potential site for removal, remediation, cleanup, closure, restoration, reclamation, or other response activity under any Environmental Laws; (ii) is subject to a Lien, arising under or in connection with any Environmental Laws, that attaches to any revenues or to any Property owned, leased or operated by the Borrower or any of its Restricted Subsidiaries, wherever located, that could reasonably be expected to cause a Material Adverse Change; or (iii) has been the site of any Release of Hazardous Substances or Hazardous Wastes from present or past operations that has caused at the site or at any third-party site any condition that has resulted in or could reasonably be expected to result in the need for Response that would cause a Material Adverse Change.

     (c) Certain Actions. Without limiting the foregoing, (i) all necessary notices have been properly filed, and no further action is required under current Environmental Law as to each Response or

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other restoration or remedial project undertaken by the Borrower or its Restricted Subsidiaries on any of their presently or formerly owned, leased or operated Property and (ii) there are no facts, circumstances, conditions or occurrences with respect to any Property owned, leased or operated by the Borrower or any of its Restricted Subsidiaries that could reasonably be expected to form the basis of an Environmental Claim under Environmental Laws that could reasonably be expected to result in a Material Adverse Change.

     Section 4.15 Permits, Licenses, Etc. The Borrower and its Restricted Subsidiaries possess all authorizations, Permits, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade names rights and copyrights which are material to the conduct of their business. The Borrower and its Restricted Subsidiaries manage and operate their business in all material respects in accordance with all applicable Legal Requirements and good industry practices.

     Section 4.16 Gas Contracts. Neither the Borrower nor any of its Restricted Subsidiaries, as of the date hereof, (a) is obligated in any material respect by virtue of any prepayment made under any contract containing a “take-or-pay” or “prepayment” provision or under any similar agreement to deliver Hydrocarbons produced from or allocated to any of the Borrower’s and its Restricted Subsidiaries’ Oil and Gas Properties at some future date without receiving full payment therefor at the time of delivery or (b) except as has been disclosed to the Administrative Agent, has produced gas, in any material amount, subject to balancing rights of third parties or subject to balancing duties under governmental requirements.

     Section 4.17 Liens; Titles, Leases, Etc. None of the Property of the Borrower or any of the Restricted Subsidiaries is subject to any Lien other than Permitted Liens. On the date of this Agreement, all governmental actions and all other filings, recordings, registrations, third party consents and other actions which are necessary to create and perfect the Liens provided for in the Security Instruments will have been made, obtained and taken in all relevant jurisdictions. Other than to the extent such could not reasonably be expected to cause a Material Adverse Change, (i) all leases and agreements for the conduct of business of the Borrower and its Restricted Subsidiaries are valid and subsisting, in full force and effect and there exists no default or event of default or circumstance which with the giving of notice or lapse of time or both would give rise to a default by the Borrower or any Restricted Subsidiary, or to the Borrower’s knowledge, by any of the other parties thereto, under any such leases or agreements. Neither the Borrower nor any of its Restricted Subsidiaries is a party to any agreement or arrangement (other than this Agreement and the Security Instruments and the Subordinated Loan Documents), or subject to any order, judgment, writ or decree, that either restricts or purports to restrict its ability to grant Liens to secure the Obligations against their respective Properties.

     Section 4.18 Solvency and Insurance. Before and after giving effect to the making of the initial Advances, the Borrower and each of its Restricted Subsidiaries is Solvent. Furthermore, each of the Borrower and its Restricted Subsidiaries carry insurance required under Section 5.02 of this Agreement.

     Section 4.19 Material Agreements. Schedule 4.19 sets forth a complete and correct list of all material agreements, leases, indentures, purchase agreements, obligations in respect of letters of credit, guarantees, joint venture agreements, and other instruments in effect or to be in effect as of the date hereof (other than the agreements set forth in Schedule 4.20) providing for, evidencing, securing or otherwise relating to any Debt of the Borrower or any of its Restricted Subsidiaries, and all obligations of the Borrower or any of its Restricted Subsidiaries to issuers of surety or appeal bonds issued for account of the Borrower or any such Restricted Subsidiary, and such list correctly sets forth the names of the debtor or lessee and creditor or lessor with respect to the Debt or lease obligations outstanding or to be outstanding and the Property subject to any Lien securing such Debt or lease obligation. Also set forth on

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Schedule 4.19 hereto is a complete and correct list, as of the date of this Agreement, of all material agreements and other instruments of the Borrower and its Restricted Subsidiaries relating to the purchase, transportation by pipeline, gas processing, marketing, sale and supply of natural gas and other Hydrocarbons and which either (a) has a term longer than 12 months or (b) provides for liabilities of the Borrower and its Restricted Subsidiaries in excess of $3,000,000. To the extent requested, the Borrower has heretofore delivered to the Administrative Agent and the Lenders a complete and correct copy of all such material credit agreements, indentures, purchase agreements, contracts, letters of credit, guarantees, joint venture agreements, or other instruments, including any modifications or supplements thereto, as in effect on the date hereof.

     Section 4.20 Hedging Agreements. Schedule 4.20 sets forth, as of the date of this Agreement, a true and complete list of all Hedge Contracts of the Borrower and each Restricted Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied), and the counterparty to each such agreement.

     Section 4.21 OFAC. Neither the Borrower nor any of its Subsidiaries is in violation of any of the country or list based economic and trade sanctions administered and enforced by OFAC. Neither the Borrower nor any of its Subsidiaries (a) is a Sanctioned Person or a Sanctioned Entity, (b) has its assets located in Sanctioned Entities, or (c) derives revenues from investments in, or transactions with Sanctioned Persons or Sanctioned Entities. No proceeds of any Advance will be used to fund any operations in, finance any investments or activities in, or make any payments to, a Sanctioned Person or a Sanctioned Entity.

ARTICLE V

AFFIRMATIVE COVENANTS

     So long as any Note or any amount under any Loan Document shall remain unpaid, any Letter of Credit shall remain outstanding, or any Lender shall have any Commitment hereunder, the Borrower agrees, unless the Required Lenders shall otherwise consent in writing, to comply with the following covenants.

     Section 5.01 Compliance with Laws, Etc. The Borrower shall comply, and cause each of its Restricted Subsidiaries to comply, in all material respects with all applicable Legal Requirements. Without limiting the generality and coverage of the foregoing, the Borrower shall comply, and shall cause each of its Restricted Subsidiaries to comply, in all material respects, with all Environmental Laws and all laws, regulations, or directives with respect to equal employment opportunity and employee safety in all jurisdictions in which the Borrower, or any of its Restricted Subsidiaries do business; provided, however, that this Section 5.01 shall not prevent the Borrower or any of its Restricted Subsidiaries from, in good faith and with reasonable diligence, contesting the validity or application of any such Legal Requirements by appropriate legal proceedings. Without limitation of the foregoing, the Borrower shall, and shall cause each of its Restricted Subsidiaries to, (a) maintain and possess all authorizations, Permits, licenses, trademarks, trade names, rights and copyrights which are necessary to the conduct of its business and (b) obtain, as soon as practicable, all consents or approvals required from any states of the United States (or other Governmental Authorities) necessary to grant the Administrative Agent an Acceptable Security Interest in the Borrower’s and its Restricted Subsidiaries’ Oil and Gas Properties.

     Section 5.02 Maintenance of Insurance.

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     (a) The Borrower shall, and shall cause each of its Restricted Subsidiaries to, procure and maintain or shall cause to be procured and maintained continuously in effect policies of insurance in form and amounts and issued by companies, associations, or organizations reasonably satisfactory to the Administrative Agent, covering such casualties, risks, perils, liabilities and other hazards reasonably required by the Administrative Agent. In addition, the Borrower shall, and shall cause each of its Restricted Subsidiaries to, comply with all requirements regarding insurance contained in the Security Instruments.

     (b) All certified copies of policies or certificates thereof, and endorsements and renewals thereof shall be delivered to and retained by the Administrative Agent. All policies of insurance shall either have attached thereto a Lender’s loss payable endorsement for the benefit of the Administrative Agent, as loss payee in form reasonably satisfactory to the Administrative Agent or shall name the Administrative Agent as an additional insured, as applicable. The Borrower shall furnish the Administrative Agent with a certificate of insurance or a certified copy of all policies of insurance required. All policies or certificates of insurance shall set forth the coverage, the limits of liability, the name of the carrier, the policy number, and the period of coverage. In addition, all policies of insurance required under the terms hereof shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act of negligence of the Borrower, or a Restricted Subsidiary or any party holding under the Borrower or a Restricted Subsidiary which might otherwise result in a forfeiture of the insurance and the further agreement of the insurer waiving all rights of setoff, counterclaim or deductions against the Borrower and its Restricted Subsidiaries. All such policies shall contain a provision that notwithstanding any contrary agreements between the Borrower, its Restricted Subsidiaries, and the applicable insurance company, such policies will not be canceled, allowed to lapse without renewal, surrendered or amended (which provision shall include any reduction in the scope or limits of coverage) without at least 30 days’ prior written notice to the Administrative Agent. In the event that, notwithstanding the “lender’s loss payable endorsement” requirement of this Section 5.02, the proceeds of any insurance policy described above are paid to the Borrower or a Restricted Subsidiary, except as permitted under Section 5.02(c) below, the Borrower shall deliver such proceeds to the Administrative Agent immediately upon receipt.

     (c) Prior to the occurrence and continuance of an Event of Default, (i) up to $3,000,000 of the proceeds of any insurance policy shall be paid directly to the Borrower or the applicable Restricted Subsidiary of the Borrower to repair or replace the damaged or destroyed Property covered by such policy; provided that the Borrower or the applicable Restricted Subsidiary shall make such repair or replace such Property within 120 days from the receipt of such proceeds and (ii) the remaining amount of such proceeds and any amount of proceeds that were paid to the Borrower or Restricted Subsidiary as permitted under clause (i) above and not used toward the repair or replacement of such Property within the 120 days required under such clause (i), shall be paid directly to the Administrative Agent and if necessary, assigned to the Administrative Agent to be, at the election of the Administrative Agent, (A) applied in accordance with Section 7.06 of this Agreement, whether or not the Obligations are then due and payable, or (B) returned to the Borrower or the applicable Restricted Subsidiary of the Borrower to repair or replace the damaged or destroyed Property covered by such policy or to invest in other Oil and Gas Properties within the limits set forth in Section 6.06 hereof.

     (d) After the occurrence and during the continuance of an Event of Default, all proceeds of insurance, including any casualty insurance proceeds, property insurance proceeds, proceeds from actions, and any other proceeds, shall be paid directly to the Administrative Agent and if necessary, assigned to the Administrative Agent, to be applied in accordance with Section 7.06 of this Agreement, whether or not the Obligations are then due and payable.

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     (e) In the event that any insurance proceeds are paid to the Borrower or any of its Restricted Subsidiaries in violation of clause (c) or clause (d), the Borrower or such Restricted Subsidiary shall hold the proceeds in trust for the Administrative Agent, segregate the proceeds from the other funds of the Borrower or such Restricted Subsidiary, and promptly pay the proceeds to the Administrative Agent with any necessary endorsement. Upon the request of the Administrative Agent, each of the Borrower and its Restricted Subsidiaries shall execute and deliver to the Administrative Agent any additional assignments and other documents as may be necessary or desirable to enable the Administrative Agent to directly collect the proceeds as set forth herein.

     Section 5.03 Preservation of Corporate Existence, Etc. The Borrower shall (a) preserve and maintain, and cause each of its Restricted Subsidiaries to preserve and maintain, its limited partnership, corporate or limited liability company, as applicable, existence (except as otherwise permitted pursuant to Section 6.04), rights, franchises, and privileges in the jurisdiction of its incorporation or organization, as applicable, and (b) qualify and remain qualified, and cause each such Restricted Subsidiary to qualify and remain qualified, as a foreign corporation or such other foreign business entity in each jurisdiction in which qualification is necessary or desirable in view of its business and operations or the ownership of its Properties, in each case, where failure to qualify or preserve and maintain its rights and franchises could reasonably be expected to cause a Material Adverse Change.

     Section 5.04 Payment of Taxes, Etc. The Borrower shall pay and discharge, and cause each of its Restricted Subsidiaries to pay and discharge, before the same shall become delinquent, (a) all taxes, assessments, and governmental charges or levies imposed upon it or upon its income or profits or Property that are material in amount, prior to the date on which penalties attach thereto and (b) all lawful claims that are material in amount which, if unpaid, might by law become a Lien upon its Property; provided, however, that neither the Borrower nor any such Restricted Subsidiary shall be required to pay or discharge any such tax, assessment, charge, levy, or claim which is being contested in good faith and by appropriate proceedings, and with respect to which reserves in conformity with GAAP have been provided.

     Section 5.05 Visitation Rights. At any reasonable time and from time to time, upon reasonable notice, the Borrower shall, and shall cause its Restricted Subsidiaries to, permit the Administrative Agent and any Lender or any of their respective agents or representatives thereof, to (a) examine and make copies of and abstracts from the records and books of account of, and visit and inspect at their reasonable discretion the Properties of, the Borrower and any such Restricted Subsidiary and (b) discuss the affairs, finances and accounts of the Borrower and any such Restricted Subsidiary with any of their respective officers or directors.

     Section 5.06 Reporting Requirements. The Borrower shall furnish to the Administrative Agent and each Lender:

     (a) Annual Financials. For each fiscal year of the Borrower and its consolidated Subsidiaries ended on or ending after December 31, 2009, as soon as available but in any event not later than 120 days after the end of such fiscal year, (i) (A) a copy of the annual audited financial report for such year for the Borrower and its consolidated Subsidiaries, including therein the Borrower’s and its consolidated Subsidiaries’ balance sheets as of the end of such fiscal year and the Borrower’s and its consolidated Subsidiaries’ statements of income, cash flows, and retained earnings, in each case certified by independent certified public accountants reasonably acceptable to the Administrative Agent, and including any management letters delivered by such accountants to the Borrower or any Subsidiary in connection with such audit, (B) a certificate of such accounting firm to the Administrative Agent and the Lenders stating that such audit was conducted by such accounting firm in accordance with generally accepted auditing standards, and (C) a Compliance Certificate executed by a Responsible Officer of the

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Borrower and (ii) a copy of the unaudited annual consolidating financial statements, if any, of each of its Subsidiaries, including therein such Subsidiary’s balance sheet and statements of income, cash flows, and retained earnings for such fiscal year;

     (b) Quarterly Financials. As soon as available and in any event not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower and its consolidated Subsidiaries, commencing with the fiscal quarter ended March 31, 2010, (i) the unaudited balance sheet and the statements of income, cash flows, and retained earnings of the Borrower and its consolidated Subsidiaries for the period commencing at the end of the previous year and ending with the end of such fiscal quarter, all in reasonable detail and duly certified with respect to such consolidated statements (subject to year-end audit adjustments) by a Responsible Officer of the Borrower as having been prepared in accordance with GAAP and (ii) a Compliance Certificate executed by the Responsible Officer of the Borrower;

     (c) Capital Expenditures. As soon as available and in any event not later than 45 days after the end of each fiscal year, a budget detailing the projected Capital Expenditures of the Borrower and its Restricted Subsidiaries for the immediately subsequent fiscal year;

     (d) Oil and Gas Engineering Reports.

          (i) As soon as available but in any event on or before each April 1 of each year, an Independent Engineering Report dated effective as of January 1 for such year;

          (ii) As soon as available but in any event on or before October 1 of each year, an Internal Engineering Report dated effective as of the immediately preceding July 1; and

          (iii) Such other information as may be reasonably requested by the Administrative Agent or any Lender with respect to the Oil and Gas Properties included or to be included in the Borrowing Base.

     (e) Production Reports. As soon as available and in any event within 45 days after the end of each fiscal quarter, commencing with the fiscal quarter ended March 31, 2010, a report certified by a Responsible Officer of the Borrower in form and substance reasonably satisfactory to the Administrative Agent prepared by the Borrower covering each of the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries and detailing on a quarterly basis (i) the production and associated lease operating statements for the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries containing Proven Reserves in form and substance reasonably satisfactory to the Administrative Agent, together with a certificate signed by a Responsible Officer of the Borrower as to the truth and accuracy of such analyses in all material respects; (ii) any changes to any producing reservoir, production equipment, or producing well from the report delivered for the preceding fiscal quarter, which changes could cause a Material Adverse Change and (iii) any sales of the Borrower’s or any Restricted Subsidiaries’ Oil and Gas Properties since the delivery of the report for the preceding fiscal quarter;

     (f) Defaults. As soon as possible and in any event within three business days after an officer of the Borrower or a Restricted Subsidiary has knowledge of (i) the occurrence of any Default or (ii) the occurrence of any default under any instrument or document evidencing Debt of the Borrower or any Restricted Subsidiary having an aggregate principal amount in excess $1,000,000, in each case which Default or default is continuing on the date of such statement, a statement of a Responsible Officer of the Borrower setting forth the details of such Default or default, as applicable, and the actions which the Borrower or such Restricted Subsidiary has taken and proposes to take with respect thereto;

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     (g) Quarterly Report on Hedging and Deferred Purchase Obligations. Concurrent with the delivery of the financial statements required under Section 5.06(a) and 5.06(b) above, a statement prepared by Borrower and certified as being true and correct in all material respects by a Responsible Officer of Borrower, setting forth in reasonable detail:

          (i) all Hydrocarbon Hedge Agreements to which any production of oil, gas or other Hydrocarbons from the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries is then subject, together with a statement of Borrower’s position with respect to each such Hydrocarbon Hedge Agreement; provided, however, if the price of any of the oil, gas or other Hydrocarbons produced from such Oil and Gas Properties is subject to a Hydrocarbon Hedge Agreement, then Borrower shall promptly notify the Administrative Agent and the Lenders if such Hydrocarbon Hedge Agreement is terminated, modified, amended or altered prior to the end of its contractual term, or if there is an amendment, adjustment or modification of the price of any of the oil, gas or other Hydrocarbons produced from such Oil and Gas Properties that is subject to or established by a Hydrocarbon Hedge Agreement; and

          (ii) all Debt incurred in the form of deferred purchase price of Oil and Gas Property as permitted under Section 6.02(c) or 6.02(d), including the crude oil or natural gas pricing thresholds which would trigger a payment thereunder; provided, however, the Borrower shall promptly notify the Administrative Agent and the Lenders if there is an amendment, adjustment or modification of such pricing thresholds.

     (h) Termination Events. As soon as possible and in any event (i) within 30 days after the Borrower or any member of the Controlled Group knows or has reason to know that any Termination Event described in clause (a) of the definition of Termination Event with respect to any Plan has occurred, and (ii) within ten days after the Borrower or any member of the Controlled Group knows or has reason to know that any other Termination Event with respect to any Plan has occurred, a statement of a Responsible Officer of the Borrower describing such Termination Event and the action, if any, which the Borrower or such Controlled Group member proposes to take with respect thereto;

     (i) Termination of Plans. Promptly and in any event within five Business Days after receipt thereof by the Borrower or any member of the Controlled Group from the PBGC, copies of each notice received by the Borrower or any such member of the Controlled Group of the PBGC’s intention to terminate any Plan or to have a trustee appointed to administer any Plan;

     (j) Other ERISA Notices. Promptly and in any event within five Business Days after receipt thereof by the Borrower or any member of the Controlled Group from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or any member of the Controlled Group concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA;

     (k) Environmental Notices. Promptly upon the receipt thereof by the Borrower or any of its Restricted Subsidiaries, a copy of any form of request, notice, summons or citation received from the Environmental Protection Agency, or any other Governmental Authority, concerning (i) violations or alleged violations of Environmental Laws, which seeks to impose liability therefor and could cause a Material Adverse Change, (ii) any action or omission on the part of the Borrower or any Restricted Subsidiary in connection with Hazardous Waste or Hazardous Substances that could reasonably result in the imposition of liability therefor that could cause a Material Adverse Change, including without limitation any information request related to, or notice of, potential responsibility under CERCLA, or (iii) concerning the filing of a Lien upon, against or in connection with the Borrower or any Restricted Subsidiary, or any of their leased or owned Property, wherever located;

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     (l) Other Governmental Notices. Promptly and in any event within five Business Days after receipt thereof by the Borrower or any Restricted Subsidiary, a copy of any notice, summons, citation, or proceeding seeking to modify in any material respect, revoke, or suspend any material contract, license, permit or agreement with any Governmental Authority;

     (m) Material Changes. Prompt written notice of any condition or event of which the Borrower has knowledge, which condition or event has resulted or could reasonably be expected to result in a Material Adverse Change, including breach or non-performance of, or any default under, a material agreement of the Borrower or any Restricted Subsidiary;

     (n) Disputes, Etc. Prompt written notice of (i) any claims, legal or arbitration proceedings, proceedings before any Governmental Authority, or disputes affecting the Borrower, or any of its Restricted Subsidiaries, in any event, of which the Borrower has knowledge that could reasonably be expected to cause a Material Adverse Change, or any material labor controversy of which the Borrower or any of its Restricted Subsidiaries has knowledge resulting in or reasonably considered to be likely to result in a strike against the Borrower or any of its Restricted Subsidiaries and (ii) any claim, judgment, Lien or other encumbrance (other than a Permitted Lien) affecting any Property of the Borrower or any Restricted Subsidiary if the value of the claim, judgment, Lien, or other encumbrance affecting such Property shall exceed $1,000,000;

     (o) Other Accounting Reports. Promptly upon receipt thereof, a copy of each other report or letter submitted to the Borrower or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrower and its Subsidiaries, and a copy of any response by the Borrower or any Subsidiary of the Borrower, or the board of directors or managers (or other applicable governing body) of the Borrower or any Subsidiary of the Borrower, to such letter or report;

     (p) Notices Under Other Loan Agreements. Promptly after the furnishing thereof, copies of any statement, report or notice furnished to any Person pursuant to the terms of any indenture, loan or credit or other similar agreement relating to Debt of the Borrower or its Restricted Subsidiaries in an aggregate principal amount in excess of $1,000,000, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 5.06;

     (q) Notices of Hedge Contracts. The Borrower shall promptly, and in any event one Business Day after such event, notify the Administrative Agent if any hedge position or Hedge Contract is to be novated, assigned, unwound, terminated, or amended.

     (r) Other Information. Such other information respecting the business or Properties, or the condition or operations, financial or otherwise, of the Borrower or any of its Restricted Subsidiaries, as any Lender through the Administrative Agent may from time to time reasonably request. The Administrative Agent agrees to provide the Lenders with copies of any material notices and information delivered solely to the Administrative Agent pursuant to the terms of this Agreement.

     Section 5.07 Maintenance of Property. The Borrower shall, and shall cause each of its Restricted Subsidiaries to, maintain their owned, leased, or operated Property in good condition and repair (normal wear and tear excepted) and shall abstain, and cause each of its Restricted Subsidiaries to abstain from, knowingly or willfully permitting the commission of waste or other injury, destruction, or loss of natural resources, or the occurrence of pollution, contamination, or any other condition in, on or about the owned, leased or operated Property involving the Environment that could reasonably be expected to result in Response activities and that could reasonably be expected to cause a Material Adverse Change.

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     Section 5.08 Agreement to Pledge. The Borrower shall, and shall cause each Restricted Subsidiary to, grant to the Administrative Agent an Acceptable Security Interest in any Property of the Borrower or any Restricted Subsidiary now owned or hereafter acquired promptly after receipt of a written request from the Administrative Agent; provided that (a) in no event shall the Administrative Agent be permitted to request or the Borrower be required to grant an Acceptable Security Interest in any Oil and Gas Properties that exceeds 85% by value of all of the Borrower’s and its Restricted Subsidiaries’ Proven Reserves and Oil and Gas Properties, and (b) notwithstanding the foregoing 85% limitation, the Borrower shall cause Orion to grant to the Administrative Agent an Acceptable Security Interest in 90% of Orion’s interest in its Oil and Gas Properties. In furtherance of the foregoing clause (b), within 3 Business Days after the acquisition by Orion of Oil and Gas Properties, the Borrower shall give the Administrative Agent written notice thereof.

     Section 5.09 Use of Proceeds. The Borrower shall use the proceeds of the Advances and Letters of Credit (a) to fund a portion of the purchase price under the Merger Agreement, (b) for the payment of obligations outstanding under the Existing Credit Agreement as provided in Section 2.01(b), (c) to refinance the Merger Company Debt, (d) for the payment of fees, expenses and transaction costs, including legal expenses, associated with the foregoing, and (e) for working capital and other general partnership purposes.

     Section 5.10 Title Evidence. Within 60 days after the Effective Date, and from time to time thereafter upon the reasonable request of the Administrative Agent, the Borrower shall take such actions and execute and deliver such documents and instruments as the Administrative Agent shall require to ensure that the Administrative Agent shall, at all times, have received satisfactory title information (including, if requested, supplemental or new title opinions addressed to it), which title information (a) shall collectively cover at least 80% of the present value of the Proven Reserves of the Borrower and its Restricted Subsidiaries as determined by the Administrative Agent, (b) shall be in form and substance acceptable to the Administrative Agent in its sole discretion, and (c) if requested by the Administrative Agent, shall include opinions regarding the before payout and after payout ownership interests held by the Borrower and the Borrower’s Restricted Subsidiaries for all wells located on the Oil and Gas Properties covered thereby as to the ownership of Oil and Gas Properties of the Borrower and its Restricted Subsidiaries.

     Section 5.11 Further Assurances; Cure of Title Defects. The Borrower shall, and shall cause each Restricted Subsidiary to, cure promptly any defects in the creation and issuance of the Notes and the execution and delivery of the Security Instruments and this Agreement. The Borrower hereby authorizes the Lenders or the Administrative Agent to file any financing statements without the signature of the Borrower to the extent permitted by applicable law in order to perfect or maintain the perfection of any security interest granted under any of the Loan Documents. The Borrower at its expense will, and will cause each Restricted Subsidiary to, promptly execute and deliver to the Administrative Agent upon its reasonable request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Borrower or any Restricted Subsidiary, as the case may be, in the Security Instruments and this Agreement, or to further evidence and more fully describe the collateral intended as security for the Notes, or to correct any omissions in the Security Instruments, or to state more fully the security obligations set out herein or in any of the Security Instruments, or to perfect, protect or preserve any Liens created pursuant to any of the Security Instruments, or to make any recordings, to file any notices or obtain any consents, all as may be necessary or appropriate in connection therewith or to enable the Administrative Agent to exercise and enforce its rights and remedies with respect to any Collateral. Within 60 days after (a) a request by the Administrative Agent or the Lenders to cure any title defects or exceptions that are not Permitted Liens raised by such information or (b) a notice by the Administrative Agent that the Borrower has failed to comply with Section 5.10 above, the Borrower shall (i) cure such title defects or exceptions that are not Permitted Liens or substitute acceptable Oil and Gas

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Properties with no title defects or exceptions except for Permitted Liens covering Collateral of an equivalent value and (ii) deliver to the Administrative Agent satisfactory title evidence (including supplemental or new title opinions meeting the foregoing requirements) in form and substance acceptable to the Administrative Agent in its reasonable business judgment as to the Borrower’s and its Restricted Subsidiaries’ ownership of such Oil and Gas Properties and the Administrative Agent’s Liens and security interests therein as are required to maintain compliance with Section 5.10. In addition, the Borrower shall cause the Administrative Agent to, at all times, have an Acceptable Security Interest in at least 85% of all of the Borrower’s and its Restricted Subsidiaries’ Proven Reserves and Oil and Gas Properties.

     Section 5.12 Material Agreements. The Borrower shall, and shall cause each Restricted Subsidiary to, comply with all material terms, conditions, or covenants of any material contract or agreement to which the Borrower or any of its Restricted Subsidiaries is a party or by which they or their Properties may be bound except to the extent where the failure to do so could not reasonably be expected to cause a Material Adverse Change.

     Section 5.13 Leases; Development and Maintenance. The Borrower will, and will cause its Restricted Subsidiaries to, except to the extent failure to do any of the matters set forth below would not have a Material Adverse Change: (a) pay and discharge promptly, or cause to be paid and discharged promptly, all rentals, delay rentals, royalties, overriding royalties, payments out of production and other indebtedness or obligations accruing under, and perform or cause to be performed each and every act, matter or thing required by each and all of, the oil and gas leases and all other agreements and contracts constituting or affecting the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries (except where the amount thereof is being contested in good faith by appropriate proceedings), (b) do all other things necessary to keep unimpaired its rights thereunder and prevent any forfeiture thereof or default thereunder, and operate or cause to be operated such Properties as a prudent operator would in accordance with industry standard practices and in compliance with all applicable proration and conservation Legal Requirements and any other Legal Requirements of every Governmental Authority, whether state, federal, municipal or other jurisdiction, from time to time constituted to regulate the development and operations of oil and gas properties and the production and sale of oil, gas and other Hydrocarbons therefrom, and (c) maintain (or cause to be maintained) the Leases, wells, units and acreage to which the Oil and Gas Properties of the Borrower and its Restricted Subsidiaries pertain in a prudent manner consistent with industry standard practices.

     Section 5.14 Designations with Respect to Subsidiaries.

     (a) Any newly acquired or formed Subsidiary shall be deemed a Restricted Subsidiary unless designated by Borrower as an Unrestricted Subsidiary in accordance with the terms of this Section 5.14(a).

          (i) The Borrower may not acquire or form any such new Restricted Subsidiary nor may it designate any Unrestricted Subsidiary as a Restricted Subsidiary unless each of the following conditions are satisfied:

                    (A) immediately before and after giving effect to such acquisition or formation of a Restricted Subsidiary, no Default or Event of Default shall exist and be continuing;

                    (B) after giving effect to such acquisition or formation of a Restricted Subsidiary, the Borrower would be permitted to incur at least $1 of additional Indebtedness in accordance with the provisions of Section 6.02;

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                    (C) contemporaneously with the acquisition or formation of a Restricted Subsidiary, such Restricted Subsidiary shall execute and deliver to the Administrative Agent a Guaranty, a Pledge Agreement, a Security Agreement, and a Mortgage, and such other Security Instruments as the Administrative Agent or the Required Lenders may reasonably request and the equity holder of such Subsidiary executing and delivering to the Administrative Agent a Pledge Agreement pledging 100% of the Equity Interest of such Subsidiary along with the certificates pledged thereby, if any, and appropriately executed powers in blank, if applicable;

                    (D) contemporaneously with the acquisition or formation of a Restricted Subsidiary, the Borrower or such Restricted Subsidiary shall have delivered such certificates, opinions of counsel, title opinions, or other documents as the Administrative Agent may reasonably request relating to such Restricted Subsidiary; and

                    (E) the Borrower shall otherwise be in compliance with Section 5.08.

          (ii) The Borrower shall deliver to the Administrative Agent and each Bank, within 20 Business Days after any such designation, a certificate of a Responsible Officer of Borrower stating the effective date of such designation and stating that the foregoing conditions have been satisfied. Such certificate shall be accompanied by a schedule setting forth in reasonable detail the calculations demonstrating compliance with such conditions, where appropriate.

     (b) The Borrower shall not designate any Restricted Subsidiary as an Unrestricted Subsidiary.

     (c) In the case of the acquisition or formation of a Restricted Subsidiary, such new Restricted Subsidiary shall be deemed to have made or acquired all Investments owned by it and incurred all Indebtedness and other obligations owing by it and all Liens to which it or any of its properties are subject, on the date of such designation, acquisition, or formation.

     Section 5.15 Designation of Senior Debt. The Borrower shall, and shall cause each Restricted Subsidiary to, designate all Obligations as “designated senior indebtedness” under any subordinated note or indenture documents applicable to it, to the extent provided for therein, including but not limited to the Senior Unsecured Notes.

ARTICLE VI

NEGATIVE COVENANTS

     So long as any Note or any amount under any Loan Document shall remain unpaid, any Letter of Credit shall remain outstanding, or any Lender shall have any Commitment, the Borrower agrees, unless the Required Lenders otherwise consent in writing, to comply with the following covenants.

     Section 6.01 Liens, Etc. The Borrower shall not create, assume, incur, or suffer to exist, or permit any of its Restricted Subsidiaries to create, assume, incur, or suffer to exist, any Lien on or in respect of any of its Property whether now owned or hereafter acquired, or assign any right to receive income, except that the Borrower and its Restricted Subsidiaries may create, incur, assume, or suffer to exist:

     (a) Liens granted under a Loan Document and securing the Obligations;

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     (b) (i) Liens securing the Subordinated Debt to the extent permitted under the Subordination and Intercreditor Agreement, and (ii) Liens securing Additional Subordinated Debt permitted pursuant to Section 6.02(k);

     (c) purchase money Liens or purchase money security interests upon or in any equipment acquired or held by the Borrower or any of its Restricted Subsidiaries in the ordinary course of business prior to or at the time of the Borrower’s or such Restricted Subsidiary’s acquisition of such equipment; provided that, the Debt secured by such Liens (i) was incurred solely for the purpose of financing the acquisition of such equipment, and does not exceed the aggregate purchase price of such equipment, (ii) is secured only by such equipment and not by any other Properties of the Borrower or its Restricted Subsidiaries, and (iii) is permitted under Section 6.02(e);

     (d) Liens securing Capital Leases; provided that the Debt secured by such Liens (i) is secured only by the Property leased under such Capital Leases and not any other Properties of the Borrower or any of its Restricted Subsidiaries and (ii) is permitted under Section 6.02(e);

     (e) Liens for taxes, assessments, or other governmental charges or levies not yet due or that (provided foreclosure, sale, or other similar proceedings shall not have been initiated) are being contested in good faith by appropriate proceedings, and such reserve as may be required by GAAP shall have been made therefor;

     (f) Liens in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen, construction, or similar Liens arising by operation of law in the ordinary course of business in respect of obligations that are not yet due or that are being contested in good faith by appropriate proceedings, provided that such reserve as may be required by GAAP shall have been made therefor;

     (g) Liens to operators and non-operators under joint operating agreements arising in the ordinary course of the business of the Borrower or the relevant Restricted Subsidiary to secure amounts owing, which amounts are not yet due or are being contested in good faith by appropriate proceedings, if such reserve as may be required by GAAP shall have been made therefor;

     (h) royalties, overriding royalties, net profits interests, production payments, reversionary interests, calls on production, preferential purchase rights and other burdens on or deductions from the proceeds of production, that do not secure Debt for borrowed money and that are taken into account in computing the net revenue interests and working interests of the Borrower or any of its Restricted Subsidiaries warranted in the Security Instruments or in this Agreement;

     (i) Liens arising in the ordinary course of business out of pledges or deposits under workers’ compensation laws, unemployment insurance, old age pensions or other social security or retirement benefits, or similar legislation or to secure public or statutory obligations of the Borrower;

     (j) Liens arising under operating agreements, unitization and pooling agreements and orders, farmout agreements, gas balancing agreements and other agreements, in each case that are customary in the oil, gas and mineral production business and that are entered into in the ordinary course of business that are taken into account in computing the net revenue interests and working interests of the Borrower or any of its Restricted Subsidiaries warranted in the Security Instruments or in this Agreement, to the extent that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by the Borrower or any Restricted Subsidiary or materially impair the value of such Property subject thereto;

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     (k) easements, rights-of-way, restrictions, and other similar encumbrances, and minor defects in the chain of title that are customarily accepted in the oil and gas financing industry, including in respect of surface operations or for pipelines or power lines, none of which materially interfere with the ordinary conduct of the business of Borrower or any Restricted Subsidiary or materially detract from the value or use of the Property to which they apply;

     (l) judgment liens in respect of judgments that do not constitute an Event of Default under Section 7.01(f);

     (m) rights reserved to or vested in any Governmental Authority to control or regulate any Property of the Borrower or any of its Restricted Subsidiaries, or to use such Property; provided that, such rights (a) could not reasonably be expected to materially impair the use of such Property for the purpose for which it is held by the Borrower or any such Restricted Subsidiary and (b) could not reasonably be expected to materially diminish the value of such Property;

     (n) Liens existing on the Effective Date in favor of The CIT Group/Equipment Financing, Inc., as administrative agent and Liens existing on the Effective Date in favor of Orion Drilling; provided that, in any event, (A) such Liens encumber only the CIT/ORION Collateral and not any other Properties of the Borrower or any of its Restricted Subsidiaries, (B) with respect to the Debt secured by the Liens in favor of The CIT Group/Equipment Financing, Inc., as administrative agent, such Debt is permitted under Section 6.02(l), and (C) with respect to the Debt secured by the Liens in favor of Orion Drilling Company, LLC, such Debt is permitted under Section 6.02(m); and

     (o) Liens encumbering cash, cash equivalents, and certificates of deposits, and security in the form of letters of credit, in any case, arising in the ordinary course of business to secure the Debt permitted under Section 6.02(g) below.

     Section 6.02 Debts, Guaranties, and Other Obligations. The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, create, assume, suffer to exist, or in any manner become or be liable in respect of, any Debt except:

     (a) Debt of the Borrower and its Restricted Subsidiaries under the Loan Documents;

     (b) Debt listed on Part A of Schedule 4.05 and any renewals, extensions, or replacements thereof; provided that the amount of such Debt may not be increased;

     (c) Debt in the form of obligations for the deferred purchase price of Oil and Gas Property acquired in the ordinary course of business which is listed on Part B of Schedule 4.05 and incurred prior to November 14, 2007; provided that, such Debt (i) is not yet past due and payable or (ii) is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been established;

     (d) Debt in the form of obligations for the deferred purchase price of Oil and Gas Property acquired in the ordinary course of business and incurred after November 14, 2007, which (i) is not yet past due and payable or is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been established; (ii) is payable solely out of production revenues generated from the purchased Oil and Gas Properties; (iii) is due if, and only if, prices for crude oil or natural gas, as applicable, exceed certain thresholds agreed to between the seller and the buyer; (iv) cannot be accelerated or demanded for any reason unless and until such Debt becomes due as permitted in clause (iii) above; and (v) does not accrue any interest; provided that, the aggregate

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amount of Debt incurred by the Borrower and its Subsidiaries as permitted under this paragraph (d) shall not exceed $20,000,000;

     (e) Debt secured by the Liens permitted under paragraphs (c) or (d) of Section 6.01 in an aggregate amount not to exceed $2,500,000 at any time;

     (f) Debt under Hedge Contracts that are not prohibited by the terms of Section 6.14; provided that (i) such Debt shall not be secured, other than such Debt owing to Swap Counterparties which are secured under the Loan Documents, (ii) such Debt shall not obligate the Borrower or any of its Subsidiaries to any margin call requirements, and (iii) the deferred premium payments associated with such Hedge Contracts shall be limited to the deferred premium payments for put option contracts which are secured under the Loan Documents; provided that, the sum of (A) aggregate outstanding amount of such deferred premium payments plus (B) the outstanding unsecured Debt permitted under clause (m) below, shall not exceed $3,000,000;

     (g) Debt consisting of sureties or bonds provided to any Governmental Authority or other Person and assuring payment of contingent liabilities of the Borrower or any of its Restricted Subsidiaries in connection with the operation of the Oil and Gas Properties, including with respect to plugging, facility removal and abandonment of its Oil and Gas Properties;

     (h) Debt of the Borrower to any Restricted Subsidiary and of any Restricted Subsidiary to the Borrower or any other Restricted Subsidiary; provided that, such Debt is fully subordinated to the Obligations on terms acceptable to the Administrative Agent;

     (i) the Subordinated Debt outstanding on the Effective Date subject to the terms of the Subordination and Intercreditor Agreement;

     (j) Senior Unsecured Notes and the guaranties given by Restricted Subsidiaries with respect thereto; provided that (i) the principal amount of such Debt shall not exceed $300,000,000 in the aggregate, (ii) the Borrowing Base is reduced if and to the extent required by Section 2.02(e), and (iii) the Debt Incurrence Proceeds thereof shall be applied, first to repay in full Subordinated Debt and second to make the payments, if any, required under Section 2.05(b)(ii);

     (k) Additional Subordinated Debt of the Borrower (other than Senior Unsecured Notes) and the guaranties given by Restricted Subsidiaries with respect thereto; provided that, (i) the principal sum of the Subordinated Debt permitted under clause (i) above and the Debt permitted under this clause (k) shall not exceed $65,000,000 in the aggregate, (ii) the Borrowing Base is reduced if and to the extent required by Section 2.02(e), and (iii) the Debt Incurrence Proceeds thereof shall be applied to make the payments, if any, required under Section 2.05(b)(ii);

     (l) Debt outstanding on the Effective Date and owing to the lenders under that certain Credit Agreement dated as of May 2, 2008 among TMR Drilling LLC, The CIT Group/Equipment Financing, Inc., as administrative agent, and the lenders party thereto from time to time, and any renewals or extensions thereof; provided that, the outstanding principal amount of such Debt shall not exceed $5,500,000;

     (m) Guarantee of (i) The Meridian Resource & Exploration LLC’s obligations owing to Orion Drilling under (A) that certain Drilling Bid Proposal and Daywork Drilling Contract — US, dated as of February 12, 2007 between The Meridian Resource & Exploration LLC and Orion Drilling and (B) that certain Drilling Bid Proposal and Daywork Drilling Contract — US, dated as of September 4, 2008 between The Meridian Resource & Exploration LLC and Orion Drilling; (ii) TMR Drilling LLC’s

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obligations owing to Orion Drilling under that certain Equipment Lease (Rig No. 8) dated as of February 12, 2007; and (iii) any Restricted Subsidiary’s obligations owing to Orion Drilling under (A) that certain Forbearance and Amendment Agreement made by and among Orion Drilling, TMR Drilling LLC, The Meridian Resource & Exploration LLC and the Merger Company, dated as of September 3, 2009, (B) that certain Intercreditor and Subordination Agreement made by and among Orion Drilling, and The CIT Group/Equipment Financing, Inc., and (C) that certain Security Agreement made by and between Orion Drilling, TMR Drilling and The Meridian Resource & Exploration LLC, dated as of September 3, 2009; provided that, in any event under the preceding clauses (i) — (iii), (x) such obligations owing to Orion Drilling are ordinary course, trade payable obligations or other contractual obligations arising under such contracts and agreements as in effect on the Effective Date and not indebtedness for borrowed money, (y) such guarantee may cover all of the foregoing obligations irrespective of any discharge or voidness of such obligations in any bankruptcy or receivership of TMR Drilling LLC, any bankruptcy or receivership of The Meridian Resource & Exploration LLC or any bankruptcy or receivership of both TMR Drilling LLC and The Meridian Resource & Exploration LLC, and (z) the Borrower or any of its Subsidiaries must have the option, pursuant to the forbearance agreement described in clause (A) as in effect on the date hereof, to fully satisfy any and all such obligations and guarantees thereof by transferring the CIT/Orion Collateral to Orion Drilling; and

     (n) Other unsecured Debt; provided that, the sum of (i) the aggregate outstanding principal amount of such unsecured Debt plus (ii) the aggregate outstanding amount of the deferred premium payments permitted under clause (f) above, shall not exceed $3,000,000.

     Section 6.03 Agreements Restricting Liens and Distributions. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, create, incur, assume or permit to exist any contract, agreement or understanding (other than this Agreement and the Security Instruments or the Subordinated Loan Documents) that in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property, whether now owned or hereafter acquired, to secure the Obligations or restricts any Restricted Subsidiary from paying dividends to the Borrower, or that requires the consent of or notice to other Persons in connection therewith; provided, that the foregoing shall not apply to (i) restrictions and conditions imposed by Legal Requirements, (ii) customary restrictions or conditions imposed by any agreement relating to other secured Debt permitted by this Agreement if such restrictions or conditions apply only to the Property securing such Debt, and (iii) restrictions on the granting, conveying, creation or imposition of any Lien to secure the Obligations contained in any agreement or instrument governing secured Additional Subordinated Debt so long as such restrictions are no less favorable to the Lenders than the restrictions set forth in the Subordination and Intercreditor Agreement or which are otherwise satisfactory to the Administrative Agent and the Required Lenders.

     Section 6.04 Merger or Consolidation; Asset Sales; Hedge Terminations.

     (a) (i) Without the consent of all the Lenders (other than a Defaulting Lender), the Borrower shall not merge or consolidate with or into any other Person other than with a Restricted Subsidiary with the Borrower being the surviving entity; provided that at the time thereof and immediately after giving effect thereto no Default shall have occurred and the Administrative Agent shall continue to have an Acceptable Security Interest in the Collateral. (ii) The Borrower shall not permit any of its Restricted Subsidiaries to merge or consolidate with or into any other Person other than the merger of a Restricted Subsidiary into the Borrower pursuant to the immediately preceding sentence or another Restricted Subsidiary; provided that at the time thereof and immediately after giving effect thereto no Default shall have occurred and the Administrative Agent shall continue to have an Acceptable Security Interest in the Collateral.

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     (b) The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to make any Disposition or to novate, assign, unwind, terminate, or amend a hedge position or Hedge Contract other than:

     (i) the sale of Hydrocarbons or Liquid Investments in the ordinary course of business;

     (ii) the Disposition of equipment that is (A) obsolete, worn out, depleted or uneconomic and disposed of in the ordinary course of business, (B) no longer necessary for the business of such Person, or (C) contemporaneously replaced by equipment of at least comparable value and use;

     (iii) the Disposition of Property to the Borrower or a Restricted Subsidiary of the Borrower; provided that at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing and the Administrative Agent shall continue to have an Acceptable Security Interest in the Collateral;

     (iv) if no Event of Default then exists, the Disposition of Property which (A) does not constitute Proven Reserves and (B) does not constitute Collateral or is not otherwise required under this Agreement to be Collateral; and

     (v) if no Event of Default then exists, any Triggering Event; provided that, (A) before or after giving effect to such Triggering Event, the aggregate amount of all such Triggering Events effected during the six month period between scheduled redeterminations of the Borrowing Base shall not exceed 5% of the Borrowing Base then in effect, (B) the consideration received in respect of such Triggering Event shall be equal to or greater than the fair market value of the Properties subject to such Triggering Event, (C) if such Triggering Event is a Disposition and such Disposition is of a Restricted Subsidiary owning Oil and Gas Properties, such sale or other disposition shall include all the Equity Interests of such Restricted Subsidiary, and (D) the Borrower shall have made the payments, if any, required under Section 2.05(b)(iii).

     Section 6.05 Restricted Payments. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, make any Restricted Payments, except that if no Default or Event of Default has occurred both before and after giving effect to the making of such Restricted Payment, (a) the Restricted Subsidiaries may make Restricted Payments to the Borrower, (b) the Borrower may make Restricted Payments to its Equity Interest holders in an amount equal to the income tax liabilities of such Person attributable to the earnings of the Borrower, (c) in addition to the foregoing permitted distribution for tax liabilities, the Borrower may make Restricted Payments to its Equity Interest holders in an aggregate amount not to exceed $1,050,000, (d) Orion may make Restricted Payments to its Equity Holders; provided that the aggregate amount of such Restricted Payments made by Orion in any fiscal year to Equity Holders other than the Borrower shall not exceed 10% of Orion EBITDAX for such fiscal year, and (e) the Borrower may pay the Subordinated Debt to the extent not prohibited under Section 6.22.

     Section 6.06 Investments. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, make or permit to exist any loans, advances, or capital contributions to, or make any investment in (including, without limitation, the making of any Acquisition), or purchase or commit to purchase any stock or other securities or evidences of indebtedness of or interests in any Person, except:

     (a) Liquid Investments;

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     (b) trade and customer accounts receivable which are for goods furnished or services rendered in the ordinary course of business and are payable in accordance with customary trade terms;

     (c) loans, advances, and investments by the Borrower in and to Restricted Subsidiaries and investments, loans and advances by Restricted Subsidiaries in and to other Restricted Subsidiaries and the Borrower;

     (d) creation of any additional Restricted Subsidiaries in compliance with Section 6.16;

     (e) investments in Orion as permitted under Section 6.20; and

     (f) other investments, loans or advances not otherwise permitted by this Section 6.06 in an aggregate amount not to exceed $5,000,000 at any time.

     Section 6.07 Affiliate Transactions. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of transactions (including, but not limited to, the purchase, sale, lease or exchange of Property, the making of any investment, the giving of any guaranty, the assumption of any obligation or the rendering of any service) with any of their Affiliates (other than transactions among the Borrower and its Restricted Subsidiaries) unless such transaction or series of transactions is on terms no less favorable to the Borrower or the Restricted Subsidiary, as applicable, than those that could be obtained in a comparable arm’s length transaction with a Person that is not such an Affiliate.

     Section 6.08 Compliance with ERISA. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, directly or indirectly, (a) engage in, or permit any Restricted Subsidiary to engage in, any transaction in connection with which the Borrower or any Controlled Group member could be subjected to either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code; (b) terminate, or permit any Restricted Subsidiary to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability to the Borrower or any Controlled Group member to the PBGC; (c) fail to make, or permit any Restricted Subsidiary to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the Borrower or any Controlled Group member is required to pay as contributions thereto; (d) permit to exist, or allow any Restricted Subsidiary to permit to exist, any accumulated funding deficiency within the meaning of Section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan; (e) permit, or allow any Restricted Subsidiary to permit, the actuarial present value of the benefit liabilities (as “actuarial present value of the benefit liabilities” shall have the meaning specified in section 4041 of ERISA) under any Plan maintained by the Borrower or any Controlled Group member which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities; (f) assume an obligation to contribute to, or permit any Restricted Subsidiary to assume an obligation to contribute to, any Multiemployer Plan; (g) acquire, or permit any Restricted Subsidiary to acquire, an 80% or greater interest in any Person if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other Plan that is subject to Title IV of ERISA, and in either case, the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities, and the withdrawal liability, if assessed, could reasonably be expected to result in a Material Adverse Change; (h) incur, or permit any Restricted Subsidiary to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; (i) assume an obligation to contribute to, or permit any Restricted Subsidiary to assume an obligation to contribute to, any employee welfare benefit

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plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion without any material liability; (j) amend or permit any Restricted Subsidiary to amend, a Plan resulting in an increase in current liability such that the Borrower or any Controlled Group member is required to provide security to such Plan under section 401(a)(29) of the Code; or (k) permit to exist any occurrence of any Reportable Event (as defined in Title IV of ERISA), or any other event or condition, which presents a material (in the opinion of the Required Lenders) risk of such a termination by the PBGC of any Plan that could reasonably be expected to result in a Material Adverse Change.

     Section 6.09 Sale-and-Leaseback. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, sell or transfer to a Person any Property, whether now owned or hereafter acquired, if at the time or thereafter the Borrower or a Restricted Subsidiary shall lease as lessee such Property or any part thereof or other Property that the Borrower or a Restricted Subsidiary intends to use for substantially the same purpose as the Property sold or transferred, except for the sale-and-leaseback of furniture, fixtures, and equipment not to exceed $5,000,000.

     Section 6.10 Change of Business. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, make any material change in the character of its business as an independent oil and gas exploration and production company, nor will the Borrower or any Restricted Subsidiary operate or carry on business in any jurisdiction other than the United States, including the Gulf of Mexico.

     Section 6.11 Organizational Documents, Name Change; Change in Accounting. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, amend, supplement, modify or restate their articles or certificate of incorporation or formation, limited partnership agreement, bylaws, limited liability company agreements, or other equivalent organizational documents, or amend its name or change its jurisdiction of incorporation, organization or formation without prior written notice to, and prior consent of, the Administrative Agent. The Borrower and the Guarantors shall not, and shall not permit any Restricted Subsidiary to, make any significant change in accounting treatment or reporting practices, except as required by GAAP (and then subject to Section 1.03), or change the fiscal year of the Borrower or of any Restricted Subsidiary; provided following the Merger, Borrower shall convert the method of accounting for the Merger Company from “full cost accounting” to “successful efforts accounting.”

     Section 6.12 Use of Proceeds; Letters of Credit. The Borrower will not permit the proceeds of any Advance or Letters of Credit to be used for any purpose other than those permitted by Section 5.09. The Borrower will not engage in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U). Neither the Borrower nor any Person acting on behalf of the Borrower shall take, nor permit any of the Borrower’s Restricted Subsidiaries to take any action which might cause any of the Loan Documents to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect, including without limitation, the use of the proceeds of any Advance or Letters of Credit to purchase or carry any margin stock in violation of Regulation T, U or X.

     Section 6.13 Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, allow on a net basis, gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower or any Restricted Subsidiary that would require the Borrower or any Restricted Subsidiary to deliver their respective Hydrocarbons produced on a monthly basis from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor other than that which do not result in the Borrower or any Restricted Subsidiary having net aggregate liability in excess of $3,000,000.

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     Section 6.14 Limitation on Hedging.

     (a) Speculative Purposes. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to purchase, assume, or hold a speculative position in any commodities market or futures market or enter into any Hedge Contract for speculative purposes.

     (b) Risk Management; Term. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to be party to or otherwise enter into any Hedge Contract that (i) is entered into for reasons other than as a part of its normal business operations as a risk management strategy and/or hedge against changes resulting from market conditions related to the Borrower’s operations or (ii) is longer than five years in duration.

     (c) Additional Limitations on Hedging. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, be party to or enter into any Hydrocarbon Hedge Contract; provided that, the Borrower and its Restricted Subsidiaries may be party to and enter into Hydrocarbon Hedge Contract covering PDP Reserves subject to the following limitations:

     (i) other than as provided in the immediately following clause (ii) and clause (iii), before and after giving effect to such Hydrocarbon Hedge Contract, no more than 85% of the anticipated production of gas volumes and no more than 85% of the anticipated production of oil volumes, in either case, attributable to the Borrower’s and its Restricted Subsidiaries’ PDP Reserves, as reflected in the most recently delivered Engineering Report delivered pursuant to Section 2.02(b) and calculated on an aggregate basis for the Borrower and its Restricted Subsidiaries’, taken as a whole, may be covered by Hydrocarbon Hedge Contracts;

     (ii) the volume limitations in clause (i) shall not apply to put option contracts that are not related to corresponding calls, collars or swaps;

     (iii) the volume limitations in clause (i) shall not apply to the anticipated production of Hydrocarbons which are the subject of an Acquisition prior to effecting such Acquisition;

     (iv) such Hydrocarbon Hedge Contracts shall otherwise comply with the terms of this Agreement.

     Section 6.15 Post-Closing Hedging. On or prior to two Business Days after the Effective Date, the Borrower shall have entered into Hedge Contracts to effect the hedge positions for the volumes, years and forecasted production necessary in order to create an additional $1,400,000 of value attributable to the Oil and Gas Properties considered for the initial Borrowing Base hereunder, in any event, as reasonably determined by the Administrative Agent using its customary pricing data.

     Section 6.16 Additional Subsidiaries. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, create or acquire any additional Subsidiaries without (a) the prior written notice to the Administrative Agent and (b) being in compliance with Section 5.14.

     Section 6.17 Current Ratio. The Borrower shall not permit the ratio of, as of the last day of each fiscal quarter of the Borrower, beginning with the fiscal quarter ending June 30, 2010, the Borrower’s and its consolidated Restricted Subsidiaries’ (it being understood that no amounts of the Unrestricted Subsidiaries of the Borrower shall be taken into account in calculating this ratio and only such pro-rated amounts of Orion attributable to the Borrower’s equity ownership therein shall be taken into account in calculating this ratio) (a) consolidated current assets to (b) consolidated current liabilities, to be less than 1.00 to 1.00. For purposes of this calculation (i) “current assets” shall include, as of the

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date of calculation, the Unused Commitment Amount but shall exclude any asset representing a valuation account arising from the application of SFAS 133 or 143, and (ii) “current liabilities” shall exclude, as of the date of calculation, the current portion of long—term Debt existing under this Agreement and the current portion of long-term Debt existing under the Subordinated Credit Agreement and any liabilities representing a valuation account arising from the application of SFAS 133 and 143.

     Section 6.18 Leverage Ratio. The Borrower shall not permit, as of the end of each fiscal quarter, beginning with the fiscal quarter ending June 30, 2010, the ratio of (a) all Debt (other than obligations under Hedge Contracts) of the Borrower and its Restricted Subsidiaries (it being understood that only such pro-rated amounts of Orion’s Debt attributable to the Borrower’s equity ownership therein shall be taken into account in calculating this ratio) as of such fiscal quarter end to (b) the Adjusted EBITDAX, to be greater than 4.00 to 1.00.

     Section 6.19 Interest Coverage Ratio. The Borrower shall not permit, as of the end of each fiscal quarter, beginning with the fiscal quarter ending June 30, 2010, the ratio of (a) the Adjusted EBITDAX to (b) the Interest Expense, to be less than 3.00 to 1.00.

     Section 6.20 Orion. Notwithstanding anything to the contrary contained herein, including any provision of this Article VI, the Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to (i) create, assume, incur or suffer to exist any Lien on or in respect of any of its Property for the benefit of Orion, (ii) sell, assign, pledge, or otherwise transfer any of its Properties to Orion, or (iii) make or permit to exist any loans, advances, or capital contributions to, or make any investment in, or purchase or commit to purchase any stock or other securities or evidences of indebtedness of or interests in, Orion or in any Properties of Orion (collectively, “Orion Investments”); provided that, the Borrower may, and may permit its Restricted Subsidiaries to, make or permit to exist such Orion Investments which are otherwise permitted under the terms hereof and which individually or in the aggregate do not exceed $10,000,000 a year.

     Section 6.21 Account Payables. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, allow any of its trade payables or other accounts payable to be outstanding for more than 90 days (except (a) in cases where any such trade payable is being disputed in good faith and adequate reserves under GAAP have been established and (b) for such payables, which in the aggregate, do not exceed $250,000).

     Section 6.22 Subordinated Debt. Except as otherwise permitted by the terms of the Subordination and Intercreditor Agreement, the Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to, (a) make any optional, mandatory or scheduled payments on account of principal (whether by redemption, purchase, retirement, defeasance, set-off or otherwise), interest, premiums and fees in respect of the Subordinated Debt, or (b) amend, supplement or otherwise modify the terms of the Subordinated Debt; provided that, upon the issuance of Senior Unsecured Notes in compliance with Section 6.02(j), the Borrower may use the Debt Incurrence Proceeds thereof to repay the Subordinated Debt so long as no Event of Default has occurred and is continuing or would result therefrom.

     Section 6.23 Additional Subordinated Debt. The Borrower shall not, nor shall it permit any of its Restricted Subsidiaries to make any payments on account of principal (whether by redemption, purchase, retirement, defeasance, set-off or otherwise), interest, premiums and fees in respect of any Additional Subordinated Debt prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination term applicable thereto.

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ARTICLE VII

EVENTS OF DEFAULT; REMEDIES

     Section 7.01 Events of Default. The occurrence of any of the following events shall constitute an “Event of Default” under any Loan Document:

     (a) Payment. The Borrower (i) shall fail to pay when due any principal under the Notes or any other Loan Document or (ii) shall fail to pay any interest, fees, reimbursements, indemnifications, or other amounts due and payable hereunder, under the Notes, or under any other Loan Document and such failure shall continue for a period of three Business Days after the due date therefor;

     (b) Representation and Warranties. Any representation or warranty made or deemed to be made (i) by the Borrower or any of its Restricted Subsidiaries or any other Guarantor (or any of their respective officers) in this Agreement or in any other Loan Document or (ii) by the Borrower or any of its Restricted Subsidiaries (or any of their respective officers) in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) when made or deemed to be made;

     (c) Covenant Breaches. The Borrower or any of its Restricted Subsidiaries or any other Guarantor shall (i) fail to perform or observe any term or covenant set forth in Section 2.05(b), Section 5.03 (with respect to the existence of the Borrower or any Restricted Subsidiary), or Article VI of this Agreement or (ii) fail to perform or observe any other term or covenant set forth in this Agreement or in any other Loan Document that is not covered by clause (i) above or any other provision of this Section 7.01 and such failure shall remain unremedied for a period of thirty Business Days after the occurrence of such failure (such grace period to be applicable only in the event such Default can be remedied by corrective action of the Borrower or any of its Restricted Subsidiaries);

     (d) Cross-Defaults. (i) The Borrower and or any of its Restricted Subsidiaries shall fail to pay any principal of or premium or interest on its Debt that is outstanding in a principal amount of at least $2,500,000 individually or when aggregated with all such Debt of the Borrower or any of its Restricted Subsidiaries so in default (but excluding Debt evidenced by the Notes) when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to Debt (including, without limitation, any event of default or termination event under any Hedge Contract) that is outstanding in a principal amount (or termination payment amount or similar amount) of at least $2,500,000 individually or when aggregated with all such Debt of the Borrower or such Restricted Subsidiary so in default, and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or (iii) any such Debt in a principal amount of at least $2,500,000 individually or when aggregated with all such Debt of the Borrower or such Restricted Subsidiary shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof;

     (e) Insolvency. (i) The Borrower or any of its Restricted Subsidiaries or any other Guarantor shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; (ii) any proceeding shall be instituted by or against the Borrower or any of its Restricted Subsidiaries seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment,

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protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its Property and, in the case of any such proceeding instituted against the Borrower or any such Restricted Subsidiary either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding shall occur; or (iii) the Borrower or any of its Restricted Subsidiaries, shall take any corporate action to authorize any of the actions set forth above in this paragraph (e);

     (f) Judgments. Any judgment or order for the payment of money in excess of $2,500,000 shall be rendered against the Borrower or any of its Restricted Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect;

     (g) Termination Events. Any Termination Event with respect to a Plan shall have occurred, and, 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent, (i) such Termination Event shall not have been corrected and (ii) the Termination Event could reasonably be expected to result in a Material Adverse Change;

     (h) Plan Withdrawals. The Borrower or any member of the Controlled Group as employer under a Multiemployer Plan shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability in an annual amount that could reasonably be expected to result in a Material Adverse Change;

     (i) Change in Control. A Change in Control shall have occurred;

     (j) Loan Documents. Any provision of any Loan Document shall for any reason cease to be valid and binding on the Borrower or any of its Restricted Subsidiaries or any such Person shall so state in writing;

     (k) Security Instruments. (i) The Administrative Agent shall fail to have an Acceptable Security Interest in any portion of the Collateral in excess of $1,000,000.00 in the aggregate at any one time or (ii) any Security Instrument shall at any time and for any reason cease to create the Lien on the Property purported to be subject to such agreement in accordance with the terms of such agreement, or cease to be in full force and effect, or shall be contested by the Borrower or any of its Restricted Subsidiaries except as a result of the sale or other Disposition of the applicable Collateral permitted under the Loan Documents;

     (l) Potential Failure of Title. The title of the Borrower or any of its Restricted Subsidiaries to any of the Oil and Gas Properties subject to the Mortgages, or any material part thereof, shall become the subject matter of litigation before any Governmental Authority or arbitrator that could reasonably be expected to result in a Material Adverse Change with respect to the Borrower’s and the Restricted Subsidiaries’ title to such Oil and Gas Properties, taken as a whole; or

     (m) Brayton Pledge Agreement. (i) Any representation or warranty made or deemed to be made Frio Pecan Farm, LP, Flatmax Energy, L.P. or Brayton Management GP, LLC in the Brayton Pledge Agreement shall prove to have been incorrect in any material respect when made or deemed to be made and such misrepresentation could reasonably be expected to result in a Material Adverse Change; (ii) Frio Pecan Farm, LP, Flatmax Energy, L.P. or Brayton Management GP, LLC shall fail to perform or observe any term or covenant set forth in the Brayton Pledge Agreement and such failure shall remain

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unremedied for a period of thirty Business Days after the occurrence of such failure (such grace period to be applicable only in the event such Default can be remedied by corrective action of Frio Pecan Farm, LP, Flatmax Energy, L.P. or Brayton Management GP, LLC) and such failure could reasonably be expected to result in a Material Adverse Change; (iii) the Brayton Pledge Agreement shall at any time and for any reason cease to create the Lien on the Property purported to be subject to such agreement in accordance with the terms of such agreement except as a result of the sale or other Disposition of the applicable Collateral permitted under the Loan Documents and such cessation could reasonably be expected to result in a Material Adverse Change; (iv) Frio Pecan Farm, LP, Flatmax Energy, L.P., or Brayton Management GP, LLC shall contest the Brayton Pledge Agreement or the Lien purported to be created thereby and such action could reasonably be expected to result in a Material Adverse Change; or (v) the Borrower or any of its Restricted Subsidiaries shall contest the Brayton Pledge Agreement or the Lien purported to be created thereby.

     (n) Subordinated Credit Agreement. An “Event of Default” under the Subordinated Credit Agreement shall have occurred.

     (o) Subordination and Intercreditor Agreement. For so long as the Subordinated Debt is outstanding, unless such Debt was paid in violation of the terms of this Agreement or the Subordination and Intercreditor Agreement, the subordination provisions of the Subordination and Intercreditor Agreement shall, for any reason cease to be valid and binding or otherwise cease to be in full force and effect.

     Section 7.02 Optional Acceleration of Maturity. If any Event of Default (other than an Event of Default pursuant to paragraph (e) of Section 7.01) shall have occurred and be continuing, then, and in any such event,

     (a) the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender and the Issuing Lender to make extensions of credit hereunder, including making Advances and issuing, increasing, or extending Letters of Credit, to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Notes, and the other Loan Documents to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower;

     (b) the Borrower shall, on demand of the Administrative Agent at the request or with the consent of the Required Lenders, deposit with the Administrative Agent into the Cash Collateral Account an amount of cash equal to the Letter of Credit Exposure as security for the Obligations; and

     (c) the Administrative Agent shall at the request of, or may with the consent of, the Required Lenders proceed to enforce its rights and remedies under the Security Instruments, the Guaranties, and any other Loan Document for the ratable benefit of itself, the Issuing Lender and the Lenders by appropriate proceedings.

     Section 7.03 Automatic Acceleration of Maturity. If any Event of Default pursuant to paragraph (e) of Section 7.01 shall occur,

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     (a) (i) the obligation of each Lender and the Issuing Lender to make extensions of credit hereunder, including making Advances and issuing, increasing, or extending Letters of Credit, shall terminate, and (ii) all principal, interest, fees, reimbursements, indemnifications, and all other amounts payable under this Agreement, the Notes, and the other Loan Documents shall become and be forthwith due and payable in full, without notice of intent to demand, demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices, all of which are hereby expressly waived by the Borrower;

     (b) the Borrower shall deposit with the Administrative Agent into the Cash Collateral Account an amount of cash equal to the outstanding Letter of Credit Exposure as security for the Obligations; and

     (c) the Administrative Agent shall at the request of, or may with the consent of, the Required Lenders proceed to enforce its rights and remedies under the Security Instruments, the Guaranties, and any other Loan Document for the ratable benefit of itself, the Issuing Lender and the Lenders by appropriate proceedings.

     Section 7.04 Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent, the Issuing Lender, and each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Administrative Agent, the Issuing Lender, or such Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement, the Notes held by the Administrative Agent, the Issuing Lender, or such Lender, and the other Loan Documents, irrespective of whether or not the Administrative Agent, the Issuing Lender, or such Lender shall have made any demand under this Agreement, such Notes, or such other Loan Documents, and although such obligations may be unmatured. The Administrative Agent, the Issuing Lender, and each Lender agrees to promptly notify the Borrower after any such set-off and application made by the Administrative Agent, the Issuing Lender, or such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent, the Issuing Lender, and each Lender under this Section 7.04 are in addition to any other rights and remedies (including, without limitation, other rights of set-off) which the Administrative Agent, the Issuing Lender, or such Lender may have.

     Section 7.05 Non-exclusivity of Remedies. No remedy conferred upon the Administrative Agent, the Issuing Lender, and the Lenders is intended to be exclusive of any other remedy, and each remedy shall be cumulative of all other remedies existing by contract, at law, in equity, by statute or otherwise.

     Section 7.06 Application of Proceeds. From and during the continuance of any Event of Default, any monies or Property actually received by the Administrative Agent pursuant to this Agreement or any other Loan Document, the exercise of any rights or remedies under any Security Instrument, or any other agreement with the Borrower or any of its Restricted Subsidiaries that secures any of the Obligations, shall be, subject to the Subordination and Intercreditor Agreement, applied in the following order:

     (a) First, to the payment of all amounts, including without limitation costs and expenses incurred in connection with the collection of such proceeds and the payment of any part of the Obligations, due to the Administrative Agent under any of the expense reimbursement or indemnity provisions of this Agreement or any other Loan Document, any Security Instrument, or other collateral documents, and any applicable law;

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     (b) Second, ratably, according to the then unpaid amounts thereof, without preference or priority of any kind among them, to the payment of the Obligations then due and payable, including Obligations with respect to Letters of Credit, any Obligations of the Borrower or its Restricted Subsidiaries owing to any Swap Counterparty under any Hedge Contract and any Banking Services Obligations owing to any Lender or Affiliate of a Lender; and

     (c) Third, to the Subordinated Agent as required under the Subordination and Intercreditor Agreement; and

     (d) Fourth, the remainder, if any, to the Borrower, its Restricted Subsidiaries, their respective successors or assigns, or such other Person as may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.

ARTICLE VIII

THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER

     Section 8.01 Authorization and Action. Each Lender that is an Existing Lender is deemed to have appointed Wells Fargo Bank, N.A., as the administrative agent and the issuing lender under the Existing Credit Agreement; provided, however, Wells Fargo Bank, N.A. does not assume and shall not be obligated to pay, perform or discharge any claim, debt, obligation, expense or liability of Union Bank, N.A., if any, of any kind, whether known or unknown, absolute or contingent, under the Loan Documents (as defined in the Existing Credit Agreement) or otherwise, arising out of any act or omission occurring on or before the date hereof under the Loan Documents (as defined in the Existing Credit Agreement). The Borrower, the Existing Lenders, Wells Fargo Bank, N.A. and Union Bank, N.A. agree that Section 8.06 of the Existing Credit Agreement shall apply to Union Bank, N.A.’s resignation pursuant to the Assignment; provided that, such parties hereby waive the 30 days prior written notice required thereunder as to such resignation. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof and of the other Loan Documents, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Loan Document (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action that exposes the Administrative Agent to personal liability or that is contrary to this Agreement, any other Loan Document, or applicable law.

     Section 8.02 Administrative Agent’s Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents, or employees shall be liable for any action taken or omitted to be taken (INCLUDING THE ADMINISTRATIVE AGENT’S OWN NEGLIGENCE) by it or them under or in connection with this Agreement or the other Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Administrative Agent; (b) may consult with legal counsel (including counsel for the Borrower), independent public accountants, and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties, or representations made in or in connection with

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this Agreement or the other Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Loan Document on the part of the Borrower or its Subsidiaries or to inspect the Property (including the books and records) of the Borrower or its Subsidiaries; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other Loan Document; and (f) shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon any notice, consent, certificate, or other instrument or writing (which may be by telecopier) believed by it to be genuine and signed or sent by the proper party or parties.

     Section 8.03 The Administrative Agent and Its Affiliates. With respect to its Commitment, the Advances made by it, and the Notes issued to it, the Administrative Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent. The term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include the Administrative Agent in its individual capacity. The Administrative Agent and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower or any of its Subsidiaries, and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if the Administrative Agent were not an agent hereunder and without any duty to account therefor to the Lenders.

     Section 8.04 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the Interim Financial Statements and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it shall, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

     Section 8.05 Indemnification. THE LENDERS SEVERALLY AGREE TO INDEMNIFY THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS (TO THE EXTENT NOT REIMBURSED BY THE BORROWER), ACCORDING TO THEIR RESPECTIVE PRO RATA SHARES FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY THE ADMINISTRATIVE AGENT OR THE ISSUING LENDER UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (INCLUDING THE ADMINISTRATIVE AGENT’S AND THE ISSUING LENDER’S OWN NEGLIGENCE), AND INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL CLAIMS AND ANY LIABILITIES ARISING UNDER ENVIRONMENTAL LAW, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM THE ADMINISTRATIVE AGENT’S OR THE ISSUING LENDER’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER AGREES TO REIMBURSE THE ADMINISTRATIVE AGENT AND THE ISSUING LENDER PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY THE ADMINISTRATIVE AGENT IN CONNECTION WITH THE PREPARATION,

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EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, TO THE EXTENT THAT THE ADMINISTRATIVE AGENT OR THE ISSUING LENDER IS NOT REIMBURSED FOR SUCH BY THE BORROWER. Notwithstanding the foregoing, the preceding provisions of this Section 8.05 shall apply only to liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that were incurred by or asserted against the Administrative Agent or the Issuing Bank in their respective capacities as such, or against any Affiliate thereof, or any of such Person’s or Affiliate’s respective directors, officers, employees, or agents, acting for the Administrative Agent or Issuing Bank in connection with such capacity. To the extent that the indemnity obligations provided in this Section 8.05 are for the benefit of the Administrative Agent as the named secured party under the Liens granted under the Security Instruments, each Lender hereby agrees that if such Lender ceases to be a Lender hereunder but Obligations owing to such Lender or an Affiliate of such Lender continue to be secured by such Liens, then such Lender shall continue to be bound by the provisions of this Section 8.05 until such time as such Obligations have been satisfied or terminated in full and subject to the terms of the last sentence of Section 9.09. In such event, in determining the pro rata shares under this Section 8.05, the Lenders shall include the aggregate amount (giving effect to any netting agreements) that would be owing to such Swap Counterparty if such Hedge Contracts were terminated at the time of determination.

     Section 8.06 Successor Administrative Agent and Issuing Lender. The Administrative Agent or the Issuing Lender may resign at any time by giving not less than 30 days prior written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Required Lenders upon receipt of written notice from the Required Lenders to such effect. Upon receipt of notice of any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent or Issuing Lender with, if any Event of Default has not occurred and is not continuing, the consent of the Borrower, which consent shall not be unreasonably withheld. If no successor Administrative Agent or Issuing Lender shall have been so appointed by the Required Lenders with the consent of the Borrower, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s or Issuing Lender’s giving of notice of resignation or the Required Lenders’ removal of the retiring Administrative Agent or Issuing Lender, then the retiring Administrative Agent or Issuing Lender may, on behalf of the Lenders and the Borrower, appoint a successor Administrative Agent or Issuing Lender, which shall be, in the case of a successor agent, a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000 and, in the case of the Issuing Lender, a Lender; provided that, if the Administrative Agent or Issuing Lender shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Administrative Agent or Issuing Lender shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that (A) in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the Issuing Lender under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed and (B) the retiring Issuing Lender shall remain the Issuing Lender with respect to any Letters of Credit outstanding on the effective date of its resignation or removal and the provisions affecting the Issuing Lender with respect to such Letters of Credit shall inure to the benefit of the retiring Issuing Lender until the termination of all such Letters of Credit) and (2) all payments, communications and determinations provided to be made by, to or through the retiring Administrative Agent shall instead be made by or to each Lender and the Issuing Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent or Issuing Lender, as applicable, as provided for above in this paragraph. Upon the acceptance of any appointment as Administrative Agent or Issuing Lender by a successor Administrative Agent or Issuing Lender, such successor Administrative Agent or Issuing Lender shall thereupon succeed

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to and become vested with all the rights, powers, privileges, and duties of the retiring Administrative Agent or Issuing Lender, and the retiring Administrative Agent or Issuing Lender shall be discharged from its duties and obligations under this Agreement and the other Loan Documents, except that the retiring Issuing Lender shall remain the Issuing Lender with respect to any Letters of Credit outstanding on the effective date of its resignation or removal and the provisions affecting the Issuing Lender with respect to such Letters of Credit shall inure to the benefit of the retiring Issuing Lender until the termination of all such Letters of Credit. After any retiring Administrative Agent’s or Issuing Lender’s resignation or removal hereunder as Administrative Agent or Issuing Lender, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or Issuing Lender under this Agreement and the other Loan Documents.

     Section 8.07 Additional Agents. None of the agents (other than the Administrative Agent) or arrangers referred to on the cover of this Agreement shall have any duties, obligations or liabilities in their respective capacities as agents or arrangers.

     Section 8.08 Collateral Matters.

     (a) Administrative Agent is authorized on behalf of the Secured Parties, without the necessity of any notice to or further consent from the Secured Parties, from time to time, to take any actions with respect to any Collateral or Security Instruments which may be necessary to perfect and maintain Acceptable Security Interests in and Liens upon the Collateral granted pursuant to the Security Instruments. Administrative Agent is further authorized on behalf of the Secured Parties, without the necessity of any notice to or further consent from the Secured Parties, from time to time, to take any action (other than enforcement actions requiring the consent of, or request by, the Required Lenders as set forth in Section 7.02 or Section 7.03 above) in exigent circumstances as may be reasonably necessary to preserve any rights or privileges of the Secured Parties under the Loan Documents or applicable law. By accepting the benefit of the Liens granted pursuant to the Security Instruments, each Secured Party not party hereto hereby agrees to the terms of this paragraph (a).

     (b) Each Secured Party irrevocably authorizes Administrative Agent to release any Lien granted to or held by the Administrative Agent upon any Collateral: (i) upon termination of the Commitments, termination or expiration of all Letters of Credit (other than Letters of Credit as to which other arrangements satisfactory to the Administrative Agent and the Issuing Lender have been made), termination of all Hedge Contracts with Swap Counterparties that are secured by the Liens on the Collateral (other than Hedge Contracts with any Swap Counterparty with respect to which other arrangements satisfactory to the Swap Counterparty and the Borrower have been made; provided that, unless a Swap Counterparty notifies the Administrative Agent in writing at least 2 Business Days prior to the expected termination of the Commitments that such arrangements have not been made, then solely for purposes of this clause (b), it shall be deemed that such satisfactory arrangements have been made), and payment in full of all Obligations (other than Obligations arising under Hedge Contracts with any Swap Counterparty with respect to which other arrangements satisfactory to the Swap Counterparty and the Borrower have been made; provided that, unless a Swap Counterparty notifies the Administrative Agent in writing at least 2 Business Days prior to the expected termination of the Commitments that such arrangements have not been made, then solely for purposes of this clause (b), it shall be deemed that such satisfactory arrangements have been made); (ii) constituting Property sold or to be sold or otherwise disposed of as part of or in connection with any Disposition permitted under this Agreement or the other Loan Documents; (iii) constituting Property in which the Borrower or any Restricted Subsidiary owned no interest at the time the Lien was granted or at any time thereafter; (iv) constituting Property leased to the Borrower or any Restricted Subsidiary under a lease which has expired or has been terminated in a transaction permitted under this Agreement or is about to expire and which has not been, and is not intended by the Borrower or such Restricted Subsidiary to be, renewed or extended; or (v) if approved,

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authorized or ratified in writing by the applicable Required Lenders or all the Lenders, as the case may be, as required by Section 9.01. Upon the request of the Administrative Agent at any time, the Secured Parties will confirm in writing the Administrative Agent’s authority to release particular types or items of Collateral pursuant to this Section 8.08. By accepting the benefit of the Liens granted pursuant to the Security Instruments, each Secured Party not party hereto hereby agrees to the terms of this paragraph (b).

     (c) Notwithstanding anything contained in any of the Loan Documents to the contrary, the Borrower, the Administrative Agent, and each Secured Party hereby agree that no Secured Party shall have any right individually to realize upon any of the Collateral or to enforce the Guaranty, it being understood and agreed that all powers, rights and remedies hereunder and under the Security Instruments may be exercised solely by Administrative Agent on behalf of the Secured Parties in accordance with the terms hereof. By accepting the benefit of the Liens granted pursuant to the Security Instruments, each Secured Party not party hereto hereby agrees to the terms of this paragraph (c).

ARTICLE IX

MISCELLANEOUS

     Section 9.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement, the Notes, or any other Loan Document (other than the Fee Letters), nor consent to any departure by the Borrower or any Restricted Subsidiary therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver, or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) waive any of the conditions specified in Section 3.01, (b) increase the Borrowing Base or the aggregate Commitments of the Lenders, (c) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder or under any other Loan Document, (d) postpone any date fixed for any payment of principal of, or interest on, the Notes, or any fees or other amounts payable hereunder or extend the Maturity Date, or the Commitment Termination Date, (e) change the percentage of Lenders that shall be required for the Lenders or any of them to take any action hereunder or under any other Loan Document, (f) amend Section 2.11 in such a manner as to alter the pro rata sharing of payments required therein or this Section 9.01, (g) amend the definition of “Required Lenders,” (h) release any Restricted Subsidiary or Orion from its obligations under any Guaranty other than as a result of a transaction permitted hereby, (i) permit the Borrower or any Restricted Subsidiary to enter into any merger or consolidation with or into any other Person, except for mergers or consolidations permitted pursuant to Section 6.04 or amend clause (a)(i) of Section 6.04, (j) release any Collateral securing the Obligations, except for releases of Collateral as permitted under Section 8.08(b), or (k) amend or waive any provision of, nor consent to any departure by any party thereto from, the Subordination and Intercreditor Agreement to the extent such amendment, waiver or consent would impair the priority or enforceability of the Liens securing the Obligations; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent or the Issuing Lender in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent or the Issuing Lender, as the case may be, under this Agreement or any other Loan Document. No Lender or any Affiliate of a Lender shall have any voting rights under any Loan Document as a result of the existence of obligations owed to it under Hedge Contracts or Banking Services Obligations.

     Section 9.02 Notices, Etc. All notices and other communications shall be in writing (including, without limitation, telecopy) and mailed by certified mail, return receipt requested, telecopied, hand delivered, or delivered by a nationally recognized overnight courier, at the address for the appropriate party specified in Schedule I or at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when so mailed,

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telecopied, or hand delivered or delivered by a nationally recognized overnight courier, be effective when received if mailed, when telecopy transmission is completed or when delivered by such messenger or courier, respectively, except that notices and communications to the Administrative Agent pursuant to Article II or VIII shall not be effective until received by the Administrative Agent.

     Section 9.03 No Waiver; Remedies. No failure on the part of any Lender, the Administrative Agent, or the Issuing Lender to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

     Section 9.04 Costs and Expenses. The Borrower agrees to pay on demand (a) all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution, waiver, delivery, administration, modification, and amendment of this Agreement, the Notes, the Guaranties, and the other Loan Documents including, without limitation, the reasonable fees and reasonable out-of-pocket expenses of counsel for the Administrative Agent with respect to advising the Administrative Agent as to its rights and responsibilities under this Agreement, and (b) all out-of-pocket costs and expenses, if any, of the Administrative Agent, the Issuing Lender, and each Lender (including, without limitation, counsel fees and expenses of the Administrative Agent, the Issuing Lender, and each Lender) incurred in connection with the enforcement its rights or incurred during the existence of a Default in connection with the protection if its rights (in any event, whether through negotiations, legal proceedings, or otherwise) (A) in connection with this Agreement, the Notes, the Guaranties and the other Loan Documents, including its rights under this Section, following an Event of Default or (B) in connection with the Advances made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Advances or Letters of Credit.

     Section 9.05 Binding Effect. This Agreement shall become effective as provided in Section 3.01 and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent, the Issuing Lender, and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights or delegate its duties under this Agreement or any interest in this Agreement without the prior written consent of each Lender.

     Section 9.06 Lender Assignments and Participations.

     (a) Assignments. Any Lender may assign to one or more Eligible Assignee all or any portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it, the Notes held by it, and the participation interest in the Letter of Credit Obligations held by it); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of such Lender’s rights and obligations assigned under this Agreement and shall be an equal percentage with respect to both its obligations owing in respect of the Commitments and the related Advances and Letters of Credit, (ii) the amount of the Commitments and Advances of such Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall be, if to an entity other than a Lender, not less than $5,000,000 and shall be an integral multiple of $1,000,000 in excess thereof, (iii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with the Notes subject to such assignment, and (iv) each Eligible Assignee (other than the Eligible Assignee of the Administrative Agent) shall pay to the Administrative Agent a $3,500 administrative fee. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least three Business Days after the execution

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thereof, (A) the assignee thereunder shall be a party hereto for all purposes and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) such Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of such Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

     (b) Terms of Assignments. By executing and delivering an Assignment and Acceptance, the Lender thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, or sufficiency of value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or its Restricted Subsidiaries or the performance or observance by the Borrower or its Restricted Subsidiaries of any of their obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the Financial Statements and Interim Financial Statements referred to in Section 4.05 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender.

     (c) The Register. The Administrative Agent shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Advances owing to, each Lender from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent, the Issuing Lender, and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

     (d) Procedures. Upon its receipt of an Assignment and Acceptance executed by a Lender and an Eligible Assignee, together with the Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of the attached Exhibit A, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower shall execute and deliver to the Administrative Agent in exchange for the surrendered Notes (A) if such Eligible Assignee has acquired a Commitment, a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and (B) if such Lender has retained any Commitment, a new Note to the order of such Lender in an amount equal to the Commitment retained by it hereunder.

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Such new Notes shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the attached Exhibit E.

     (e) Participations. Each Lender may sell participations to one or more banks or other financial institutions (or any other entity if an Event of Default has occurred and is continuing) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it, its participation interest in the Letter of Credit Obligations, and the Notes held by it); provided, however, that (i) such Lender’s obligations under this Agreement (including, without limitation, its Commitments to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Notes for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent, the Issuing Lender, and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement, and (v) such Lender shall not require the participant’s consent to any matter under this Agreement, except for any matter set forth in the first proviso of Section 9.01. The Borrower hereby agrees that participants shall have the same rights under Sections 2.12, 2.13, 2.14(c), and 9.07 as a Lender to the extent of their respective participations.

     (f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank or any central bank having jurisdiction over such Lender; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

     Section 9.07 Indemnification; Waiver.

     (a) INDEMNIFICATION. THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, THE LENDERS, THE ISSUING LENDER, AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS (EACH, AN “INDEMNIFIED PARTY”) FROM, AND DISCHARGE, RELEASE, AND HOLD EACH INDEMNIFIED PARTY HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, OR DAMAGES THAT MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST SUCH INDEMNIFIED PARTY IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED BY ANY INDEMNIFIED PARTY UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (A) INCLUDING ANY SUCH LOSSES, LIABILITIES, CLAIMS, DAMAGES, OR EXPENSE INCURRED BY REASON OF SUCH INDEMNIFIED PARTY’S OWN NEGLIGENCE OR STRICT LIABILITY, (B) INCLUDING WITHOUT LIMITATION ENVIRONMENTAL CLAIMS AND ANY LIABILITIES ARISING UNDER ENVIRONMENTAL LAW, AND (C) INCLUDING WITHOUT LIMITATION ANY SUCH OTHER LOSSES, LIABILITIES, CLAIMS, DAMAGES, OR EXPENSES RESULTING FROM ANY LITIGATION, LEGAL PROCEEDING OR OTHER TYPE OF ACTION, REGARDLESS OF WHETHER ANY INDEMNIFIED PARTY IS PARTY TO SUCH LITIGATION, LEGAL PROCEEDING OR OTHER ACTION, BUT EXCLUDING ANY SUCH LOSSES, LIABILITIES, CLAIMS, DAMAGES, OR EXPENSES INCURRED BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED AS DETERMINED BY A COURT OF COMPETENT JURISDICTION BY A FINAL AND NONAPPEALABLE JUDGMENT. In the case of an investigation, litigation or proceeding to which the indemnity in this paragraph applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, any Subsidiary or Affiliate thereof, any equityholder or creditor thereof, or an Indemnified Party. The Borrower hereby also agrees that no Indemnified Party will have any liability (whether direct or indirect, in contract or tort, or otherwise) to the Borrower, any

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Subsidiary or Affiliate thereof, or any equity holder or creditor thereof arising out of, related to or in connection with any aspect of the transactions contemplated hereby, except to the extent such liability is determined in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s own gross negligence or willful misconduct. The Borrower shall not, nor shall it permit any of its Subsidiaries to, without the prior written consent of each Indemnified Party affected thereby (which consent will not be unreasonably withheld), settle any threatened or pending claim or action that would give rise to the right of any Indemnified Party to claim indemnification hereunder unless such settlement (a) includes a full and unconditional release of all liabilities arising out of such claim or action against such Indemnified Party and (b) does not include any statement as to or an admission of fault, culpability or failure to act by or on behalf of any Indemnified Party.

     (b) Waiver of Damages. No Indemnified Party will be liable to the Borrower, any Subsidiary or Affiliate thereof, any equity holder or creditor thereof or any other Person for any indirect, consequential or punitive damages that may be alleged as a result of this Agreement, any other Loan Documents, or any element of the transactions contemplated hereby or thereby, including the Transactions. To the fullest extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnified Party, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Advance or Letter of Credit or the use of the proceeds thereof. No Indemnified Party referred to in subsection (a) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.

     Section 9.08 Confidentiality. The Administrative Agent, the Issuing Lender, and each Lender (each a “Lending Party”) agree to keep confidential any information furnished or made available to it by the Borrower pursuant to this Agreement and identified by the Borrower as proprietary or confidential; provided that nothing herein shall prevent any Lending Party from disclosing such information (a) to any other Lending Party or any Affiliate of any Lending Party, or any officer, director, employee, agent, or advisor of any Lending Party or Affiliate of any Lending Party for purposes of administering, negotiating, considering, processing, implementing, syndicating, assigning, or evaluating the credit facilities provided herein and the transactions contemplated hereby, (b) to any other Person if directly incidental to the administration of the credit facilities provided herein, (c) as required by any Legal Requirement, (d) upon the order of any court or administrative agency, (e) upon the request or demand of any regulatory agency or authority or in connection with any pledge or assignment pursuant to Section 9.06(f), (f) that is or becomes available to the public or that is or becomes available to any Lending Party other than as a result of a disclosure by any other Lending Party prohibited by this Agreement, (g) in connection with any litigation relating to this Agreement or any other Loan Document to which such Lending Party or any of its Affiliates may be a party, (h) to the extent necessary in connection with the exercise of any right or remedy under this Agreement or any other Loan Document, and (i) to any actual or proposed participant or assignee, in each case, subject to provisions similar to those contained in this Section 9.08. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, nothing in this Agreement shall (a) restrict any Lending Party from providing information to any bank or other regulatory or governmental authorities, including the Federal Reserve Board and its supervisory staff; (b) require or permit any Lending Party to disclose to the Borrower or any Affiliate thereof that any information will be or was provided to the Federal Reserve Board or any of its supervisory staff; or (c) require or permit any Lending Party to inform the Borrower or any Affiliate thereof of a current or upcoming Federal Reserve Board examination or any nonpublic Federal Reserve Board supervisory initiative or action.

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     Section 9.09 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

     Section 9.10 Survival of Representations, Etc. All representations and warranties contained in this Agreement or made in writing by or on behalf of the Borrower in connection herewith shall survive the execution and delivery of this Agreement and the Loan Documents, the making of the Advances and any investigation made by or on behalf of the Lenders, none of which investigations shall diminish any Lender’s right to rely on such representations and warranties. All obligations of the Borrower provided for in Sections 2.12, 2.13, 2.14(c), 9.04, and 9.07 and all of the obligations of the Lenders in Section 8.05 shall survive any termination of this Agreement and repayment in full of the Obligations.

     Section 9.11 Severability. In case one or more provisions of this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality, and enforceability of the remaining provisions contained herein or therein shall not be affected or impaired thereby.

     Section 9.12 Business Loans. The Borrower warrants and represents that the Loans evidenced by the Notes are and shall be for business, commercial, investment, or other similar purposes and not primarily for personal, family, household, or agricultural use, as such terms are used in Chapter One (“Chapter One”) of the Texas Credit Code. At all such times, if any, as Chapter One shall establish a Maximum Rate, the Maximum Rate shall be the “indicated rate ceiling” (as such term is defined in Chapter One) from time to time in effect.

     Section 9.13 Governing Law; Submission to Jurisdiction. This Agreement, the Notes, and the other Loan Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas. Without limiting the intent of the parties set forth above, (a) Chapter 346 of the Texas Finance Code, as amended (relating to revolving loans and revolving tri-party accounts), shall not apply to this Agreement, the Notes, or the transactions contemplated hereby and (b) to the extent that any Lender may be subject to Texas law limiting the amount of interest payable for its account, such Lender shall utilize the indicated (weekly) rate ceiling from time to time in effect. Each Letter of Credit shall be governed by either the Uniform Customs and Practice for Documentary Credits (2007 Revision), International Chamber of Commerce Publication No. 600, or the International Standby Practices (ISP98), International Chamber of Commerce Publication No. 590 (and any subsequent revisions thereof approved by a Congress of the International Chamber of Commerce and adhered to by the Issuing Lender). The Borrower hereby irrevocably submits to the jurisdiction of any Texas state or federal court sitting in Houston, Texas in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, and the Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court. The Borrower hereby unconditionally and irrevocably waives, to the fullest extent it may effectively do so, any right it may have to the defense of an inconvenient forum to the maintenance of such action or proceeding. The Borrower hereby agrees that service of copies of the summons and complaint and any other process which may be served in any such action or proceeding may be made by mailing or delivering a copy of such process to such Borrower at its address set forth in this Agreement. The Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section shall affect the rights of any Lender to serve legal process in any other manner permitted by the law or affect the right of any Lender to bring any action or proceeding against the Borrower or its Property in the courts of any other jurisdiction.

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     Section 9.14 WAIVER OF JURY TRIAL. THE BORROWER, THE LENDERS, THE ISSUING LENDER, AND THE ADMINISTRATIVE AGENT HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED BY AND HAVE CONSULTED WITH COUNSEL OF THEIR CHOICE, AND HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

     Section 9.15 Subordination and Intercreditor Agreement; Fortis Assignment. The Administrative Agent is hereby authorized (a) on behalf of the Lenders for the Lenders and their Affiliates that are Swap Counterparties or that may hold Banking Services Obligations to enter into the Subordination and Intercreditor Agreement, and (b) on behalf of the Lenders for the Lenders, to enter into the Fortis Assignment A copy of the Subordination and Intercreditor Agreement, and, if entered into, the Fortis Assignment will be made available to each Secured Party on the date hereof and thereafter upon request. Each Lender, each Swap Counterparty (by receiving the benefits thereunder and of the Collateral) and each Affiliate of a Lender holding Banking Services Obligations acknowledges and agrees to the terms of such Subordination and Intercreditor Agreement, as the same may further be amended, restated, supplemented or otherwise modified pursuant to the terms hereof, and agrees that the terms thereof shall be binding on such Secured Party and its successors and assigns, as if it were a party thereto.

     Section 9.16 USA Patriot Act. Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower in accordance with the Patriot Act.

     Section 9.17 PRIOR OR ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS, AS DEFINED IN THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND SUPERSEDE ALL PRIOR UNDERSTANDINGS AND AGREEMENTS, WHETHER WRITTEN OR ORAL, RELATING TO THE TRANSACTIONS PROVIDED FOR HEREIN AND THEREIN. ADDITIONALLY, THIS AGREEMENT AND THE LOAN DOCUMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

     THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

     IN EXECUTING THIS AGREEMENT, THE BORROWER HEREBY WARRANTS AND REPRESENTS IT IS NOT RELYING ON ANY STATEMENT OR REPRESENTATION OTHER THAN THOSE IN THIS AGREEMENT AND IS RELYING UPON ITS OWN JUDGMENT AND ADVICE OF ITS ATTORNEYS.

[Remainder of this page intentionally left blank. Signature page follows.]

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     EXECUTED as of the date first above written.

BORROWER: ALTA MESA HOLDINGS, LP
By:	Alta Mesa Holdings GP, LLC,
	its general partner
By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

ADMINISTRATIVE AGENT: WELLS FARGO BANK, N.A. as Administrative Agent and as Issuing Lender
By:	/s/ Richard A. Gould
	Richard A. Gould
	Managing Director

Signature page to Sixth Amended and Restated Credit Agreement
(Alta Mesa Holdings, LP)

LENDERS: WELLS FARGO BANK, N.A.
By:	/s/ Shiloh Davila
	Shiloh Davila
	Assistant Vice President

Signature page to Sixth Amended and Restated Credit Agreement
(Alta Mesa Holdings, LP)

UNION BANK, N.A.
By:	/s/ Paul E. Cornell
	Name:	Paul E. Cornell
	Title:	Senior Vice President

Signature page to Sixth Amended and Restated Credit Agreement
(Alta Mesa Holdings, LP)

TORONTO DOMINION (NEW YORK) LLC
By:	/s/ Debbi L. Brito
	Name:	Debbi L. Brito
	Title:	Authorized Signatory

Signature page to Sixth Amended and Restated Credit Agreement
(Alta Mesa Holdings, LP)

ING CAPITAL LLC
By:	/s/ Charles E. Hall
	Name:	Charles E. Hall
	Title:	Managing Director

Signature page to Sixth Amended and Restated Credit Agreement
(Alta Mesa Holdings, LP)

CITIBANK, N.A.
By:	/s/ Thomas Benavides
	Name:	Thomas Benavides
	Title:	Senior Vice President

Signature page to Sixth Amended and Restated Credit Agreement
(Alta Mesa Holdings, LP)

COMPASS BANK (as successor in interest to Guaranty Bank)
By:	/s/ Kathleen J. Bowen
	Name:	Kathleen J. Bowen
	Title:	Senior Vice President

Signature page to Sixth Amended and Restated Credit Agreement
(Alta Mesa Holdings, LP)

CAPITAL ONE, N.A.
By:	/s/ Nancy M. Mak
	Name:	Nancy M. Mak
	Title:	Vice President

Signature page to Sixth Amended and Restated Credit Agreement
(Alta Mesa Holdings, LP)

BANK OF TEXAS, NA
By:	/s/ Martin W. Wilson
	Name:	Martin W. Wilson
	Title:	Senior Vice President

Signature page to Sixth Amended and Restated Credit Agreement
(Alta Mesa Holdings, LP)

AMEGY BANK NATIONAL ASSOCIATION
By:	/s/ Mark A. Serice
	Name:	Mark A. Serice
	Title:	Vice President

Signature page to Sixth Amended and Restated Credit Agreement
(Alta Mesa Holdings, LP)

TEXAS CAPITAL BANK, N.A.
By:	/s/ W. David McCarver IV
	Name:	W. David McCarver IV
	Title:	Vice President

Signature page to Sixth Amended and Restated Credit Agreement
(Alta Mesa Holdings, LP)

SCHEDULE I
NOTICE INFORMATION FOR BORROWER, ADMINISTRATIVE AGENT, AND LENDERS

Administrative Agent:
	With a copy to:
Wells Fargo Bank, N.A.	Wells Fargo Bank, N.A.
1525 W WT Harris Blvd.	1000 Louisiana, 9th Floor
Charlotte, NC 28262	MAC T5002-090
Attn: Syndication Agency Services	Houston, Texas 77002
Telephone: (704) 590 2706	Attention: Richard Gould
Facsimile: (704) 715 0017	Facsimile: (713) 319-1925
Borrower:
Alta Mesa Holdings, LP
15415 Katy Freeway, Suite 800
Houston, Texas 77094
Attention: Michael McCabe
Facsimile: 281-530-5278
Lenders:
Each to its address (or telecopy number) set forth in its administrative questionnaire

..

Schedule I

SCHEDULE II
COMMITMENTS; INITIAL BORROWING BASE; PRO RATA SHARE

Each of the Commitments set forth herein is governed by the terms of the Credit Agreement, which provides for, among other things, Borrowing Base limitations which may restrict the Borrower’s ability to request (and the Lenders’ obligation to provide) Credit Extensions to a maximum amount which is less than the Commitments set forth in this Schedule I. The initial Borrowing Base and each Lender’s Pro Rata Share thereof set forth below are subject to, and governed by, the terms of the Credit Agreement, including, but not limited to, any increases, decreases, terminations, and assignments thereof.

			PRO RATA SHARE OF
			THE INITIAL
LENDERS	COMMITMENT AMOUNTS		BORROWING BASE		PERCENTAGE OF TOTAL
Wells Fargo Bank, N.A.	$	78,947,368	$	45,000,000		0.157894737	%
Union Bank, N.A.	$	78,947,368	$	45,000,000		0.157894737	%
Toronto Dominion (New York) LLC	$	59,649,123	$	34,000,000		0.119298246	%
ING Capital LLC	$	49,122,807	$	28,000,000		0.098245614	%
Citibank, N.A.	$	49,122,807	$	28,000,000		0.098245614	%
Compass Bank	$	43,859,649	$	25,000,000		0.087719298	%
Capital One, N.A.	$	43,859,649	$	25,000,000		0.087719298	%
Bank of Texas, NA	$	43,859,649	$	25,000,000		0.087719298	%
Amegy Bank National Association	$	26,315,790	$	15,000,000		0.052631579	%
Texas Capital Bank, N.A.	$	26,315,790	$	15,000,000		0.052631579	%
TOTAL	$	500,000,000.00	$	285,000,000.00		100	%

Schedule II

EX-10.2

Exhibit 10.2

AMENDMENT NO. 1

     This AMENDMENT NO. 1 (“Agreement”) dated as of September 2, 2010 (“Effective Date”) is among Alta Mesa Holdings, LP, a Texas limited partnership (“Borrower”), the affiliates of the Borrower party hereto (the “Guarantors”), the Lenders (as defined below), and Wells Fargo Bank, N.A. as administrative agent for such Lenders (in such capacity, the “Administrative Agent”) and as issuing lender (in such capacity, the “Issuing Lender”).

RECITALS

     A. The Borrower is party to that certain Sixth Amended and Restated Credit Agreement dated as of May 13, 2010 (the “Credit Agreement”) among the Borrower, the lenders party thereto from time to time (the “Lenders”), the Administrative Agent, and the Issuing Lender.

     B. The parties hereto wish to, subject to the terms and conditions of this Agreement, amend the Credit Agreement as provided herein.

     NOW THEREFORE, in consideration of the benefits to be derived by the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     Section 1. Defined Terms; Other Provisions. As used in this Agreement, each of the terms defined in the opening paragraph and the Recitals above shall have the meanings assigned to such terms therein. Each term defined in the Credit Agreement and used herein without definition shall have the meaning assigned to such term in the Credit Agreement, unless expressly provided to the contrary. Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Agreement, unless otherwise specified. The words “hereof”, “herein”, and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term “including” means “including, without limitation,”. Paragraph headings have been inserted in this Agreement as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Agreement and shall not be used in the interpretation of any provision of this Agreement.

     Section 2. Amendments to Credit Agreement.

          (a) The definition for “Additional Subordinated Debt” found in Section 1.01 (Certain Defined Terms) of the Credit Agreement is hereby amended by (i) replacing the following amount “$500,000,000” found in clause (a)(v) therein with the following amount: “$300,000,000” and (ii) adding the following phrase to the end of clause (a)(vii) therein: “...other than mandatory prepayments triggered upon change in control or specified asset sales which triggers are customary with respect to such type of Debt...”

          (b) Clause (j) of Section 6.02 (Debts, Guaranties, and Other Obligations) of the Credit Agreement is hereby amended by replacing the following amount “$300,000,000” found therein with the following amount: “$400,000,000”.

          (c) Section 6.05 (Restricted Payments) of the Credit Agreement is hereby amended by (i) deleting the word “and” immediately before clause (e), (ii) replacing the period at the end of Section 6.05 with “, and”, and (iii) adding the following new clause (f) to the end thereof:

(f) the Borrower may make cash Restricted Payments in respect of its Class B Units in an aggregate amount not to exceed $50,000,000 so long as (i) such Restricted Payments are made with the proceeds of Senior Unsecured Notes and (ii) at least $250,000,000 of Senior Unsecured Notes are issued by the Borrower on or prior to November 1, 2010.

     Section 3. Intercreditor Agreement. Each of the parties hereto acknowledge that, as contemplated in Section 6.02(j) the Credit Agreement, the Borrower is required to apply the Debt Incurrence Proceeds of Senior Unsecured Notes to repay in full the Subordinated Debt. Therefore, notwithstanding anything in the Subordination and Intercreditor Agreement to the contrary, Lenders hereby consent to (a) such repayment in full of the Subordinated Debt with such Debt Incurrence Proceeds, and (b) the termination of the Subordination and Intercreditor Agreement upon the payment in full of the Subordinated Debt and termination of the Subordinated Credit Agreement.

     Section 4. Representations and Warranties. Each of the Guarantors and the Borrower hereby represents and warrants that: (a) after giving effect to this Agreement, the representations and warranties contained in the Credit Agreement, as amended hereby, and the representations and warranties contained in the other Loan Documents are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) on and as of the Effective Date as if made on as and as of such date except to the extent that any such representation or warranty expressly relates solely to an earlier date, in which case such representation or warranty is true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) as of such earlier date; (b) no Default has occurred which is continuing; (c) the execution, delivery and performance of this Agreement are within the corporate, limited liability company, or partnership power and authority of such Person and have been duly authorized by appropriate corporate and governing action and proceedings; (d) this Agreement constitutes the legal, valid, and binding obligation of such Person enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the rights of creditors generally and general principles of equity; (e) there are no governmental or other third party consents, licenses and approvals required in connection with the execution, delivery, performance, validity and enforceability of this Agreement; and (f) the Liens under the Security Instruments are valid and subsisting and secure Borrower’s and the Guarantors’ obligations under the Loan Documents.

     Section 5. Conditions to Effectiveness. This Agreement shall become effective on the Effective Date and enforceable against the parties hereto upon the occurrence of the following conditions precedent:

          (a) The Administrative Agent shall have received multiple original counterparts, as requested by the Administrative Agent, of this Agreement duly and validly executed and delivered by duly authorized officers of the Borrower, the Guarantors and the Required Lenders.

          (b) The representations and warranties in this Agreement made by the Guarantors and the Borrower shall be true and correct in all material respects.

          (c) The Borrower shall have paid all reasonable fees and expenses of the Administrative Agent’s outside legal counsel and other consultants pursuant to all invoices presented for payment on or prior to the Effective Date.

-2-

     Section 6. Acknowledgments and Agreements.

          (a) The Borrower and each Guarantor acknowledges that on the date hereof all outstanding Obligations are payable in accordance with their terms and the Borrower and each Guarantor hereby waives any defense, offset, counterclaim or recoupment with respect thereto.

          (b) The Administrative Agent and the Lenders hereby expressly reserve all of their rights, remedies, and claims under the Loan Documents. Nothing in this Agreement shall constitute a waiver or relinquishment of (i) any Default or Event of Default under any of the Loan Documents, (ii) any of the agreements, terms or conditions contained in any of the Loan Documents, (iii) any rights or remedies of the Administrative Agent or any Lender with respect to the Loan Documents, or (iv) the rights of the Administrative Agent or any Lender to collect the full amounts owing to them under the Loan Documents.

          (c) Each of the parties hereto hereby adopt, ratify, and confirm the Credit Agreement, as amended hereby, and acknowledges and agrees that the Credit Agreement, as amended hereby, is and remains in full force and effect, and the Borrower and the Guarantors acknowledge and agree that their respective liabilities and obligations under the Credit Agreement, as amended hereby, and the Guaranties, are not impaired in any respect by this Agreement.

          (d) From and after the Effective Date, all references to the Credit Agreement and the Loan Documents shall mean such Credit Agreement and such Loan Documents as amended by this Agreement.

          (e) This Agreement is a Loan Document for the purposes of the provisions of the other Loan Documents. Without limiting the foregoing, any breach of representations, warranties, and covenants under this Agreement shall be a Default or Event of Default, as applicable, under the Credit Agreement.

     Section 7. Reaffirmation of the Guaranty. Each Guarantor hereby ratifies, confirms, acknowledges and agrees that its obligations under its respective Guaranty are in full force and effect and that such Guarantor continues to unconditionally and irrevocably guarantee the full and punctual payment, when due, whether at stated maturity or earlier by acceleration or otherwise, of all of the Guaranteed Obligations (as defined in the Guaranties), as such Guaranteed Obligations may have been amended by this Agreement, and its execution and delivery of this Agreement does not indicate or establish an approval or consent requirement by such Guarantor under its respective Guaranty in connection with the execution and delivery of amendments, consents or waivers to the Credit Agreement, the Notes or any of the other Loan Documents.

     Section 8. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original and all of which, taken together, constitute a single instrument. This Agreement may be executed by facsimile signature or other similar electronic means and all such signatures shall be effective as originals.

     Section 9. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted pursuant to the Credit Agreement.

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     Section 10. Invalidity. In the event that any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement.

     Section 11. Governing Law. This Agreement shall be deemed to be a contract made under and shall be governed by and construed in accordance with the laws of the State of Texas.

     Section 12. Entire Agreement. THIS AGREEMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS AGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[SIGNATURES BEGIN ON NEXT PAGE]

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     EXECUTED effective as of the date first above written.

BORROWER: ALTA MESA HOLDINGS, LP
By: Alta Mesa Holdings GP, LLC
       its general partner

By:	/s/ Michael A. McCabe
	Name:	Michael McCabe
	Title:	Chief Financial Officer

GUARANTORS: ALTA MESA GP, LLC
ARI DEVELOPMENT, LLC
ALTA MESA ACQUISITION SUB, LLC
CAIRN ENERGY USA, LLC
HILLTOP ACQUISITION LLC
LOUISIANA ONSHORE PROPERTIES LLC
THE MERIDIAN PRODUCTION, LLC
THE MERIDIAN RESOURCE, LLC
THE MERIDIAN RESOURCE &
          EXPLORATION LLC
TMR DRILLING, LLC
VIRGINIA OIL AND GAS, LLC
ALTA MESA HOLDINGS GP, LLC

Each by:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

ARANSAS RESOURCES, LP
BUCKEYE PRODUCTION COMPANY, LP
LOUISIANA EXPLORATION &
          ACQUISITIONS, LP
NAVASOTA RESOURCES, LTD., LLP
NUECES RESOURCES, LP
OKLAHOMA ENERGY ACQUISITIONS, LP

TEXAS ENERGY ACQUISITIONS, LP

GALVESTON BAY RESOURCES, LP

PETRO ACQUISITIONS, LP

PETRO OPERATING COMPANY, LP

ORION OPERATING COMPANY, LP

Each by: Alta Mesa GP, LLC

By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

BRAYTON RESOURCES, LP,
By: Brayton Management GP, LLC, its general partner
 

By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

BRAYTON RESOURCES II, L.P.,
By: Brayton Management GP II, LLC, its general partner
 

By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

ALTA MESA RESOURCES, LP,
By: Alta Mesa Resources GP, LLC,
its sole general partner
 

By:	/s/ Michael A. McCabe
	Michael A. McCabe,
	Chief Financial Officer

PETRO ACQUISITIONS HOLDINGS, LP,
By: Petro Acquisitions Holdings GP, LLC,
its sole general partner
 

By:	/s/ Michael A. McCabe
	Michael A. McCabe,
	Chief Financial Officer

PETRO OPERATING COMPANY HOLDINGS, INC.,
By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer
GALVESTON BAY RESOURCES HOLDINGS, LP, By:  Galveston Bay Resources Holdings GP, LLC its sole general partner

By:	/s/ Michael A. McCabe
	Michael A. McCabe,
	Chief Financial Officer

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

ADMINISTRATIVE AGENT/
ISSUING LENDER/
LENDER:

WELLS FARGO BANK, N.A.
By:	/s/ Shiloh Davila
	Shiloh Davila
	Assistant Vice President

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

LENDER: UNION BANK, N.A.

By:	/s/ Timothy Brendel
	Name:	Timothy Brendel
	Title:	Vice President

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

LENDER: TORONTO DOMINION (NEW YORK) LLC

By:	/s/ Jackie Barrett
	Name:	Jackie Barrett
	Title:	Authorized Signatory

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

LENDER: ING CAPITAL LLC

By:	/s/ Charles E. Hall
	Name:	Charles E. Hall
	Title:	Managing Director

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

LENDER: CITIBANK, N.A.

By:	/s/ Thomas Benavides
	Name:	Thomas Benavides
	Title:	Senior Vice President

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

LENDER: COMPASS BANK (as successor in interest to
Guaranty Bank)

By:
	Name:
	Title:

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

LENDER: CAPITAL ONE, N.A.

By:	/s/ Nancy M. Mak
	Name:	Nancy M. Mak
	Title:	Vice President

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

LENDER: BANK OF TEXAS, NA

By:	/s/ Martin W. Wilson
	Name:	Martin W. Wilson
	Title:	Senior Vice President

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

LENDER: AMEGY BANK NATIONAL ASSOCIATION

By:	/s/ Mark A. Serice
	Name:	Mark A. Serice
	Title:	Senior Vice President

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

LENDER: TEXAS CAPITAL BANK, N.A.

By:	/s/ W. David McCarver IV
	Name:	W. David McCarver IV
	Title:	Vice President

Signature Page to Amendment No. 1
(Alta Mesa Holding, LP)

EX-10.3

Exhibit 10.3

AGREEMENT AND AMENDMENT NO. 2

     This AGREEMENT AND AMENDMENT NO. 2 (“Agreement”) dated effective as of December 6, 2010 (“Effective Date”) is among Alta Mesa Holdings, LP, a Texas limited partnership (“Borrower”), the affiliates of the Borrower party hereto (the “Guarantors”), the Lenders (as defined below), and Wells Fargo Bank, N.A. as administrative agent for such Lenders (in such capacity, the “Administrative Agent”) and as issuing lender (in such capacity, the “Issuing Lender”).

RECITALS

     A. The Borrower is party to that certain Sixth Amended and Restated Credit Agreement dated as of May 13, 2010 among the Borrower, the lenders party thereto from time to time (the “Lenders”), the Administrative Agent, and the Issuing Lender, as amended by that certain Amendment No. 1 dated as of September 2, 2010 among the Borrower, the Guarantors, the Lenders, the Administrative Agent and the Issuing Lender (as so amended, the “Credit Agreement”).

     B. The parties hereto wish to, subject to the terms and conditions of this Agreement, (i) redetermine the Borrowing Base (as defined in the Credit Agreement) and (ii) make certain other amendments to the Credit Agreement as provided herein.

     NOW THEREFORE, in consideration of the benefits to be derived by the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

     Section 1. Defined Terms; Other Provisions. As used in this Agreement, each of the terms defined in the opening paragraph and the Recitals above shall have the meanings assigned to such terms therein. Each term defined in the Credit Agreement and used herein without definition shall have the meaning assigned to such term in the Credit Agreement, unless expressly provided to the contrary. Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Agreement, unless otherwise specified. The words “hereof”, “herein”, and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term “including” means “including, without limitation,”. Paragraph headings have been inserted in this Agreement as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Agreement and shall not be used in the interpretation of any provision of this Agreement.

     Section 2. Agreement — Borrowing Base. Subject to the terms of this Agreement, as of the Effective Date, the Borrowing Base shall be $220,000,000. Such Borrowing Base shall remain in effect at such level until the Borrowing Base is redetermined in accordance with Section 2.02 of the Credit Agreement, as amended hereby. The Borrower and the Lenders hereby acknowledge and agree that the redetermination of the Borrowing Base set forth in this Section 2 is the scheduled semi-annual redetermination of the Borrowing Base scheduled for Fall, 2010 under Section 2.02 of the Credit Agreement.

     Section 3. Amendments to Credit Agreement.

          (a) Section 1.01 of the Credit Agreement is hereby amended by adding the following new defined term in alphabetical order:

"Anticipated Production” means the anticipated production of oil or gas volumes, as applicable, which are attributable to the Borrower’s and its Restricted Subsidiaries’

Proven Reserves, as reflected in the most recently delivered Engineering Report delivered pursuant to Section 2.02(b) and calculated on an aggregate basis for the Borrower and its Restricted Subsidiaries’, taken as a whole.

          (b) Clause (c) of Section 6.14 (Limitation on Hedging) of the Credit Agreement is hereby amended by (i) replacing the term “PDP Reserves” found in the introductory paragraph therein with the term “Proven Reserves”, and (ii) deleting clause (c)(i) in its entirety and replacing it with the following:

"(i) other than as provided in the immediately following clause (ii) and clause (iii), before and after giving effect to such Hydrocarbon Hedge Contract, no more than 85% of the Anticipated Production of gas volumes and no more than 85% of the Anticipated Production of oil volumes may be covered by Hydrocarbon Hedge Contracts; provided that (A) with respect to the Hydrocarbon Hedge Contracts covering the Anticipated Production projected through December 31, 2014, no more than 25% of the gas volumes covered by such Hydrocarbon Hedge Contracts and no more than 25% of the oil volumes covered by such Hydrocarbon Hedge Contracts may be attributable to PDNP Reserves and PUD Reserves, (B) with respect to the Hydrocarbon Hedge Contracts covering the Anticipated Production projected for the period from January 1, 2015 through December 31, 2015, no more than 15% of the gas volumes covered by such Hydrocarbon Hedge Contracts and no more than 15% of the oil volumes covered by such Hydrocarbon Hedge Contracts may be attributable to PDNP Reserves and PUD Reserves, and (C) with respect to the Hydrocarbon Hedge Contracts covering Anticipated Production projected after December 31, 2015, such Hydrocarbon Hedge Contracts may not cover any gas or oil volumes attributable to PDNP Reserves and PUD Reserves;”

          (c) Section 6.02 (Debts, Guaranties, and Other Obligations) of the Credit Agreement is hereby amended by (i) replacing the amount “$3,000,000” found in clause (f) therein with the amount “$8,000,000", (ii) replacing the term “clause (m)” found in clause (f) therein with “clause (n)”, and (iii) replacing the amount “$3,000,000” found in clause (n) therein with the amount "$8,000,000".

     Section 4. Representations and Warranties. Each of the Guarantors and the Borrower hereby represents and warrants that: (a) after giving effect to this Agreement, the representations and warranties contained in the Credit Agreement, as amended hereby, and the representations and warranties contained in the other Loan Documents are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) on and as of the Effective Date as if made on and as of such date except to the extent that any such representation or warranty expressly relates solely to an earlier date, in which case such representation or warranty is true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) as of such earlier date; (b) no Default has occurred which is continuing; (c) the execution, delivery and performance of this Agreement are within the corporate, limited liability company, or partnership power and authority of such Person and have been duly authorized by appropriate corporate and governing action and proceedings; (d) this Agreement constitutes the legal, valid, and binding obligation of such Person enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the rights of creditors generally and general principles of equity; (e) there are no governmental or other third party consents, licenses and approvals required in connection with the execution, delivery, performance, validity and enforceability of this Agreement; and (f) the Liens under the Security Instruments are valid and subsisting and secure Borrower’s and the Guarantors’ obligations under the Loan Documents.

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     Section 5. Conditions to Effectiveness. This Agreement shall become effective on the Effective Date and enforceable against the parties hereto upon the occurrence of the following conditions precedent:

          (a) The Administrative Agent shall have received multiple original counterparts, as requested by the Administrative Agent, of this Agreement duly and validly executed and delivered by duly authorized officers of the Borrower, the Guarantors and the Required Lenders.

          (b) The representations and warranties in this Agreement made by the Guarantors and the Borrower shall be true and correct in all material respects.

          (c) The Borrower shall have paid all reasonable fees and expenses of the Administrative Agent’s outside legal counsel and other consultants pursuant to all invoices presented for payment on or prior to the Effective Date.

     Section 6. Acknowledgments and Agreements.

          (a) The Borrower and each Guarantor acknowledges that on the date hereof all outstanding Obligations are payable in accordance with their terms and the Borrower and each Guarantor hereby waives any defense, offset, counterclaim or recoupment with respect thereto.

          (b) The Administrative Agent and the Lenders hereby expressly reserve all of their rights, remedies, and claims under the Loan Documents. Nothing in this Agreement shall constitute a waiver or relinquishment of (i) any Default or Event of Default under any of the Loan Documents, (ii) any of the agreements, terms or conditions contained in any of the Loan Documents, (iii) any rights or remedies of the Administrative Agent or any Lender with respect to the Loan Documents, or (iv) the rights of the Administrative Agent or any Lender to collect the full amounts owing to them under the Loan Documents.

          (c) Each of the parties hereto hereby adopt, ratify, and confirm the Credit Agreement, as amended hereby, and acknowledges and agrees that the Credit Agreement, as amended hereby, is and remains in full force and effect, and the Borrower and the Guarantors acknowledge and agree that their respective liabilities and obligations under the Credit Agreement, as amended hereby, and the Guaranties, are not impaired in any respect by this Agreement.

          (d) From and after the Effective Date, all references to the Credit Agreement and the Loan Documents shall mean such Credit Agreement and such Loan Documents as amended by this Agreement.

          (e) This Agreement is a Loan Document for the purposes of the provisions of the other Loan Documents. Without limiting the foregoing, any breach of representations, warranties, and covenants under this Agreement shall be a Default or Event of Default, as applicable, under the Credit Agreement.

     Section 7. Reaffirmation of the Guaranty. Each Guarantor hereby ratifies, confirms, acknowledges and agrees that its obligations under its respective Guaranty are in full force and effect and that such Guarantor continues to unconditionally and irrevocably guarantee the full and punctual payment, when due, whether at stated maturity or earlier by acceleration or otherwise, of all of the Guaranteed Obligations (as defined in the Guaranties), as such Guaranteed Obligations may have been amended by this Agreement, and its execution and delivery of this Agreement does not indicate or

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establish an approval or consent requirement by such Guarantor under its respective Guaranty in connection with the execution and delivery of amendments, consents or waivers to the Credit Agreement, the Notes or any of the other Loan Documents.

     Section 8. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original and all of which, taken together, constitute a single instrument. This Agreement may be executed by facsimile signature or other similar electronic means and all such signatures shall be effective as originals.

     Section 9. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted pursuant to the Credit Agreement.

     Section 10. Invalidity. In the event that any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement.

     Section 11. Governing Law. This Agreement shall be deemed to be a contract made under and shall be governed by and construed in accordance with the laws of the State of Texas.

     Section 12. Entire Agreement. THIS AGREEMENT, THE CREDIT AGREEMENT AS AMENDED BY THIS AGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[SIGNATURES BEGIN ON NEXT PAGE]

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     EXECUTED effective as of the date first above written.

BORROWER:	ALTA MESA HOLDINGS, LP
	By:	Alta Mesa Holdings GP, LLC its general partner

By:	/s/ Michael A. McCabe
	Name:	Michael McCabe
	Title:	Chief Financial Officer

GUARANTORS:	ALTA MESA FINANCE SERVICES CORP. ALTA MESA GP, LLC ARI DEVELOPMENT, LLC ALTA MESA ACQUISITION SUB, LLC BRAYTON MANAGEMENT GP, LLC BRAYTON MANAGEMENT GP II, LLC CAIRN ENERGY USA, LLC LOUISIANA ONSHORE PROPERTIES LLC THE MERIDIAN PRODUCTION, LLC THE MERIDIAN RESOURCE, LLC THE MERIDIAN RESOURCE &           EXPLORATION LLC TMR DRILLING, LLC VIRGINIA OIL AND GAS, LLC ALTA MESA HOLDINGS GP, LLC
	Each by:	/s/ Michael A. McCabe
		Michael A. McCabe
		Chief Financial Officer
	ALTA MESA SERVICES, LP ARANSAS RESOURCES, LP BUCKEYE PRODUCTION COMPANY, LP LOUISIANA EXPLORATION &            ACQUISITIONS, LP NAVASOTA RESOURCES, LTD., LLP NUECES RESOURCES, LP OKLAHOMA ENERGY ACQUISITIONS, LP TEXAS ENERGY ACQUISITIONS, LP GALVESTON BAY RESOURCES, LP PETRO ACQUISITIONS, LP PETRO OPERATING COMPANY, LP ORION OPERATING COMPANY, LP Each by: Alta Mesa GP, LLC

By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

Signature Page to Agreement and Amendment No. 2
(Alta Mesa Holdings, LP)

BRAYTON RESOURCES, LP,
By:	Brayton Management GP, LLC, its general partner

By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

BRAYTON RESOURCES II, L.P.,
By:	Brayton Management GP II, LLC, its general partner

By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

ALTA MESA RESOURCES, LP,
By:	Alta Mesa Resources GP, LLC, its sole general partner

By:	/s/ Michael A. McCabe
	Michael A. McCabe,
	Chief Financial Officer

PETRO ACQUISITIONS HOLDINGS, LP,
By:	Petro Acquisitions Holdings GP, LLC, its sole general partner

By:	/s/ Michael A. McCabe
	Michael A. McCabe,
	Chief Financial Officer

PETRO OPERATING COMPANY HOLDINGS, INC.,
By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

GALVESTON BAY RESOURCES HOLDINGS, LP,
By:	Galveston Bay Resources Holdings GP, LLC its sole general partner

By:	/s/ Michael A. McCabe
	Michael A. McCabe,
	Chief Financial Officer

Signature Page to Agreement and Amendment No. 2
(Alta Mesa Holdings, LP)

ADMINISTRATIVE AGENT/ ISSUING LENDER/ LENDER:	WELLS FARGO BANK, N.A.
	By:	/s/ Shiloh Davila
		Shiloh Davila
		Assistant Vice President

Signature Page to Agreement and Amendment No. 2
(Alta Mesa Holdings, LP)

LENDER:	UNION BANK, N.A.
	By:	/s/ Paul E. Cornell
	Name:	Paul E. Cornell
	Title:	Senior Vice President

Signature Page to Agreement and Amendment No. 2
(Alta Mesa Holdings, LP)

LENDER:	TORONTO DOMINION (NEW YORK) LLC
	By:	/s/ Bebi Yasin
	Name:	Bebi Yasin
	Title:	Authorized Signatory

Signature Page to Agreement and Amendment No. 2
(Alta Mesa Holdings, LP)

LENDER:	ING CAPITAL LLC
	By:	/s/ Charles E. Hall
	Name:	Charles E. Hall
	Title:	Managing Director

Signature Page to Agreement and Amendment No. 2
(Alta Mesa Holdings, LP)

LENDER:	CITIBANK, N.A.
	By:	/s/ Thomas Benavides
	Name:	Thomas Benavides
	Title:	Senior Vice President

Signature Page to Agreement and Amendment No. 2
(Alta Mesa Holdings, LP)

LENDER:	CAPITAL ONE, N.A.
	By:	/s/ Nancy M. Mak
	Name:	Nancy M. Mak
	Title:	Vice President

Signature Page to Agreement and Amendment No. 2
(Alta Mesa Holdings, LP)

LENDER:	BANK OF TEXAS, NA
	By:	/s/ Martin W. Wilson
	Name:	Martin W. Wilson
	Title:	Senior Vice President

Signature Page to Agreement and Amendment No. 2
(Alta Mesa Holdings, LP)

LENDER:	AMEGY BANK NATIONAL ASSOCIATION
	By:	/s/ Mark A. Serice
	Name:	Mark A. Serice
	Title:	Senior Vice President

Signature Page to Agreement and Amendment No. 2
(Alta Mesa Holdings, LP)

LENDER:	TEXAS CAPITAL BANK, N.A.
	By:	/s/ W. David McCarver IV
	Name:	W. David McCarver IV
	Title:	Vice President

Signature Page to Agreement and Amendment No. 2
(Alta Mesa Holdings, LP)

EX-10.4

Exhibit 10.4

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”), is made and entered into as of August 31, 2006 (the “Effective Date”), by and between Alta Mesa Services, LP, a Texas limited partnership (hereafter “Partnership”) and Harlan H. Chappelle (hereafter “Executive”). The Partnership and Executive may sometimes hereafter be referred to singularly as a “Party” or collectively as the “Parties.”

W I T N E S S E T H:

     WHEREAS, the Partnership desires to continue to secure the employment services of Executive subject to the terms and conditions hereafter set forth;

     WHEREAS the Partnership provides various services including management services to Alta Mesa Holdings, LP (“Holding Co.”), Alta Mesa Holdings GP (“General Partner”), and all Subsidiaries of Holding Co., under the Shared Services and Expenses Agreement dated as of January 1, 2006 between the Partnership, Holding Co., General Partner and the Subsidiaries (“Services Agreement”);

     WHEREAS, the Executive is willing to enter into this Agreement upon the terms and conditions hereafter set forth;

     NOW, THEREFORE, in consideration of Executive’s employment with the Partnership, and the premises and mutual covenants contained herein, the Parties hereto agree as follows:

     1. Employment. During the Employment Period (as defined in Section 4 hereof), the Partnership shall employ Executive, and Executive shall serve as, President and Chief Executive Officer of the Partnership. Executive’s principal place of employment shall be at the main business offices of the Partnership in Houston, Texas.

     2. Compensation.

          (a) Base Salary. The Partnership shall pay to Executive during the Employment Period a base salary of $400,000 per year, as adjusted pursuant to the subsequent provisions of this paragraph (the “Base Salary”). The Base Salary shall be payable in accordance with the Partnership’s normal payroll schedule and procedures for its executives. Nothing contained herein shall preclude the payment of any other compensation to Executive at any time as determined by the Partnership.

          (b) Annual Bonus. In addition to the Base Salary in Section 2(a), for each annual fiscal year of the Partnership during the Employment Period (as defined in Section 4) (each such annual period being referred to as a “Bonus Period”), Executive shall be entitled to a bonus equal to a percentage of Executive’s Base Salary paid during each such one year period (referred to herein as the “Annual Bonus”), such percentage to be established by the Partnership in its sole discretion, and approved by Holding Co.; provided, however, Executive shall be entitled to the Annual Bonus only if Executive has met the performance criteria set by the Partnership for the applicable period.

     In the event that the Employment Period ends before the end of the Bonus Period, Executive shall be entitled to a pro rata portion of the Annual Bonus for that year (based on the number of days in which Executive was employed during the year divided by 365), as determined based on satisfaction of the performance criteria for that period on a pro rata basis, unless Executive was terminated for Cause (as defined in Section 6(d), in which event Executive shall not be entitled to any Annual Bonus for that year. Executive acknowledges that the amount and performance criteria for Executive’s Annual Bonus to be

1

earned for each Bonus Period shall be set on or before the beginning of the applicable Bonus Period. If Executive successfully meets the performance criteria established by the Partnership, the Partnership shall pay Executive the earned Annual Bonus amount within the earlier of: (i) sixty days (60) days after the end of the Bonus Period or (ii) sixty days (60) after the end of the Employment Period, as applicable.

          (c) Compensation in Event of Injury or Sickness. In the event Executive becomes injured or suffers a medically determinable physical or mental illness, as determined by a physician acceptable to both the Partnership and Executive in the same manner as provided in Section 6(d)(5), Executive shall be entitled to receive continued Base Salary as set forth in Section 2(a) for a period of six (6) months following the occurrence of such injury or sickness; provided, however, such Base Salary shall be reduced by any short-term and/or long-term disability benefits that are received by Executive under such programs sponsored by the Partnership during such six (6) month period.

     3. Duties and Responsibilities of Executive. During the Employment Period, Executive’s services shall be devoted on substantially a full-time basis to (i) the business of the Partnership as directed by the General Partner under the Services Agreement and (ii) performance of the duties and responsibilities assigned to Executive by the Board or the Chief Executive Officer, to the best of Executive’s ability and with reasonable diligence. In determining Executive’s duties and responsibilities, Executive shall not be assigned duties and responsibilities that are inappropriate for Executive’s position. This Section 3 shall not be construed as preventing Executive from (a) engaging in reasonable volunteer services for charitable, educational or civic organizations, or (b) investing personal assets in such a manner that will not require a material amount of the Executive’s time or services in the operation of the businesses in which such investments are made; provided, however, no such other activity shall conflict with Executive’s loyalties and duties to the Partnership. Executive shall at all times use best efforts to comply in good faith with United States laws applicable to Executive’s actions on behalf of the Partnership and its Affiliates (as defined in Section 6(d)(1)). Executive understands and agrees that Executive may be required to travel from time to time for purposes of the Partnership’s business. The Parties agree that Executive’s principal work location cannot be relocated further than 50 miles from Executive’s principal work location on the Effective Date, except as mutually agreed by the Parties.

     4. Term of Employment. Executive’s initial term of employment with the Partnership under this Agreement shall be for the period from the Effective Date through the date that is four (4) years from the Effective Date (the “Initial Term of Employment”). Thereafter, the Employment Period hereunder shall be automatically extended repetitively for an additional one (1) year period on each anniversary of the Effective Date, unless Notice of Termination (pursuant to Section 7) is given by either the Partnership or Executive to the other Party at least sixty (60) days prior to the end of the Initial Term of Employment or any one-year extension thereof, as applicable, that the Agreement will not be renewed for a successive one-year period after the end of the current one-year period. The Partnership and Executive shall each have the right to give Notice of Termination at will, with or without cause, at any time subject, however, to the terms and conditions of this Agreement regarding the rights and duties of the Parties upon termination of employment. The Initial Term of Employment, and any one-year extension of employment hereunder, shall each be referred to herein as a “Term of Employment.” The period from the Effective Date through the date of Executive’s termination of employment with the Partnership and all Affiliates, for whatever reason, shall be referred to herein as the “Employment Period.” Notwithstanding the above, Executive agrees to remain available beyond the Employment Period to provide assistance to the Partnership or its Affiliates in the event the Partnership or its Affiliate become involved in litigation regarding matters of which Executive has relevant knowledge resulting from Executive’s employment with the Partnership. Such post-termination assistance shall be provided by Executive in the capacity of an independent contractor at an agreed-upon, reasonable consulting fee, and shall not be deemed to create or continue an employee-employer relationship or to represent a continuation of any provision of this Agreement.

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     5. Benefits. Subject to the terms and conditions of this Agreement, during the Employment Period, Executive shall be entitled to all of the following:

          (a) Reimbursement of Business Expenses. The Partnership shall pay or reimburse Executive for all reasonable travel, entertainment and other business expenses paid or incurred by Executive in the performance of duties hereunder. The Partnership shall also provide Executive with suitable office space, including staff support, paid parking, and necessary equipment, including but not limited to cellular telephone and laptop computer.

          (b) Other Employee Benefits. Executive shall be entitled to participate in any pension, retirement, 401(k), profit-sharing, and other employee benefits plans or programs of the Partnership to the same extent as available to other key management employees of the Partnership under the terms of such plans or programs. Executive shall also be entitled to participate in any group insurance, hospitalization, medical, dental, health, life, accident, disability and other employee benefits plans or programs of the Partnership to the extent available to other key management employees of the Partnership, and their spouses and eligible dependents, under the terms of such plans or programs, including any medical expense reimbursement account and post-retirement medical program as available to other key management employees of the Partnership.

          (c) Vacation and Holidays. Executive shall be entitled to four (4) weeks of paid vacation per calendar year (prorated in any calendar year during which Executive is employed for less than the entire year based on the number of days in such calendar year in which Executive was employed). Executive shall also be entitled to all paid holidays and personal days provided by the Partnership for its key management employees under the Partnership’s personnel policy as then effective. Unused vacation shall not carryover to the following year unless specifically approved by the Partnership.

          (d) Nonqualified Deferred Compensation. Executive shall be entitled to participate in any nonqualified plan of deferred compensation maintained by the Partnership, Holding Co., the General Partner or any of the Subsidiaries, to the same extent as available to any other key management employees of such entities. If, and to the extent, that any such plan relates or is attributable to compensation derived from the equity of Holding Co., such compensation shall come solely from the interests held by the Class A Limited Partners in Holding Co.

          (e) Equity Grants. Executive shall be entitled to participate in any long-term incentive plan providing for equity grants or other incentive awards, the amount of which is based upon the value of the Partnership or an Affiliate, to the same extent as available to any other key management employees of the Partnership. Specifically, the Partnership shall provide a participation in the equity of Holding Co. for the benefit of the Executive. Such participation in any equity plan shall come solely from the interests held by the Class A Limited Partners in Holding Co.

          (f) Annual Physical. Executive shall be entitled to be reimbursed by the Partnership for the full cost of an annual physical examination by a physician (i) selected by the Partnership or (ii) selected by Executive and approved by the Partnership.

          (g) Key Man Life Insurance. The Partnership may, at any time during the term of this Agreement, apply for and procure as owner, and for its sole benefit, life insurance on the Executive’s life in such amounts and in such forms as the Partnership may select. Executive hereby acknowledges that Executive will have no interest whatsoever in any such insurance policy. Executive must submit to such medical examinations, supply such information, and execute such documents as may be reasonably requested by the insuring companies to obtain any such key man policy.

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     6. Rights and Payments upon Termination. The Executive’s right to compensation and benefits for periods after the date on which Executive’s employment terminates with the Partnership and all Affiliates (the “Termination Date”), shall be determined in accordance with this Section 6, as follows:

          (a) Minimum Payments and Vesting. Executive shall be entitled to the following minimum payments under this Section 6(a), in addition to any other payments or benefits to which Executive is entitled to receive under the terms of any employee benefit plan or program or Section 6(b):

(1)	unpaid salary for the full month in which the Termination Date occurred; provided, however, if Executive is terminated for Cause (as defined in Section 6(d)), Executive shall only be entitled to receive accrued but unpaid salary through the Termination Date;
(2)	unpaid vacation days for that year which have accrued through the Termination Date;
(3)	reimbursement of reasonable business expenses which were incurred but unpaid as of the Termination Date; and
(4)	to the extent Executive participated in any nonqualified deferred compensation or incentive plan or program with vesting criteria, or received any equity grant that is not fully vested, Executive will be automatically 100% vested as of the Termination Date.

     Such salary and accrued vacation days shall be paid to Executive within five (5) business days following the Termination Date in a cash lump sum less applicable withholdings. Business expenses shall be reimbursed in accordance with the Partnership’s normal procedures.

          (b) Other Severance Payments. In the event that during the Term of Employment (i) Executive’s employment is involuntarily terminated by the Partnership (except due to a “No Severance Benefits Event” (as defined in Section 6(d)), (ii) Executive’s employment is terminated due to “Disability” or “Retirement” (as such terms are defined in Section 6(d)) or (iii) Executive terminates his employment for Good Reason (as defined in Section 6(d)), then in any such event under clause (i), clause (ii) or clause (iii), the following severance benefits shall be provided to Executive or, in the event of death before receiving all such benefits, to Executive’s “Designated Beneficiary” (as defined in Section 6(d)) following death:

     (1) The Partnership shall pay as additional compensation (the “Additional Payment”), an amount equal to Two (2) years of Base Salary in effect as of the Termination Date. The Partnership shall make the Additional Payment to Executive in a cash lump sum, net of applicable withholdings, not later than sixty (60) calendar days following the Termination Date.

     (2) COBRA Coverage. The Partnership shall maintain continued group health plan coverage following the Termination Date under all plans subject to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) (as codified in Code Section 4980B and Part 6 of Subtitle B of Title I of ERISA) for Executive and Executive’s eligible spouse and dependents for the maximum period for which such qualified beneficiaries are eligible to receive COBRA coverage. However, Executive (and Executive’s spouse and dependents) shall not be required to pay more for such COBRA coverage than is charged by the Partnership to its key management employees who are then in active service for the Partnership and receiving coverage

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under such plan and, therefore, the Partnership shall be responsible for the difference between the amount charged hereunder and the full COBRA premiums for a period of one (1) year following Executive’s Termination Date. In all other respects, Executive (and Executive’s spouse and dependents) shall be treated the same as other COBRA qualified beneficiaries under the terms of such plans and the provisions of COBRA. In the event of any change to a group health plan following the Termination Date, Executive and Executive’s spouse and dependents, as applicable, shall be treated consistently with the then-current key management employees of the Partnership with respect to the terms and conditions of coverage and other substantive provisions of the plan. Executive and Executive’s spouse hereby agree to acquire and maintain any and all coverage that either or both of them are entitled to at any time during their lives under the Medicare program or any similar program of the United States or any agency thereof. Executive and Executive’s spouse further agree to pay any required premiums for Medicare coverage from their personal funds.

     For purposes of clarity, in the event that (i) Executive voluntarily resigns or otherwise voluntarily terminates employment, except due to Disability or Retirement (as such terms are defined in Section 6(d)) or for Good Reason, or (ii) Executive’s employment is terminated due to a No Severance Benefits Event (as defined in Section 6(d)), then, in either such event under clause (i) or (ii), the Partnership shall have no obligation to provide the severance benefits described in paragraphs (1) and (2) (above) of this Section 6(b), except to offer COBRA coverage (as required by COBRA law) but not at the discounted rate described in paragraph (2). Executive shall still be entitled to the minimum benefits provided under Section 6(a). The severance payments provided under Section 6(b) shall supersede and replace any severance payments under any severance pay plan that the Partnership or any Affiliate maintains for key management employees or employees generally.

          (c) Release Agreement. Notwithstanding any provision of the Agreement to the contrary, in order to receive the severance benefits provided under Section 6(b), the Executive must first execute an appropriate release agreement (on a form provided by the Partnership) whereby the Executive agrees to release and waive, in return for such severance benefits, any claims that Executive may have against the Partnership or any of its Affiliates including, without limitation, for unlawful discrimination (e.g., Title VII of the Civil Rights Act); provided, however, such release agreement shall not release any claim or cause of action by or on behalf of the Executive for (a) any payment or benefit that may be due or payable under this Agreement or any employee benefit plan or program prior to the receipt thereof, (b) nonpayment of salary or benefits to which Executive is entitled from the Partnership as of the Termination Date, or (c) a breach of this Agreement by the Partnership.

          (d) Definitions.

(1)

“Affiliate” means Holding Co., General Partner, the Subsidiaries and any parent or subsidiary company, or any other entity in whatever form, of which the Partnership has any controlling ownership interest or ownership or management control, or vice-versa, as determined by the Partnership.

(2)

“Cause” means any of the following: (A) the Executive’s conviction by a court of competent jurisdiction of a crime involving moral turpitude or a felony, or entering the plea of nolo contendere to such crime by the Executive; (B) the commission by the Executive of a demonstrable act of fraud, or a misappropriation of funds or property, of or upon the Partnership or any Affiliate; (C) the engagement by the Executive, without the written approval of the Partnership and Holding Co., in any material activity which directly competes with the business of the Partnership or any Affiliate, or which would directly result in a material injury to the business or reputation of the Partnership

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	or any Affiliate (including the partners of Holding Co.); or (D) (i) the breach by Executive of any material provision of this Agreement, and Executive’s continued failure to cure such breach within a reasonable time period set by the Partnership but in no event less than twenty (20) calendar days after Executive’s receipt of such notice.
(3)	“Code” means the Internal Revenue Code of 1986, as amended, or its successor. References herein to any Section of the Code shall include any successor provisions of the Code.
(4)	“Designated Beneficiary” means the Executive’s surviving spouse, if any. If there is no such surviving spouse at the time of Executive’s death, then the Designated Beneficiary hereunder shall be Executive’s estate.
(5)	“Disability” shall mean that (a) Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or last for a continuous period of not less than 12 months, or (b) by reason of any medically determinable physical or mental impairment which can be expected to result in death or to last for a continuous period of not less than 12 months, Executive is receiving income replacement for a period of not less than three months under an accident and health plan covering employees of the Partnership. Evidence of such Disability shall be certified by a physician acceptable to both the Partnership and Executive. In the event that the Parties are not able to agree on the choice of a physician, each shall select one physician who, in turn, shall select a third physician to render such certification. All costs relating to the determination of whether Executive has incurred a Disability shall be paid by the Partnership. Executive agrees to submit to any examinations that are reasonably required by the attending physician or other healthcare service providers to determine whether Executive has a Disability.
(6)	“Dispute” means any dispute, disagreement, claim, or controversy arising from, in connection with, or relating to (a) the employment, or termination of employment, of Executive, or (b) the Agreement, or the validity, interpretation, performance, breach or termination of the Agreement.
(7)	“Good Reason” means the occurrence of any of the following, if not cured and corrected by the Partnership or its successor, within 60 days after written notice thereof is provided by Executive to the Partnership or its successor: (a) the demotion or reduction in title or rank of Executive, or the assignment to Executive of duties that are materially inconsistent with Executive’s current positions, duties, responsibilities and status with the Partnership, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions (other than a change due to the Executive’s Disability or as an accommodation under the American with Disabilities Act), except for any such demotion, reduction, assignment, removal or failure that occurs in connection with (i) Executive’s termination of employment for Cause, Disability or death, or (ii) Executive’s prior written consent; (b) the reduction of the Executive’s annual base salary or bonus opportunity as compared to base salary and bonus opportunity as effective immediately prior to such reduction without the prior

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	written consent of Executive; (c) a relocation of Executive’s principal work location to a location in excess of 50 miles from its then current location.
(8)	“No Severance Benefits Event” means termination of Executive’s employment by the Partnership (i) for Cause (as defined above) or due to death or (ii) arising from or in connection with the sale of Holding Co. and its subsidiaries, in one transaction or in a series of related transactions, whether structured as (1) a sale or transfer of all or substantially all of the partnership or equity interest of the Partnership and its subsidiaries (including by way of merger, consolidation, share exchange or other similar transaction) or (2) the sale or transfer of all or substantially all of the assets of the Holding Co. and its subsidiaries or (3) a combination of (1) and (2).
(9)	“Retirement” means the termination of Executive’s employment for normal retirement at or after attaining age seventy (70), provided that, on the date of retirement, Executive has accrued at least five years of active service as an employee with the Partnership or its Affiliates.

     7. Notice of Termination. Any termination by the Partnership or the Executive shall be communicated by Notice of Termination to the other Party hereto. For purposes of this Agreement, the term “Notice of Termination” means a written notice which indicates the specific termination provision of this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

     8. No Mitigation. Subject to Section 6(b)(2), Executive shall not be required to mitigate the amount of any payment or other benefits provided under this Agreement by seeking other employment or in any other manner.

     9. Restrictive Covenants. As an inducement to the Partnership to enter into this Agreement, Executive represents to, and covenants with or in favor of, the Partnership that Executive will comply with all of the restrictive covenants in Sections 9 through 17, as a condition to the Partnership’s obligation to provide any benefits to Executive under this Agreement.

     10. Trade Secrets.

          (a) Access to Trade Secrets. As of the Effective Date and on an ongoing basis, the Partnership agrees to give Executive access to Trade Secrets which the Executive did not have access to, or knowledge of, before the Effective Date.

          (b) Access to Specialized Training. As of the Effective Date and on an ongoing basis, the Partnership has provided, and agrees to provide on an ongoing basis, Executive with Specialized Training which the Executive does not have access to, or knowledge of, before the Effective Date.

          (c) Agreement Not to Use or Disclose Trade Secrets. In exchange for the Partnership’s promises to provide Executive with access to Trade Secrets and Specialized Training and the other consideration and benefits provided to Executive under this Agreement, Executive agrees, during the Employment Period, and any time thereafter, not to disclose to anyone, including, without limitation, any person, firm, corporation or other entity, or publish or use for any purpose, any Trade Secrets and Specialized Training, except as required in the ordinary course of the Partnership’s business or as authorized by the Partnership.

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          (d) Agreement to Refrain from Defamatory Statements. Executive shall refrain, both during the Employment Period and thereafter, from publishing any oral or written statements about any directors, partners, officers, employees, agents, investors or representatives of the Partnership or any Affiliate that are slanderous, libelous, or defamatory; or that disclose private or confidential information about the business affairs, directors, partners, officers, employees, agents, investors or representatives of the Partnership or any Affiliate; or that constitute an intrusion into the seclusion or private lives of any such person; or that give rise to unreasonable publicity about the private life of any such person; or that place any such person in a false light before the public; or that constitute a misappropriation of the name or likeness of any such person. A violation or threatened violation of these restrictive covenants may be enjoined by a court of law notwithstanding the arbitration provisions of Section 29.

          (e) Definitions. The following terms, when used in this Agreement, are defined below:

(1)	“Restricted Territory” means, collectively each county (or equivalent subdivision) of any state, district, or territory of North America as to which the Partnership conducts its business; and any area adjacent to such counties (or equivalent territories) to the extent such are within a 50-mile radius of any producing property or leasehold of the Partnership.
(2)	“Specialized Training” includes the training the Partnership provides to Executive that is unique to its business and enhances Executive’s ability to perform Executive’s job duties effectively. Specialized Training includes, without limitation, sales methods/techniques training; operation methods training; engineering and scientific training; and computer and systems training.
(3)	“Trade Secrets” means any and all information and materials (in any form or medium) that are proprietary to the Partnership or an Affiliate, or are treated as confidential by the Partnership or Affiliate as part of, or relating to, all or any portion of its or their business, including information and materials about the products and services offered by the Partnership or an Affiliate; compilations of information, records and specifications, properties, processes, programs, and systems of the Partnership or Affiliate; research for the Partnership or an Affiliate; and methods of doing business of the Partnership or an Affiliate. Trade Secrets include, without limitation, all of the Partnership’s or Affiliate’s technical and business information, whether patentable or not, which is of a confidential, trade secret or proprietary character, and which is either developed by the Executive alone, or with others or by others; lists of customers; identity of customers; contract terms; bidding information and strategies; pricing methods or information; computer software; computer software methods and documentation; hardware; the Partnership’s or Affiliate’s methods of business operations; the procedures, forms and techniques used in conducting its business operations; and other documents, information or data that the Partnership requires to be maintained in confidence for the Partnership’s business success.

     11. Duty to Return Partnership Documents and Property. Upon termination of the Employment Period, Executive shall immediately return and deliver to the Partnership any and all papers, books, records, documents, memoranda and manuals, e-mail, electronic or magnetic recordings or data, including all copies thereof, belonging to the Partnership or relating to its business, in Executive’s possession, whether prepared by Executive or others. If at any time after the Employment Period,

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Executive determines that Executive has any Trade Secrets in Executive’s possession or control, Executive shall immediately return them to the Partnership, including all copies thereof.

     12. Best Efforts and Disclosure. Executive agrees that, while employed with the Partnership, Executive’s services shall be devoted on a full time basis to the Partnership’s business, and Executive shall use best efforts to promote its success. Further, Executive shall promptly disclose to the Partnership all ideas, inventions, computer programs, and discoveries, whether or not patentable or copyrightable, which Executive may conceive or make, alone or with others, during the Employment Period, whether or not during working hours, and which directly or indirectly:

     (a) relate to a matter within the scope, field, duties or responsibility of Executive’s employment with the Partnership; or

     (b) are based on any knowledge of the actual or anticipated business or interests of the Partnership; or

     (c) are aided by the use of time, materials, facilities or information of the Partnership.

     Executive assigns to the Partnership, without further compensation, any and all rights, titles and interest in all such ideas, inventions, computer programs and discoveries in all countries of the world. Executive recognizes that all ideas, inventions, computer programs and discoveries of the type described above, conceived or made by Executive alone or with others within 12 months after the Termination Date (voluntary or otherwise), are likely to have been conceived in significant part either while employed by the Partnership or as a direct result of knowledge Executive had of proprietary information or Trade Secrets. Accordingly, Executive agrees that such ideas, inventions or discoveries shall be presumed to have been conceived during the Employment Period, unless and until the contrary is clearly established by the Executive.

     13. Inventions and Other Works. Any and all writings, computer software, inventions, improvements, processes, procedures and/or techniques which Executive may make, conceive, discover, or develop, either solely or jointly with any other person or persons, at any time during the Employment Period, whether at the request or upon the suggestion of the Partnership or otherwise, which relate to or are useful in connection with any business now or hereafter carried on or contemplated by the Partnership, including developments or expansions of its present fields of operations, shall be the sole and exclusive property of the Partnership. Executive agrees to take any and all actions necessary or appropriate so that the Partnership can prepare and present applications for copyright or Letters Patent therefore, and secure such copyright or Letters Patent wherever possible, as well as reissue renewals, and extensions thereof, and obtain the record title to such copyright or patents. Executive shall not be entitled to any additional or special compensation or reimbursement regarding any such writings, computer software, inventions, improvements, processes, procedures and techniques. Executive acknowledges that the Partnership from time to time may have agreements with other persons or entities which impose obligations or restrictions on the Partnership regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. Executive agrees to be bound by all such obligations and restrictions, and to take all action necessary to discharge the obligations of the Partnership.

     14. Non-Solicitation Restriction. To protect Trade Secrets after termination of the Employment Period, it is necessary to enter into the following restrictive covenants, which are ancillary to the enforceable promises between the Partnership and Executive in Sections 9 through 13 and other provisions of this Agreement. Following the Termination Date (regardless of the reason for termination), Executive hereby covenants and agrees that Executive will not, directly or indirectly, without the prior

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written consent of the Partnership, either individually or as a principal, partner, agent, consultant, contractor, employee, or as a director or officer of any entity, or in any other manner or capacity whatsoever, except on behalf of the Partnership, solicit business, or attempt to solicit business, in products or services competitive with any products or services offered or performed by the Partnership or its Affiliates in any business which the Partnership or any of its Affiliates does business or has any business interest as of the Termination Date, or either (a) from those individuals or entities with whom the Partnership or Affiliate conducted business with or (b) with respect to any assets or holdings in which the Partnership or Affiliate had any interest, at any time during the one (1) year period ending on the Termination Date. The prohibitions set forth in this Section 15 shall remain in effect for a period of one (1) year following the Termination Date.

     15. Non-Competition Restriction. Executive hereby agrees that in order to protect Trade Secrets, it is necessary to enter into the following restrictive covenant, which is ancillary to the enforceable promises between the Partnership and Executive in Sections 9 through 14 and other provisions of this Agreement. Executive hereby covenants and agrees that during the Employment Period, and for a period of one (1) year following the Termination Date (regardless of the reason for termination), Executive will not, without the prior written consent of the Partnership, become interested in any capacity in which Executive would perform any similar duties to those performed while at the Partnership, directly or indirectly (whether as proprietor, stockholder, director, partner, employee, agent, independent contractor, consultant, trustee, or in any other capacity), with respect to any entity engaged in the business of oil and gas exploration and production within the Restricted Territory (a “Competing Enterprise”); provided, however, Executive shall not be deemed to be participating or engaging in a Competing Enterprise solely by virtue of the ownership of not more than one percent (1%) of any class of stock or other securities which are publicly traded on a national securities exchange or in a recognized over-the-counter market.

     16. No-Recruitment Restriction. Executive agrees that during the Employment Period, and for a period of one (1) year following the Termination Date (regardless of the reason for termination), Executive will not, either directly or indirectly, or by acting in concert with others, solicit or influence, or seek to solicit or influence, any employee or independent contractor performing services for the Partnership or any Affiliate to terminate, reduce or otherwise adversely affect Executive’s employment or other relationship with the Partnership or any Affiliate.

     17. Tolling. If Executive violates any of the restrictions contained in Sections 9 through 16, then notwithstanding any provision hereof to the contrary, the restrictive period will be suspended and will not run in favor of Executive from the time of the commencement of any such violation, unless and until such time when the Executive cures the violation to the reasonable satisfaction of the Partnership.

     18. Reformation. If a court or arbitrator rules that any time period or the geographic area specified in any restrictive covenant in Sections 9 through 17 is unenforceable, then the time period will be reduced by the number of months, or the geographic area will be reduced by the elimination of such unenforceable portion, or both, so that the restrictions may be enforced in the geographic area and for the time to the full extent permitted by law.

     19. No Previous Restrictive Agreements. Executive represents that, except as disclosed in writing to the Partnership as of the Effective Date, Executive is not bound by the terms of any agreement with any previous employer or other third party to (a) refrain from using or disclosing any confidential or proprietary information in the course of Executive’s employment by the Partnership or (b) refrain from competing, directly or indirectly, with the business of such previous employer or any other person or entity. Executive further represents that Executive’s performance under this Agreement and work duties for the Partnership do not, and will not, breach any agreement to keep in confidence proprietary

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information, knowledge or data acquired by Executive in confidence or in trust prior to Executive’s employment with the Partnership, and Executive will not disclose to the Partnership or induce the Partnership to use any confidential or proprietary information or material belonging to any previous employer or others.

     20. Conflicts of Interest. In keeping with Executive’s fiduciary duties to the Partnership, Executive hereby agrees that Executive shall not become involved in a conflict of interest, or upon discovery thereof, allow such a conflict to continue at any time during the Employment Period. In this respect, Executive agrees to fully comply with the conflict of interest agreement entered into by Executive as an employee, officer or director of the Partnership or an Affiliate. In the instance of a violation of the conflict of interest agreement to which Executive is a party, it may be necessary for the Partnership to terminate Executive’s employment for Cause (as defined in Section 6(d)).

     21. Remedies. Executive acknowledges that the restrictions contained in Sections 9 through 20 of this Agreement, in view of the nature of the Partnership’s business, are reasonable and necessary to protect the Partnership’s legitimate business interests, and that any violation of this Agreement would result in irreparable injury to the Partnership. Notwithstanding the arbitration provisions in Section 28, in the event of a breach or a threatened breach by Executive of any provision of Sections 9 through 20 of this Agreement, the Partnership shall be entitled to a temporary restraining order and injunctive relief restraining Executive from the commission of any breach, and to recover the Partnership’s attorneys’ fees, costs and expenses related to the breach or threatened breach. Nothing contained in this Agreement shall be construed as prohibiting the Partnership from pursuing any other remedies available to it for any such breach or threatened breach, including, without limitation, the recovery of money damages, attorneys’ fees, and costs. These covenants and agreements shall each be construed as independent of any other provisions in this Agreement, and the existence of any claim or cause of action by Executive against the Partnership, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Partnership of such covenants and agreements.

     22. Withholdings; Right of Offset. The Partnership may withhold and deduct from any benefits and payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling, (b) all other normal employee deductions made with respect to Partnership’s employees generally, and (c) any advances made to Executive and owed to Partnership.

     23. Nonalienation. The right to receive payments under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance by Executive, dependents or beneficiaries of Executive, or to any other person who is or may become entitled to receive such payments hereunder. The right to receive payments hereunder shall not be subject to or liable for the debts, contracts, liabilities, engagements or torts of any person who is or may become entitled to receive such payments, nor may the same be subject to attachment or seizure by any creditor of such person under any circumstances, and any such attempted attachment or seizure shall be void and of no force and effect.

     24. Incompetent or Minor Payees. Should the Partnership determine, in its discretion, that any person to whom any payment is payable under this Agreement has been determined to be legally incompetent or is a minor, any payment due hereunder, notwithstanding any other provision of this Agreement to the contrary, may be made in any one or more of the following ways: (a) directly to such minor or person; (b) to the legal guardian or other duly appointed personal representative of the person or estate of such minor or person; or (c) to such adult or adults as have, in the good faith knowledge of the Partnership, assumed custody and support of such minor or person; and any payment so made shall constitute full and complete discharge of any liability under this Agreement in respect to the amount paid.

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     25. Severability. It is the desire of the Parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held unenforceable by a court of competent jurisdiction or arbitrator (pursuant to Section 28), the Parties hereby agree and consent that such provision shall be reformed to create a valid and enforceable provision to the maximum extent permitted by law; provided, however, if such provision cannot be reformed, it shall be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement. This Agreement should be construed by limiting and reducing it only to the minimum extent necessary to be enforceable under then applicable law.

     26. Title and Headings; Construction. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. The words “herein”, “hereof”, “hereunder” and other compounds of the word “here” shall refer to the entire Agreement and not to any particular provision.

     27. Governing Law; Jurisdiction. All matters or issues relating to the interpretation, construction, validity, and enforcement of this Agreement shall be governed by the laws of the State of Texas, without giving effect to any choice-of-law principle that would cause the application of the laws of any jurisdiction other than Texas. Jurisdiction and venue of any action or proceeding relating to this Agreement or any Dispute (to the extent arbitration is not required under Section 28) shall be exclusively in Houston, Texas.

     28. Mandatory Arbitration. Except as provided in subsection (h) of this Section 28, any Dispute (as defined in Section 6(d)) must be resolved by binding arbitration in accordance with the following:

          (a) Either Party may begin arbitration by filing a demand for arbitration in accordance with the Arbitration Rules and concurrently notifying the other Party of that demand. If the Parties are unable to agree upon a panel of three arbitrators within ten days after the demand for arbitration was filed (and do not agree to an extension of that ten-day period), either Party may request the Houston, Texas office of the American Arbitration Association (“AAA”) to appoint the arbitrator or arbitrators necessary to complete the panel in accordance with the Arbitration Rules. Each arbitrator so appointed shall be deemed accepted by the Parties as part of the panel. Notwithstanding the foregoing, the Parties, by mutual consent, may agree to a single arbitrator instead of a panel of three arbitrators and, in such event, references herein to “panel” shall refer to the single appointed arbitrator.

          (b) The arbitration shall be conducted in the Houston, Texas metropolitan area at a place and time agreed upon by the Parties with the panel, or if the Parties cannot agree, as designated by the panel. The panel may, however, call and conduct hearings and meetings at such other places as the Parties may agree or as the panel may, on the motion of one Party, determine to be necessary to obtain significant testimony or evidence.

          (c) The panel may authorize any and all forms of discovery upon a Party’s showing of need that the requested discovery is likely to lead to material evidence needed to resolve the Dispute and is not excessive in scope, timing, or cost.

          (d) The arbitration shall be subject to the Federal Arbitration Act and conducted in accordance with the Arbitration Rules to the extent that they do not conflict with this Section 28. The Parties and the panel may, however, agree to vary to provisions of this Section 28 or the matters otherwise governed by the Arbitration Rules.

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          (e) The arbitration hearing shall be held within 60 days after the appointment of the panel. The panel’s final decision or award shall be made within 30 days after the hearing. That final decision or award shall be made by unanimous or majority vote or consent of the arbitrators constituting the panel, and shall be deemed issued at the place of arbitration. The panel’s final decision or award shall be based on the terms and conditions of this Agreement and applicable law.

          (f) The panel’s final decision or award may include injunctive relief in response to any actual or impending breach of this Agreement or any other actual or impending action or omission of a Party under or in connection with this Agreement.

          (g) The panel’s final decision or award shall be final and binding upon the Parties, and judgment upon that decision or award may be entered in any court having jurisdiction. The Parties waive any right to apply or appeal to any court for relief from the preceding sentence or from any decision of the panel that is made before the final decision or award.

          (h) Nothing in this Section 28 limits the right of either Party to apply to a court having jurisdiction to (i) enforce the agreement to arbitrate in accordance with this Section 28, (ii) seek provisional or temporary injunctive relief, in response to an actual or impending breach of the Agreement or otherwise so as to avoid an irreparable damage or maintain the status quo, until a final arbitration decision or award is rendered or the Dispute is otherwise resolved, or (iii) challenge or vacate any final arbitration decision or award that does not comply with this Section 28. In addition, nothing in this Section 28 prohibits the Parties from resolving any Dispute (in whole or in part) at any time by mutual agreement or compromise. This Section 28 shall also not preclude the Parties at any time from mutually agreeing to pursue non-binding mediation of the Dispute.

          (i) The panel may proceed to an award notwithstanding the failure of any Party to participate in such proceedings. The prevailing Party in the arbitration proceeding may be entitled to an award of reasonable attorneys’ fees incurred in connection with the arbitration in such amount, if any, as determined by the panel in its discretion. The costs of the arbitration shall be borne equally by the Parties unless otherwise determined by the panel in its award.

          (j) The panel shall be empowered to impose sanctions and to take such other actions as it deems necessary to the same extent a judge could impose sanctions or take such other actions pursuant to the Federal Rules of Civil Procedure and applicable law. Each party agrees to keep all Disputes and arbitration proceedings strictly confidential except for disclosure of information required by applicable law which cannot be waived.

     29. Binding Effect: Third Party Beneficiaries. This Agreement shall be binding upon and inure to the benefit of the Parties hereto, and to their respective heirs, executors, beneficiaries, personal representatives, successors and permitted assigns hereunder. Holding Co. and its partners shall expressly be deemed to be third party beneficiaries of the covenants and agreements of the parties hereto; otherwise this Agreement shall not be for the benefit of any third parties.

     30. Entire Agreement; Amendment and Termination. This Agreement contains the entire agreement of the Parties hereto with respect to the matters covered herein; moreover, this Agreement supersedes all prior and contemporaneous agreements and understandings, oral or written, between the Parties concerning the subject matter hereof. This Agreement may be amended, waived or terminated only by a written instrument that is identified as an amendment, waiver or termination hereto, and is executed on behalf of both Parties.

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     31. Survival of Certain Provisions. Wherever appropriate to the intention of the Parties, the respective rights and obligations of the Parties hereunder shall survive any termination or expiration of this Agreement.

     32. Waiver of Breach. No waiver by either Party hereto of a breach of any provision of this Agreement by any other Party, or of compliance with any condition or provision of this Agreement to be performed by such other Party, will operate or be construed as a waiver of any subsequent breach by such other Party or any similar or dissimilar provision or condition at the same or any subsequent time. The failure of either Party hereto to take any action by reason of any breach will not deprive such Party of the right to take action at any time while such breach continues.

     33. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Partnership and its Affiliates (and its and their successors), as well as upon any person or entity acquiring, whether by merger, consolidation, purchase of assets, dissolution or otherwise, all or substantially all of the capital stock, business and/or assets of the Partnership (or its successor) regardless of whether the Partnership is the surviving or resulting corporation. The Partnership shall require any successor (whether direct or indirect, by purchase, merger, consolidation, dissolution or otherwise) to all or substantially all of the capital stock, business or assets of the Partnership to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Partnership would be required to perform it if no such succession had occurred; provided, however, no such assumption shall relieve the Partnership of any of its duties or obligations hereunder unless otherwise agreed, in writing, by Executive.

     This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representative, executors, administrators, successors, and heirs. In the event of the death of Executive while any amount is payable hereunder, all such amounts shall be paid to the Designated Beneficiary (as defined in Section 6(d)).

     34. Notice. Each notice or other communication required or permitted under this Agreement shall be in writing and transmitted, delivered, or sent by personal delivery, prepaid courier or messenger service (whether overnight or same-day), or prepaid certified United States mail (with return receipt requested), addressed (in any case) to the other Party at the address for that Party set forth below that Party’s signature on this Agreement, or at such other address as the recipient has designated by Notice to the other Party.

     Each notice or communication so transmitted, delivered, or sent (a) in person, by courier or messenger service, or by certified United States mail shall be deemed given, received, and effective on the date delivered to or refused by the intended recipient (with the return receipt, or the equivalent record of the courier or messenger, being deemed conclusive evidence of delivery or refusal), or (b) by telecopy or facsimile shall be deemed given, received, and effective on the date of actual receipt (with the confirmation of transmission being deemed conclusive evidence of receipt, except where the intended recipient has promptly notified the other Party that the transmission is illegible). Nevertheless, if the date of delivery or transmission is not a business day, or if the delivery or transmission is after 5:00 p.m. on a business day, the notice or other communication shall be deemed given, received, and effective on the next business day.

     35. Executive Acknowledgment. Executive acknowledges (a) being knowledgeable and sophisticated as to business matters, including the subject matter of this Agreement, (b) having read this Agreement and understanding its terms and conditions, (c) having been given an ample opportunity to discuss this Agreement with Executive’s personal legal counsel prior to execution, and (d) that no strict rules of construction shall apply for or against the drafter or any other Party. Executive hereby represents

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that Executive is free to enter into this Agreement including, without limitation, that Executive is not subject to any covenant not to compete that would conflict with any duties under this Agreement.

     36. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party hereto, but together signed by both Parties.

[Signature page follows.]

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     IN WITNESS WHEREOF, Executive has executed this Agreement and the Partnership has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative, to be effective as of the Effective Date.

WITNESS:			EXECUTIVE:
Signature:	/s/ Carol Gore		Signature:	/s/ Harlan H. Chappelle
	Name:	Carol Gore		Name: Harlan H. Chappelle
	Date:	8/28/06		Date: 28 August 2006
				Address for Notices:
				10 N. Lansdowne Circle
				The Woodlands, TX 77382

ATTEST:		ALTA MESA SERVICES, LP:
By:		By:	/s/ Michael E. Ellis
	Title:		Its: Vice President
	Name:		Name: Michael E. Ellis
	Date:		Date: 8/28/06
			Address for Notices:
			Alta Mesa Services, LP
			6200 Highway 6 South, Suite 201
			Houston, Texas 77083-1539
			Attention: Harlan H. Chappelle

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EX-10.5

Exhibit 10.5

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”), is made and entered into as of August 31, 2006 (the ‘“Effective Date”), by and between Alta Mesa Services, LP, a Texas limited partnership (hereafter “Partnership”) and Michael E. Ellis (hereafter “Executive”). The Partnership and Executive may sometimes hereafter be referred to singularly as a “Party” or collectively as the “Parties.”

W I T N E S S E T H:

     WHEREAS, the Partnership desires to continue to secure the employment services of Executive subject to the terms and conditions hereafter set forth;

     WHEREAS the Partnership provides various services including management services to Alta Mesa Holdings, LP (“Holding Co.”), Alta Mesa Holdings GP (“General Partner”), and all Subsidiaries of Holding Co., under the Shared Services and Expenses Agreement dated as of January 1, 2006 between the Partnership, Holding Co., General Partner and the Subsidiaries (“Services Agreement”);

     WHEREAS, the Executive is willing to enter into this Agreement upon the terms and conditions hereafter set forth;

     NOW, THEREFORE, in consideration of Executive’s employment with the Partnership, and the premises and mutual covenants contained herein, the Parties hereto agree as follows:

     1. Employment. During the Employment Period (as defined in Section 4 hereof), the Partnership shall employ Executive, and Executive shall serve as, Vice President and Chief Operating Officer of the Partnership. Executive’s principal place of employment shall be at the main business offices of the Partnership in Houston, Texas.

     2. Compensation.

          (a) Base Salary. The Partnership shall pay to Executive during the Employment Period a base salary of $400,000 per year, as adjusted pursuant to the subsequent provisions of this paragraph (the “Base Salary”). The Base Salary shall be payable in accordance with the Partnership’s normal payroll schedule and procedures for its executives. Nothing contained herein shall preclude the payment of any other compensation to Executive at any time as determined by the Partnership.

          (b) Annual Bonus. In addition to the Base Salary in Section 2(a), for each annual fiscal year of the Partnership during the Employment Period (as defined in Section 4) (each such annual period being referred to as a “Bonus Period”), Executive shall be entitled to a bonus equal to a percentage of Executive’s Base Salary paid during each such one year period (referred to herein as the “Annual Bonus”), such percentage to be established by the Partnership in its sole discretion, and approved by Holding Co.; provided, however, Executive shall be entitled to the Annual Bonus only if Executive has met the performance criteria set by the Partnership for the applicable period.

     In the event that the Employment Period ends before the end of the Bonus Period, Executive shall be entitled to a pro rata portion of the Annual Bonus for that year (based on the number of days in which Executive was employed during the year divided by 365), as determined based on satisfaction of the performance criteria for that period on a pro rata basis, unless Executive was terminated for Cause (as defined in Section 6(d), in which event Executive shall not be entitled to any Annual Bonus for that year.

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Executive acknowledges that the amount and performance criteria for Executive’s Annual Bonus to be earned for each Bonus Period shall be set on or before the beginning of the applicable Bonus Period. If Executive successfully meets the performance criteria established by the Partnership, the Partnership shall pay Executive the earned Annual Bonus amount within the earlier of: (i) sixty days (60) days after the end of the Bonus Period or (ii) sixty days (60) after the end of the Employment Period, as applicable.

          (c) Compensation in Event of Injury or Sickness. In the event Executive becomes injured or suffers a medically determinable physical or mental illness, as determined by a physician acceptable to both the Partnership and Executive in the same manner as provided in Section 6(d)(5), Executive shall be entitled to receive continued Base Salary as set forth in Section 2(a) for a period of six (6) months following the occurrence of such injury or sickness; provided, however, such Base Salary shall be reduced by any short-term and/or long-term disability benefits that are received by Executive under such programs sponsored by the Partnership during such six (6) month period.

     3. Duties and Responsibilities of Executive. During the Employment Period, Executive’s services shall be devoted on substantially a full-time basis to (i) the business of the Partnership as directed by the General Partner under the Services Agreement and (ii) performance of the duties and responsibilities assigned to Executive by the Board or the Chief Executive Officer, to the best of Executive’s ability and with reasonable diligence. In determining Executive’s duties and responsibilities, Executive shall not be assigned duties and responsibilities that are inappropriate for Executive’s position. This Section 3 shall not be construed as preventing Executive from (a) engaging in reasonable volunteer services for charitable, educational or civic organizations, or (b) investing personal assets in such a manner that will not require a material amount of the Executive’s time or services in the operation of the businesses in which such investments are made; provided, however, no such other activity shall conflict with Executive’s loyalties and duties to the Partnership. Executive shall at all times use best efforts to comply in good faith with United States laws applicable to Executive’s actions on behalf of the Partnership and its Affiliates (as defined in Section 6(d)(1)). Executive understands and agrees that Executive may be required to travel from time to time for purposes of the Partnership’s business. The Parties agree that Executive’s principal work location cannot be relocated further than 50 miles from Executive’s principal work location on the Effective Date, except as mutually agreed by the Parties.

     4. Term of Employment. Executive’s initial term of employment with the Partnership under this Agreement shall be for the period from the Effective Date through the date that is four (4) years from the Effective Date (the “Initial Term of Employment”). Thereafter, the Employment Period hereunder shall be automatically extended repetitively for an additional one (1) year period on each anniversary of the Effective Date, unless Notice of Termination (pursuant to Section 7) is given by either the Partnership or Executive to the other Party at least sixty (60) days prior to the end of the Initial Term of Employment or any one-year extension thereof, as applicable, that the Agreement will not be renewed for a successive one-year period after the end of the current one-year period. The Partnership and Executive shall each have the right to give Notice of Termination at will, with or without cause, at any time subject, however, to the terms and conditions of this Agreement regarding the rights and duties of the Parties upon termination of employment. The Initial Term of Employment, and any one-year extension of employment hereunder, shall each be referred to herein as a “Term of Employment.” The period from the Effective Date through the date of Executive’s termination of employment with the Partnership and all Affiliates, for whatever reason, shall be referred to herein as the “Employment Period.” Notwithstanding the above, Executive agrees to remain available beyond the Employment Period to provide assistance to the Partnership or its Affiliates in the event the Partnership or its Affiliate become involved in litigation regarding matters of which Executive has relevant knowledge resulting from Executive’s employment with the Partnership. Such post-termination assistance shall be provided by Executive in the capacity of an independent contractor at an agreed-upon, reasonable consulting fee,

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and shall not be deemed to create or continue an employee-employer relationship or to represent a continuation of any provision of this Agreement.

     5. Benefits. Subject to the terms and conditions of this Agreement, during the Employment Period, Executive shall be entitled to all of the following:

          (a) Reimbursement of Business Expenses. The Partnership shall pay or reimburse Executive for all reasonable travel, entertainment and other business expenses paid or incurred by Executive in the performance of duties hereunder. The Partnership shall also provide Executive with suitable office space, including staff support, paid parking, and necessary equipment, including but not limited to cellular telephone and laptop computer.

          (b) Other Employee Benefits. Executive shall be entitled to participate in any pension, retirement, 401(k), profit-sharing, and other employee benefits plans or programs of the Partnership to the same extent as available to other key management employees of the Partnership under the terms of such plans or programs. Executive shall also be entitled to participate in any group insurance, hospitalization, medical, dental, health, life, accident, disability and other employee benefits plans or programs of the Partnership to the extent available to other key management employees of the Partnership, and their spouses and eligible dependents, under the terms of such plans or programs, including any medical expense reimbursement account and post-retirement medical program as available to other key management employees of the Partnership.

          (c) Vacation and Holidays. Executive shall be entitled to four (4) weeks of paid vacation per calendar year (prorated in any calendar year during which Executive is employed for less than the entire year based on the number of days in such calendar year in which Executive was employed). Executive shall also be entitled to all paid holidays and personal days provided by the Partnership for its key management employees under the Partnership’s personnel policy as then effective. Unused vacation shall not carryover to the following year unless specifically approved by the Partnership.

          (d) Nonqualified Deferred Compensation. Executive shall be entitled to participate in any nonqualified plan of deferred compensation maintained by the Partnership, Holding Co., the General Partner or any of the Subsidiaries, to the same extent as available to any other key management employees of such entities. If, and to the extent, that any such plan relates or is attributable to compensation derived from the equity of Holding Co., such compensation shall come solely from the interests held by the Class A Limited Partners in Holding Co.

          (e) Equity Grants. Executive shall be entitled to participate in any long-term incentive plan providing for equity grants or other incentive awards, the amount of which is based upon the value of the Partnership or an Affiliate, to the same extent as available to any other key management employees of the Partnership. Specifically, the Partnership shall provide a participation in the equity of Holding Co. for the benefit of the Executive. Such participation in any equity plan shall come solely from the interests held by the Class A Limited Partners in Holding Co.

          (f) Annual Physical. Executive shall be entitled to be reimbursed by the Partnership for the full cost of an annual physical examination by a physician (i) selected by the Partnership or (ii) selected by Executive and approved by the Partnership.

          (g) Key Man Life Insurance. The Partnership may, at any time during the term of this Agreement, apply for and procure as owner, and for its sole benefit, life insurance on the Executive’s life in such amounts and in such forms as the Partnership may select. Executive hereby acknowledges

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that Executive will have no interest whatsoever in any such insurance policy. Executive must submit to such medical examinations, supply such information, and execute such documents as may be reasonably requested by the insuring companies to obtain any such key man policy.

     6. Rights and Payments upon Termination. The Executive’s right to compensation and benefits for periods after the date on which Executive’s employment terminates with the Partnership and all Affiliates (the “Termination Date”), shall be determined in accordance with this Section 6, as follows:

          (a) Minimum Payments and Vesting. Executive shall be entitled to the following minimum payments under this Section 6(a), in addition to any other payments or benefits to which Executive is entitled to receive under the terms of any employee benefit plan or program or Section 6(b):

(1)	unpaid salary for the full month in which the Termination Date occurred; provided, however, if Executive is terminated for Cause (as defined in Section 6(d)), Executive shall only be entitled to receive accrued but unpaid salary through the Termination Date;
(2)	unpaid vacation days for that year which have accrued through the Termination Date;
(3)	reimbursement of reasonable business expenses which were incurred but unpaid as of the Termination Date; and
(4)	to the extent Executive participated in any nonqualified deferred compensation or incentive plan or program with vesting criteria, or received any equity grant that is not fully vested, Executive will be automatically 100% vested as of the Termination Date.

     Such salary and accrued vacation days shall be paid to Executive within five (5) business days following the Termination Date in a cash lump sum less applicable withholdings. Business expenses shall be reimbursed in accordance with the Partnership’s normal procedures.

          (b) Other Severance Payments. In the event that during the Term of Employment (i) Executive’s employment is involuntarily terminated by the Partnership (except due to a “No Severance Benefits Event” (as defined in Section 6(d)), (ii) Executive’s employment is terminated due to “Disability” or “Retirement” (as such terms are defined in Section 6(d)) or (iii) Executive terminates his employment for Good Reason (as defined in Section 6(d)), then in any such event under clause (i), clause (ii) or clause (iii), the following severance benefits shall be provided to Executive or, in the event of death before receiving all such benefits, to Executive’s “Designated Beneficiary” (as defined in Section 6(d)) following death:

     (1) The Partnership shall pay as additional compensation (the “Additional Payment”), an amount equal to Two (2) years of Base Salary in effect as of the Termination Date. The Partnership shall make the Additional Payment to Executive in a cash lump sum, net of applicable withholdings, not later than sixty (60) calendar days following the Termination Date.

     (2) COBRA Coverage. The Partnership shall maintain continued group health plan coverage following the Termination Date under all plans subject to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) (as codified in Code Section 4980B and Part 6 of Subtitle B of Title I of ERISA) for Executive and Executive’s eligible spouse and

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dependents for the maximum period for which such qualified beneficiaries are eligible to receive COBRA coverage. However, Executive (and Executive’s spouse and dependents) shall not be required to pay more for such COBRA coverage than is charged by the Partnership to its key management employees who are then in active service for the Partnership and receiving coverage under such plan and, therefore, the Partnership shall be responsible for the difference between the amount charged hereunder and the full COBRA premiums for a period of one (1) year following Executive’s Termination Date. In all other respects, Executive (and Executive’s spouse and dependents) shall be treated the same as other COBRA qualified beneficiaries under the terms of such plans and the provisions of COBRA. In the event of any change to a group health plan following the Termination Date, Executive and Executive’s spouse and dependents, as applicable, shall be treated consistently with the then-current key management employees of the Partnership with respect to the terms and conditions of coverage and other substantive provisions of the plan. Executive and Executive’s spouse hereby agree to acquire and maintain any and all coverage that either or both of them are entitled to at any time during their lives under the Medicare program or any similar program of the United States or any agency thereof. Executive and Executive’s spouse further agree to pay any required premiums for Medicare coverage from their personal funds.

     For purposes of clarity, in the event that (i) Executive voluntarily resigns or otherwise voluntarily terminates employment, except due to Disability or Retirement (as such terms are defined in Section 6(d)) or for Good Reason, or (ii) Executive’s employment is terminated due to a No Severance Benefits Event (as defined in Section 6(d)), then, in either such event under clause (i) or (ii), the Partnership shall have no obligation to provide the severance benefits described in paragraphs (1) and (2) (above) of this Section 6(b), except to offer COBRA coverage (as required by COBRA law) but not at the discounted rate described in paragraph (2). Executive shall still be entitled to the minimum benefits provided under Section 6(a). The severance payments provided under Section 6(b) shall supersede and replace any severance payments under any severance pay plan that the Partnership or any Affiliate maintains for key management employees or employees generally.

          (c) Release Agreement. Notwithstanding any provision of the Agreement to the contrary, in order to receive the severance benefits provided under Section 6(b), the Executive must first execute an appropriate release agreement (on a form provided by the Partnership) whereby the Executive agrees to release and waive, in return for such severance benefits, any claims that Executive may have against the Partnership or any of its Affiliates including, without limitation, for unlawful discrimination (e.g., Title VII of the Civil Rights Act); provided, however, such release agreement shall not release any claim or cause of action by or on behalf of the Executive for (a) any payment or benefit that may be due or payable under this Agreement or any employee benefit plan or program prior to the receipt thereof, (b) nonpayment of salary or benefits to which Executive is entitled from the Partnership as of the Termination Date, or (c) a breach of this Agreement by the Partnership.

          (d) Definitions.

(1)	“Affiliate” means Holding Co., General Partner, the Subsidiaries and any parent or subsidiary company, or any other entity in whatever form, of which the Partnership has any controlling ownership interest or ownership or management control, or vice-versa, as determined by the Partnership.
(2)	“Cause” means any of the following: (A) the Executive’s conviction by a court of competent jurisdiction of a crime involving moral turpitude or a felony, or entering the plea of nolo contendere to such crime by the Executive; (B) the commission by the Executive of a demonstrable act of fraud, or a

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	misappropriation of funds or property, of or upon the Partnership or any Affiliate; (C) the engagement by the Executive, without the written approval of the Partnership and Holding Co., in any material activity which directly competes with the business of the Partnership or any Affiliate, or which would directly result in a material injury to the business or reputation of the Partnership or any Affiliate (including the partners of Holding Co.); or (D) (i) the breach by Executive of any material provision of this Agreement, and Executive’s continued failure to cure such breach within a reasonable time period set by the Partnership but in no event less than twenty (20) calendar days after Executive’s receipt of such notice.
(3)	“Code” means the Internal Revenue Code of 1986, as amended, or its successor. References herein to any Section of the Code shall include any successor provisions of the Code.
(4)	“Designated Beneficiary” means the Executive’s surviving spouse, if any. If there is no such surviving spouse at the time of Executive’s death, then the Designated Beneficiary hereunder shall be Executive’s estate.
(5)	“Disability” shall mean that (a) Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or last for a continuous period of not less than 12 months, or (b) by reason of any medically determinable physical or mental impairment which can be expected to result in death or to last for a continuous period of not less than 12 months, Executive is receiving income replacement for a period of not less than three months under an accident and health plan covering employees of the Partnership. Evidence of such Disability shall be certified by a physician acceptable to both the Partnership and Executive. In the event that the Parties are not able to agree on the choice of a physician, each shall select one physician who, in turn, shall select a third physician to render such certification. All costs relating to the determination of whether Executive has incurred a Disability shall be paid by the Partnership. Executive agrees to submit to any examinations that are reasonably required by the attending physician or other healthcare service providers to determine whether Executive has a Disability.
(6)	“Dispute” means any dispute, disagreement, claim, or controversy arising from, in connection with, or relating to (a) the employment, or termination of employment, of Executive, or (b) the Agreement, or the validity, interpretation, performance, breach or termination of the Agreement.
(7)	“Good Reason” means the occurrence of any of the following, if not cured and corrected by the Partnership or its successor, within 60 days after written notice thereof is provided by Executive to the Partnership or its successor: (a) the demotion or reduction in title or rank of Executive, or the assignment to Executive of duties that are materially inconsistent with Executive’s current positions, duties, responsibilities and status with the Partnership, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions (other than a change due to the Executive’s Disability or as an accommodation under the American with Disabilities Act), except for any such demotion, reduction, assignment, removal or failure that occurs in connection

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	with (i) Executive’s termination of employment for Cause, Disability or death, or (ii) Executive’s prior written consent; (b) the reduction of the Executive’s annual base salary or bonus opportunity as compared to base salary and bonus opportunity as effective immediately prior to such reduction without the prior written consent of Executive; (c) a relocation of Executive’s principal work location to a location in excess of 50 miles from its then current location.
(8)	“No Severance Benefits Event” means termination of Executive’s employment by the Partnership (i) for Cause (as defined above) or due to death or (ii) arising from or in connection with the sale of Holding Co. and its subsidiaries, in one transaction or in a series of related transactions, whether structured as (1) a sale or transfer of all or substantially all of the partnership or equity interest of the Partnership and its subsidiaries (including by way of merger, consolidation, share exchange or other similar transaction) or (2) the sale or transfer of all or substantially all of the assets of the Holding Co. and its subsidiaries or (3) a combination of (1) and (2).
(9)	“Retirement” means the termination of Executive’s employment for normal retirement at or after attaining age seventy (70), provided that, on the date of retirement, Executive has accrued at least five years of active service as an employee with the Partnership or its Affiliates.

     7. Notice of Termination. Any termination by the Partnership or the Executive shall be communicated by Notice of Termination to the other Party hereto. For purposes of this Agreement, the term “Notice of Termination” means a written notice which indicates the specific termination provision of this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

     8. No Mitigation. Subject to Section 6(b)(2), Executive shall not be required to mitigate the amount of any payment or other benefits provided under this Agreement by seeking other employment or in any other manner.

     9. Restrictive Covenants. As an inducement to the Partnership to enter into this Agreement, Executive represents to, and covenants with or in favor of, the Partnership that Executive will comply with all of the restrictive covenants in Sections 9 through 17, as a condition to the Partnership’s obligation to provide any benefits to Executive under this Agreement.

     10. Trade Secrets.

          (a) Access to Trade Secrets. As of the Effective Date and on an ongoing basis, the Partnership agrees to give Executive access to Trade Secrets which the Executive did not have access to, or knowledge of, before the Effective Date.

          (b) Access to Specialized Training. As of the Effective Date and on an ongoing basis, the Partnership has provided, and agrees to provide on an ongoing basis, Executive with Specialized Training which the Executive does not have access to, or knowledge of, before the Effective Date.

          (c) Agreement Not to Use or Disclose Trade Secrets. In exchange for the Partnership’s promises to provide Executive with access to Trade Secrets and Specialized Training and the other consideration and benefits provided to Executive under this Agreement, Executive agrees,

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during the Employment Period, and any time thereafter, not to disclose to anyone, including, without limitation, any person, firm, corporation or other entity, or publish or use for any purpose, any Trade Secrets and Specialized Training, except as required in the ordinary course of the Partnership’s business or as authorized by the Partnership.

          (d) Agreement to Refrain from Defamatory Statements. Executive shall refrain, both during the Employment Period and thereafter, from publishing any oral or written statements about any directors, partners, officers, employees, agents, investors or representatives of the Partnership or any Affiliate that are slanderous, libelous, or defamatory; or that disclose private or confidential information about the business affairs, directors, partners, officers, employees, agents, investors or representatives of the Partnership or any Affiliate; or that constitute an intrusion into the seclusion or private lives of any such person; or that give rise to unreasonable publicity about the private life of any such person; or that place any such person in a false light before the public; or that constitute a misappropriation of the name or likeness of any such person. A violation or threatened violation of these restrictive covenants may be enjoined by a court of law notwithstanding the arbitration provisions of Section 29.

          (e) Definitions. The following terms, when used in this Agreement, are defined below:

(1) “Restricted Territory” means, collectively each county (or equivalent subdivision) of any state, district, or territory of North America as to which the Partnership conducts its business; and any area adjacent to such counties (or equivalent territories) to the extent such are within a 50-mile radius of any producing property or leasehold of the Partnership.

(2) “Specialized Training” includes the training the Partnership provides to Executive that is unique to its business and enhances Executive’s ability to perform Executive’s job duties effectively. Specialized Training includes, without limitation, sales methods/techniques training; operation methods training; engineering and scientific training; and computer and systems training.

(3) “Trade Secrets” means any and all information and materials (in any form or medium) that are proprietary to the Partnership or an Affiliate, or are treated as confidential by the Partnership or Affiliate as part of, or relating to, all or any portion of its or their business, including information and materials about the products and services offered by the Partnership or an Affiliate; compilations of information, records and specifications, properties, processes, programs, and systems of the Partnership or Affiliate; research for the Partnership or an Affiliate; and methods of doing business of the Partnership or an Affiliate. Trade Secrets include, without limitation, all of the Partnership’s or Affiliate’s technical and business information, whether patentable or not, which is of a confidential, trade secret or proprietary character, and which is either developed by the Executive alone, or with others or by others; lists of customers; identity of customers; contract terms; bidding information and strategies; pricing methods or information; computer software; computer software methods and documentation; hardware; the Partnership’s or Affiliate’s methods of business operations; the procedures, forms and techniques used in conducting its business operations; and other documents, information or data that the Partnership requires to be maintained in confidence for the Partnership’s business success.

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     11. Duty to Return Partnership Documents and Property. Upon termination of the Employment Period, Executive shall immediately return and deliver to the Partnership any and all papers, books, records, documents, memoranda and manuals, e-mail, electronic or magnetic recordings or data, including all copies thereof, belonging to the Partnership or relating to its business, in Executive’s possession, whether prepared by Executive or others. If at any time after the Employment Period, Executive determines that Executive has any Trade Secrets in Executive’s possession or control, Executive shall immediately return them to the Partnership, including all copies thereof.

     12. Best Efforts and Disclosure. Executive agrees that, while employed with the Partnership, Executive’s services shall be devoted on a full time basis to the Partnership’s business, and Executive shall use best efforts to promote its success. Further, Executive shall promptly disclose to the Partnership all ideas, inventions, computer programs, and discoveries, whether or not patentable or copyrightable, which Executive may conceive or make, alone or with others, during the Employment Period, whether or not during working hours, and which directly or indirectly:

     (a) relate to a matter within the scope, field, duties or responsibility of Executive’s employment with the Partnership; or

     (b) are based on any knowledge of the actual or anticipated business or interests of the Partnership; or

     (c) are aided by the use of time, materials, facilities or information of the Partnership.

     Executive assigns to the Partnership, without further compensation, any and all rights, titles and interest in all such ideas, inventions, computer programs and discoveries in all countries of the world. Executive recognizes that all ideas, inventions, computer programs and discoveries of the type described above, conceived or made by Executive alone or with others within 12 months after the Termination Date (voluntary or otherwise), are likely to have been conceived in significant part either while employed by the Partnership or as a direct result of knowledge Executive had of proprietary information or Trade Secrets. Accordingly, Executive agrees that such ideas, inventions or discoveries shall be presumed to have been conceived during the Employment Period, unless and until the contrary is clearly established by the Executive.

     13. Inventions and Other Works. Any and all writings, computer software, inventions, improvements, processes, procedures and/or techniques which Executive may make, conceive, discover, or develop, either solely or jointly with any other person or persons, at any time during the Employment Period, whether at the request or upon the suggestion of the Partnership or otherwise, which relate to or are useful in connection with any business now or hereafter carried on or contemplated by the Partnership, including developments or expansions of its present fields of operations, shall be the sole and exclusive property of the Partnership. Executive agrees to take any and all actions necessary or appropriate so that the Partnership can prepare and present applications for copyright or Letters Patent therefor, and secure such copyright or Letters Patent wherever possible, as well as reissue renewals, and extensions thereof, and obtain the record title to such copyright or patents. Executive shall not be entitled to any additional or special compensation or reimbursement regarding any such writings, computer software, inventions, improvements, processes, procedures and techniques. Executive acknowledges that the Partnership from time to time may have agreements with other persons or entities which impose obligations or restrictions on the Partnership regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. Executive agrees to be bound by all such obligations and restrictions, and to take all action necessary to discharge the obligations of the Partnership.

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     14. Non-Solicitation Restriction. To protect Trade Secrets after termination of the Employment Period, it is necessary to enter into the following restrictive covenants, which are ancillary to the enforceable promises between the Partnership and Executive in Sections 9 through 13 and other provisions of this Agreement. Following the Termination Date (regardless of the reason for termination), Executive hereby covenants and agrees that Executive will not, directly or indirectly, without the prior written consent of the Partnership, either individually or as a principal, partner, agent, consultant, contractor, employee, or as a director or officer of any entity, or in any other manner or capacity whatsoever, except on behalf of the Partnership, solicit business, or attempt to solicit business, in products or services competitive with any products or services offered or performed by the Partnership or its Affiliates in any business which the Partnership or any of its Affiliates does business or has any business interest as of the Termination Date, or either (a) from those individuals or entities with whom the Partnership or Affiliate conducted business with or (b) with respect to any assets or holdings in which the Partnership or Affiliate had any interest, at any time during the one (1) year period ending on the Termination Date. The prohibitions set forth in this Section 15 shall remain in effect for a period of one (1) year following the Termination Date.

     15. Non-Competition Restriction. Executive hereby agrees that in order to protect Trade Secrets, it is necessary to enter into the following restrictive covenant, which is ancillary to the enforceable promises between the Partnership and Executive in Sections 9 through 14 and other provisions of this Agreement. Executive hereby covenants and agrees that during the Employment Period, and for a period of one (1) year following the Termination Date (regardless of the reason for termination), Executive will not, without the prior written consent of the Partnership, become interested in any capacity in which Executive would perform any similar duties to those performed while at the Partnership, directly or indirectly (whether as proprietor, stockholder, director, partner, employee, agent, independent contractor, consultant, trustee, or in any other capacity), with respect to any entity engaged in the business of oil and gas exploration and production within the Restricted Territory (a “Competing Enterprise”); provided, however, Executive shall not be deemed to be participating or engaging in a Competing Enterprise solely by virtue of the ownership of not more than one percent (1%) of any class of stock or other securities which are publicly traded on a national securities exchange or in a recognized over-the-counter market.

     16. No-Recruitment Restriction. Executive agrees that during the Employment Period, and for a period of one (1) year following the Termination Date (regardless of the reason for termination), Executive will not, either directly or indirectly, or by acting in concert with others, solicit or influence, or seek to solicit or influence, any employee or independent contractor performing services for the Partnership or any Affiliate to terminate, reduce or otherwise adversely affect Executive’s employment or other relationship with the Partnership or any Affiliate.

     17. Tolling. If Executive violates any of the restrictions contained in Sections 9 through 16, then notwithstanding any provision hereof to the contrary, the restrictive period will be suspended and will not run in favor of Executive from the time of the commencement of any such violation, unless and until such time when the Executive cures the violation to the reasonable satisfaction of the Partnership.

     18. Reformation. If a court or arbitrator rules that any time period or the geographic area specified in any restrictive covenant in Sections 9 through 17 is unenforceable, then the time period will be reduced by the number of months, or the geographic area will be reduced by the elimination of such unenforceable portion, or both, so that the restrictions may be enforced in the geographic area and for the time to the full extent permitted by law.

     19. No Previous Restrictive Agreements. Executive represents that, except as disclosed in writing to the Partnership as of the Effective Date, Executive is not bound by the terms of any agreement

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with any previous employer or other third party to (a) refrain from using or disclosing any confidential or proprietary information in the course of Executive’s employment by the Partnership or (b) refrain from competing, directly or indirectly, with the business of such previous employer or any other person or entity. Executive further represents that Executive’s performance under this Agreement and work duties for the Partnership do not, and will not, breach any agreement to keep in confidence proprietary information, knowledge or data acquired by Executive in confidence or in trust prior to Executive’s employment with the Partnership, and Executive will not disclose to the Partnership or induce the Partnership to use any confidential or proprietary information or material belonging to any previous employer or others.

     20. Conflicts of Interest. In keeping with Executive’s fiduciary duties to the Partnership, Executive hereby agrees that Executive shall not become involved in a conflict of interest, or upon discovery thereof, allow such a conflict to continue at any time during the Employment Period. In this respect, Executive agrees to fully comply with the conflict of interest agreement entered into by Executive as an employee, officer or director of the Partnership or an Affiliate. In the instance of a violation of the conflict of interest agreement to which Executive is a party, it may be necessary for the Partnership to terminate Executive’s employment for Cause (as defined in Section 6(d)).

     21. Remedies. Executive acknowledges that the restrictions contained in Sections 9 through 20 of this Agreement, in view of the nature of the Partnership’s business, are reasonable and necessary to protect the Partnership’s legitimate business interests, and that any violation of this Agreement would result in irreparable injury to the Partnership. Notwithstanding the arbitration provisions in Section 28, in the event of a breach or a threatened breach by Executive of any provision of Sections 9 through 20 of this Agreement, the Partnership shall be entitled to a temporary restraining order and injunctive relief restraining Executive from the commission of any breach, and to recover the Partnership’s attorneys’ fees, costs and expenses related to the breach or threatened breach. Nothing contained in this Agreement shall be construed as prohibiting the Partnership from pursuing any other remedies available to it for any such breach or threatened breach, including, without limitation, the recovery of money damages, attorneys’ fees, and costs. These covenants and agreements shall each be construed as independent of any other provisions in this Agreement, and the existence of any claim or cause of action by Executive against the Partnership, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Partnership of such covenants and agreements.

     22. Withholdings; Right of Offset. The Partnership may withhold and deduct from any benefits and payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling, (b) all other normal employee deductions made with respect to Partnership’s employees generally, and (c) any advances made to Executive and owed to Partnership.

     23. Nonalienation. The right to receive payments under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance by Executive, dependents or beneficiaries of Executive, or to any other person who is or may become entitled to receive such payments hereunder. The right to receive payments hereunder shall not be subject to or liable for the debts, contracts, liabilities, engagements or torts of any person who is or may become entitled to receive such payments, nor may the same be subject to attachment or seizure by any creditor of such person under any circumstances, and any such attempted attachment or seizure shall be void and of no force and effect.

     24. Incompetent or Minor Payees. Should the Partnership determine, in its discretion, that any person to whom any payment is payable under this Agreement has been determined to be legally incompetent or is a minor, any payment due hereunder, notwithstanding any other provision of this

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Agreement to the contrary, may be made in any one or more of the following ways: (a) directly to such minor or person; (b) to the legal guardian or other duly appointed personal representative of the person or estate of such minor or person; or (c) to such adult or adults as have, in the good faith knowledge of the Partnership, assumed custody and support of such minor or person; and any payment so made shall constitute full and complete discharge of any liability under this Agreement in respect to the amount paid.

     25. Severability. It is the desire of the Parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held unenforceable by a court of competent jurisdiction or arbitrator (pursuant to Section 28), the Parties hereby agree and consent that such provision shall be reformed to create a valid and enforceable provision to the maximum extent permitted by law; provided, however, if such provision cannot be reformed, it shall be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement. This Agreement should be construed by limiting and reducing it only to the minimum extent necessary to be enforceable under then applicable law.

     26. Title and Headings; Construction. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. The words “herein”, “hereof”, “hereunder” and other compounds of the word “here” shall refer to the entire Agreement and not to any particular provision.

     27, Governing Law; Jurisdiction. All matters or issues relating to the interpretation, construction, validity, and enforcement of this Agreement shall be governed by the laws of the State of Texas, without giving effect to any choice-of-law principle that would cause the application of the laws of any jurisdiction other than Texas. Jurisdiction and venue of any action or proceeding relating to this Agreement or any Dispute (to the extent arbitration is not required under Section 28) shall be exclusively in Houston, Texas.

     28. Mandatory Arbitration. Except as provided in subsection (h) of this Section 28, any Dispute (as defined in Section 6(d)) must be resolved by binding arbitration in accordance with the following:

          (a) Either Party may begin arbitration by filing a demand for arbitration in accordance with the Arbitration Rules and concurrently notifying the other Party of that demand. If the Parties are unable to agree upon a panel of three arbitrators within ten days after the demand for arbitration was filed (and do not agree to an extension of that ten-day period), either Party may request the Houston, Texas office of the American Arbitration Association (“AAA”) to appoint the arbitrator or arbitrators necessary to complete the panel in accordance with the Arbitration Rules. Each arbitrator so appointed shall be deemed accepted by the Parties as part of the panel. Notwithstanding the foregoing, the Parties, by mutual consent, may agree to a single arbitrator instead of a panel of three arbitrators and, in such event, references herein to “panel” shall refer to the single appointed arbitrator.

          (b) The arbitration shall be conducted in the Houston, Texas metropolitan area at a place and time agreed upon by the Parties with the panel, or if the Parties cannot agree, as designated by the panel. The panel may, however, call and conduct hearings and meetings at such other places as the Parties may agree or as the panel may, on the motion of one Party, determine to be necessary to obtain significant testimony or evidence.

          (c) The panel may authorize any and all forms of discovery upon a Party’s showing of need that the requested discovery is likely to lead to material evidence needed to resolve the Dispute and is not excessive in scope, timing, or cost.

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          (d) The arbitration shall be subject to the Federal Arbitration Act and conducted in accordance with the Arbitration Rules to the extent that they do not conflict with this Section 28. The Parties and the panel may, however, agree to vary to provisions of this Section 28 or the matters otherwise governed by the Arbitration Rules.

          (e) The arbitration hearing shall be held within 60 days after the appointment of the panel. The panel’s final decision or award shall be made within 30 days after the hearing. That final decision or award shall be made by unanimous or majority vote or consent of the arbitrators constituting the panel, and shall be deemed issued at the place of arbitration. The panel’s final decision or award shall be based on the terms and conditions of this Agreement and applicable law.

          (f) The panel’s final decision or award may include injunctive relief in response to any actual or impending breach of this Agreement or any other actual or impending action or omission of a Party under or in connection with this Agreement.

          (g) The panel’s final decision or award shall be final and binding upon the Parties, and judgment upon that decision or award may be entered in any court having jurisdiction. The Parties waive any right to apply or appeal to any court for relief from the preceding sentence or from any decision of the panel that is made before the final decision or award.

          (h) Nothing in this Section 28 limits the right of either Party to apply to a court having jurisdiction to (i) enforce the agreement to arbitrate in accordance with this Section 28, (ii) seek provisional or temporary injunctive relief, in response to an actual or impending breach of the Agreement or otherwise so as to avoid an irreparable damage or maintain the status quo, until a final arbitration decision or award is rendered or the Dispute is otherwise resolved, or (iii) challenge or vacate any final arbitration decision or award that does not comply with this Section 28. In addition, nothing in this Section 28 prohibits the Parties from resolving any Dispute (in whole or in part) at any time by mutual agreement or compromise. This Section 28 shall also not preclude the Parties at any time from mutually agreeing to pursue non-binding mediation of the Dispute.

          (i) The panel may proceed to an award notwithstanding the failure of any Party to participate in such proceedings. The prevailing Party in the arbitration proceeding may be entitled to an award of reasonable attorneys’ fees incurred in connection with the arbitration in such amount, if any, as determined by the panel in its discretion. The costs of the arbitration shall be borne equally by the Parties unless otherwise determined by the panel in its award.

          (j) The panel shall be empowered to impose sanctions and to take such other actions as it deems necessary to the same extent a judge could impose sanctions or take such other actions pursuant to the Federal Rules of Civil Procedure and applicable law. Each party agrees to keep all Disputes and arbitration proceedings strictly confidential except for disclosure of information required by applicable law which cannot be waived.

     29. Binding Effect: Third Party Beneficiaries. This Agreement shall be binding upon and inure to the benefit of the Parties hereto, and to their respective heirs, executors, beneficiaries, personal representatives, successors and permitted assigns hereunder. Holding Co. and its partners shall expressly be deemed to be third party beneficiaries of the covenants and agreements of the parties hereto; otherwise this Agreement shall not be for the benefit of any third parties.

     30. Entire Agreement; Amendment and Termination. This Agreement contains the entire agreement of the Parties hereto with respect to the matters covered herein; moreover, this Agreement supersedes all prior and contemporaneous agreements and understandings, oral or written, between the

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Parties concerning the subject matter hereof. This Agreement may be amended, waived or terminated only by a written instrument that is identified as an amendment, waiver or termination hereto, and is executed on behalf of both Parties.

     31. Survival of Certain Provisions. Wherever appropriate to the intention of the Parties, the respective rights and obligations of the Parties hereunder shall survive any termination or expiration of this Agreement.

     32. Waiver of Breach. No waiver by either Party hereto of a breach of any provision of this Agreement by any other Party, or of compliance with any condition or provision of this Agreement to be performed by such other Party, will operate or be construed as a waiver of any subsequent breach by such other Party or any similar or dissimilar provision or condition at the same or any subsequent time. The failure of either Party hereto to take any action by reason of any breach will not deprive such Party of the right to take action at any time while such breach continues.

     33. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Partnership and its Affiliates (and its and their successors), as well as upon any person or entity acquiring, whether by merger, consolidation, purchase of assets, dissolution or otherwise, all or substantially all of the capital stock, business and/or assets of the Partnership (or its successor) regardless of whether the Partnership is the surviving or resulting corporation. The Partnership shall require any successor (whether direct or indirect, by purchase, merger, consolidation, dissolution or otherwise) to all or substantially all of the capital stock, business or assets of the Partnership to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Partnership would be required to perform it if no such succession had occurred; provided, however, no such assumption shall relieve the Partnership of any of its duties or obligations hereunder unless otherwise agreed, in writing, by Executive.

     This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representative, executors, administrators, successors, and heirs. In the event of the death of Executive while any amount is payable hereunder, all such amounts shall be paid to the Designated Beneficiary (as defined in Section 6(d)).

     34. Notice. Each notice or other communication required or permitted under this Agreement shall be in writing and transmitted, delivered, or sent by personal delivery, prepaid courier or messenger service (whether overnight or same-day), or prepaid certified United States mail (with return receipt requested), addressed (in any case) to the other Party at the address for that Party set forth below that Party’s signature on this Agreement, or at such other address as the recipient has designated by Notice to the other Party.

     Each notice or communication so transmitted, delivered, or sent (a) in person, by courier or messenger service, or by certified United States mail shall be deemed given, received, and effective on the date delivered to or refused by the intended recipient (with the return receipt, or the equivalent record of the courier or messenger, being deemed conclusive evidence of delivery or refusal), or (b) by telecopy or facsimile shall be deemed given, received, and effective on the date of actual receipt (with the confirmation of transmission being deemed conclusive evidence of receipt, except where the intended recipient has promptly notified the other Party that the transmission is illegible). Nevertheless, if the date of delivery or transmission is not a business day, or if the delivery or transmission is after 5:00 p.m. on a business day, the notice or other communication shall be deemed given, received, and effective on the next business day.

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     35. Executive Acknowledgment. Executive acknowledges (a) being knowledgeable and sophisticated as to business matters, including the subject matter of this Agreement, (b) having read this Agreement and understanding its terms and conditions, (c) having been given an ample opportunity to discuss this Agreement with Executive’s personal legal counsel prior to execution, and (d) that no strict rules of construction shall apply for or against the drafter or any other Party. Executive hereby represents that Executive is free to enter into this Agreement including, without limitation, that Executive is not subject to any covenant not to compete that would conflict with any duties under this Agreement.

     36. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party hereto, but together signed by both Parties.

[Signature page follows.]

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     IN WITNESS WHEREOF, Executive has executed this Agreement and the Partnership has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative, to be effective as of the Effective Date.

WITNESS:		EXECUTIVE:
Signature:	/s/ Carol Gore	Signature:	/s/ Michael E. Ellis
	Name: Carol Gore		Name: Michael E. Ellis
	Date: 8/28/06		Date: 8/28/06
			Address for Notices:
			19214 Oak View Terrace
			Houston, TX 77094

ATTEST:		ALTA MESA SERVICES, LP:
By:		By:	/s/ Harlan H. Chappelle
	Title:		Its: President
	Name:		Name: Harlan H. Chappelle
	Date:		Date: 28 August 2006
			Address for Notices:
			Alta Mesa Services, LP
			6200 Highway 6 South, Suite 201
			Houston, Texas 77083-1539
			Attention: Harlan H. Chappelle

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EX-10.6

Exhibit 10.6

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”), is made and entered into as of August 31, 2006 (the “Effective Date”), by and between Alta Mesa Services, LP, a Texas limited partnership (hereafter “Partnership”) and Michael A. McCabe (hereafter “Executive”). The Partnership and Executive may sometimes hereafter be referred to singularly as a “Party” or collectively as the “Parties.”

W I T N E S S E T H:

     WHEREAS, the Partnership desires to continue to secure the employment services of Executive subject to the terms and conditions hereafter set forth;

     WHEREAS the Partnership provides various services including management services to Alta Mesa Holdings, LP (“Holding Co.”), Alta Mesa Holdings GP (“General Partner”), and all Subsidiaries of Holding Co., under the Shared Services and Expenses Agreement dated as of January 1, 2006 between the Partnership, Holding Co., General Partner and the Subsidiaries (“Services Agreement”);

     WHEREAS, the Executive is willing to enter into this Agreement upon the terms and conditions hereafter set forth;

     NOW, THEREFORE, in consideration of Executive’s employment with the Partnership, and the premises and mutual covenants contained herein, the Parties hereto agree as follows:

     1. Employment. During the Employment Period (as defined in Section 4 hereof), the Partnership shall employ Executive, and Executive shall serve as, Vice President and Chief Financial Officer of the Partnership. Executive’s principal place of employment shall be at the main business offices of the Partnership in Houston, Texas.

     2. Compensation.

          (a) Base Salary. The Partnership shall pay to Executive during the Employment Period a base salary of $300,000 per year, as adjusted pursuant to the subsequent provisions of this paragraph (the “Base Salary”). The Base Salary shall be payable in accordance with the Partnership’s normal payroll schedule and procedures for its executives. Nothing contained herein shall preclude the payment of any other compensation to Executive at any time as determined by the Partnership.

          (b) Annual Bonus. In addition to the Base Salary in Section 2(a), for each annual fiscal year of the Partnership during the Employment Period (as defined in Section 4) (each such annual period being referred to as a “Bonus Period”), Executive shall be entitled to a bonus equal to a percentage of Executive’s Base Salary paid during each such one year period (referred to herein as the “Annual Bonus”), such percentage to be established by the Partnership in its sole discretion, and approved by Holding Co.; provided, however, Executive shall be entitled to the Annual Bonus only if Executive has met the performance criteria set by the Partnership for the applicable period.

     In the event that the Employment Period ends before the end of the Bonus Period, Executive shall be entitled to a pro rata portion of the Annual Bonus for that year (based on the number of days in which Executive was employed during the year divided by 365), as determined based on satisfaction of the performance criteria for that period on a pro rata basis, unless Executive was terminated for Cause (as defined in Section 6(d), in which event Executive shall not be entitled to any Annual Bonus for that year. Executive acknowledges that the amount and performance criteria for Executive’s Annual Bonus to be

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earned for each Bonus Period shall be set on or before the beginning of the applicable Bonus Period. If Executive successfully meets the performance criteria established by the Partnership, the Partnership shall pay Executive the earned Annual Bonus amount within the earlier of: (i) sixty days (60) days after the end of the Bonus Period or (ii) sixty days (60) after the end of the Employment Period, as applicable.

          (c) Compensation in Event of Injury or Sickness. In the event Executive becomes injured or suffers a medically determinable physical or mental illness, as determined by a physician acceptable to both the Partnership and Executive in the same manner as provided in Section 6(d)(5), Executive shall be entitled to receive continued Base Salary as set forth in Section 2(a) for a period of six (6) months following the occurrence of such injury or sickness; provided, however, such Base Salary shall be reduced by any short-term and/or long-term disability benefits that are received by Executive under such programs sponsored by the Partnership during such six (6) month period.

     3. Duties and Responsibilities of Executive. During the Employment Period, Executive’s services shall be devoted on substantially a full-time basis to (i) the business of the Partnership as directed by the General Partner under the Services Agreement and (ii) performance of the duties and responsibilities assigned to Executive by the Board or the Chief Executive Officer, to the best of Executive’s ability and with reasonable diligence. In determining Executive’s duties and responsibilities, Executive shall not be assigned duties and responsibilities that are inappropriate for Executive’s position. This Section 3 shall not be construed as preventing Executive from (a) engaging in reasonable volunteer services for charitable, educational or civic organizations, or (b) investing personal assets in such a manner that will not require a material amount of the Executive’s time or services in the operation of the businesses in which such investments are made; provided, however, no such other activity shall conflict with Executive’s loyalties and duties to the Partnership. Executive shall at all times use best efforts to comply in good faith with United States laws applicable to Executive’s actions on behalf of the Partnership and its Affiliates (as defined in Section 6(d)(1)). Executive understands and agrees that Executive may be required to travel from time to time for purposes of the Partnership’s business. The Parties agree that Executive’s principal work location cannot be relocated further than 50 miles from Executive’s principal work location on the Effective Date, except as mutually agreed by the Parties.

The parties agree that McCabe shall be allowed to work from his residence in Massachusetts as well as in the Houston office so long as McCabe is capable of performing the duties assigned to him. The Parties agree that Executive’s principal work location cannot be relocated further than 50 miles from Executive’s principal work location, nor should McCabe be not allowed to work from his residence, on the Effective Date, except as mutually agreed by the Parties. The Partnership shall provide suitable housing or a housing allowance for McCabe’s living in Houston.

     4. Term of Employment. Executive’s initial term of employment with the Partnership under this Agreement shall be for the period from the Effective Date through the date that is four (4) years from the Effective Date (the “Initial Term of Employment”). Thereafter, the Employment Period hereunder shall be automatically extended repetitively for an additional one (1) year period on each anniversary of the Effective Date, unless Notice of Termination (pursuant to Section 7) is given by either the Partnership or Executive to the other Party at least sixty (60) days prior to the end of the Initial Term of Employment or any one-year extension thereof, as applicable, that the Agreement will not be renewed for a successive one-year period after the end of the current one-year period. The Partnership and Executive shall each have the right to give Notice of Termination at will, with or without cause, at any time subject, however, to the terms and conditions of this Agreement regarding the rights and duties of the Parties upon termination of employment. The Initial Term of Employment, and any one-year extension of employment hereunder, shall each be referred to herein as a “Term of Employment.” The period from the Effective Date through the date of Executive’s termination of employment with the Partnership and all Affiliates, for whatever reason, shall be referred to herein as the “Employment

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Period.” Notwithstanding the above, Executive agrees to remain available beyond the Employment Period to provide assistance to the Partnership or its Affiliates in the event the Partnership or its Affiliate become involved in litigation regarding matters of which Executive has relevant knowledge resulting from Executive’s employment with the Partnership. Such post-termination assistance shall be provided by Executive in the capacity of an independent contractor at an agreed-upon, reasonable consulting fee, and shall not be deemed to create or continue an employee-employer relationship or to represent a continuation of any provision of this Agreement.

     5. Benefits. Subject to the terms and conditions of this Agreement, during the Employment Period, Executive shall be entitled to all of the following:

          (a) Reimbursement of Business Expenses. The Partnership shall pay or reimburse Executive for all reasonable travel, entertainment and other business expenses paid or incurred by Executive in the performance of duties hereunder. The Partnership shall also provide Executive with suitable office space, including staff support, paid parking, and necessary equipment, including but not limited to cellular telephone and laptop computer. The Partnership shall provide suitable housing or a housing allowance for Executive to live in Houston as well as provide an automobile in Houston, or otherwise reimburse the employee for rental or leasing of an automobile while in Houston.

          (b) Other Employee Benefits. Executive shall be entitled to participate in any pension, retirement, 401(k), profit-sharing, and other employee benefits plans or programs of the Partnership to the same extent as available to other key management employees of the Partnership under the terms of such plans or programs. Executive shall also be entitled to participate in any group insurance, hospitalization, medical, dental, health, life, accident, disability and other employee benefits plans or programs of the Partnership to the extent available to other key management employees of the Partnership, and their spouses and eligible dependents, under the terms of such plans or programs, including any medical expense reimbursement account and post-retirement medical program as available to other key management employees of the Partnership.

          (c) Vacation and Holidays. Executive shall be entitled to four (4) weeks of paid vacation per calendar year (prorated in any calendar year during which Executive is employed for less than the entire year based on the number of days in such calendar year in which Executive was employed). Executive shall also be entitled to all paid holidays and personal days provided by the Partnership for its key management employees under the Partnership’s personnel policy as then effective. Unused vacation shall not carryover to the following year unless specifically approved by the Partnership.

          (d) Nonqualified Deferred Compensation. Executive shall be entitled to participate in any nonqualified plan of deferred compensation maintained by the Partnership, Holding Co., the General Partner or any of the Subsidiaries, to the same extent as available to any other key management employees of such entities. If, and to the extent, that any such plan relates or is attributable to compensation derived from the equity of Holding Co., such compensation shall come solely from the interests held by the Class A Limited Partners in Holding Co.

          (e) Equity Grants. Executive shall be entitled to participate in any long-term incentive plan providing for equity grants or other incentive awards, the amount of which is based upon the value of the Partnership or an Affiliate, to the same extent as available to any other key management employees of the Partnership. Specifically, the Partnership shall provide a participation in the equity of Holding Co. for the benefit of the Executive. Such participation in any equity plan shall come solely from the interests held by the Class A Limited Partners in Holding Co.

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          (f) Annual Physical. Executive shall be entitled to be reimbursed by the Partnership for the full cost of an annual physical examination by a physician (i) selected by the Partnership or (ii) selected by Executive and approved by the Partnership.

          (g) Key Man Life Insurance. The Partnership may, at any time during the term of this Agreement, apply for and procure as owner, and for its sole benefit, life insurance on the Executive’s life in such amounts and in such forms as the Partnership may select. Executive hereby acknowledges that Executive will have no interest whatsoever in any such insurance policy. Executive must submit to such medical examinations, supply such information, and execute such documents as may be reasonably requested by the insuring companies to obtain any such key man policy.

     6. Rights and Payments upon Termination. The Executive’s right to compensation and benefits for periods after the date on which Executive’s employment terminates with the Partnership and all Affiliates (the “Termination Date”), shall be determined in accordance with this Section 6, as follows:

          (a) Minimum Payments and Vesting. Executive shall be entitled to the following minimum payments under this Section 6(a), in addition to any other payments or benefits to which Executive is entitled to receive under the terms of any employee benefit plan or program or Section 6(b):

(1)	unpaid salary for the full month in which the Termination Date occurred; provided, however, if Executive is terminated for Cause (as defined in Section 6(d)), Executive shall only be entitled to receive accrued but unpaid salary through the Termination Date;
(2)	unpaid vacation days for that year which have accrued through the Termination Date;
(3)	reimbursement of reasonable business expenses which were incurred but unpaid as of the Termination Date; and
(4)	to the extent Executive participated in any nonqualified deferred compensation or incentive plan or program with vesting criteria, or received any equity grant that is not fully vested, Executive will be automatically 100% vested as of the Termination Date.

     Such salary and accrued vacation days shall be paid to Executive within five (5) business days following the Termination Date in a cash lump sum less applicable withholdings. Business expenses shall be reimbursed in accordance with the Partnership’s normal procedures.

          (b) Other Severance Payments. In the event that during the Term of Employment (i) Executive’s employment is involuntarily terminated by the Partnership (except due to a “No Severance Benefits Event” (as defined in Section 6(d)), (ii) Executive’s employment is terminated due to “Disability” or “Retirement” (as such terms are defined in Section 6(d)) or (iii) Executive terminates his employment for Good Reason (as defined in Section 6(d)), then in any such event under clause (i), clause (ii) or clause (iii), the following severance benefits shall be provided to Executive or, in the event of death before receiving all such benefits, to Executive’s “Designated Beneficiary” (as defined in Section 6(d)) following death:

          (1) The Partnership shall pay as additional compensation (the “Additional Payment”), an amount equal to Two (2) years of Base Salary in effect as of the Termination

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Date. The Partnership shall make the Additional Payment to Executive in a cash lump sum, net of applicable withholdings, not later than sixty (60) calendar days following the Termination Date.

     (2) COBRA Coverage. The Partnership shall maintain continued group health plan coverage following the Termination Date under all plans subject to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) (as codified in Code Section 4980B and Part 6 of Subtitle B of Title I of ERISA) for Executive and Executive’s eligible spouse and dependents for the maximum period for which such qualified beneficiaries are eligible to receive COBRA coverage. However, Executive (and Executive’s spouse and dependents) shall not be required to pay more for such COBRA coverage than is charged by the Partnership to its key management employees who are then in active service for the Partnership and receiving coverage under such plan and, therefore, the Partnership shall be responsible for the difference between the amount charged hereunder and the full COBRA premiums for a period of one (1) year following Executive’s Termination Date. In all other respects, Executive (and Executive’s spouse and dependents) shall be treated the same as other COBRA qualified beneficiaries under the terms of such plans and the provisions of COBRA. In the event of any change to a group health plan following the Termination Date, Executive and Executive’s spouse and dependents, as applicable, shall be treated consistently with the then-current key management employees of the Partnership with respect to the terms and conditions of coverage and other substantive provisions of the plan. Executive and Executive’s spouse hereby agree to acquire and maintain any and all coverage that either or both of them are entitled to at any time during their lives under the Medicare program or any similar program of the United States or any agency thereof. Executive and Executive’s spouse further agree to pay any required premiums for Medicare coverage from their personal funds.

     For purposes of clarity, in the event that (i) Executive voluntarily resigns or otherwise voluntarily terminates employment, except due to Disability or Retirement (as such terms are defined in Section 6(d)) or for Good Reason, or (ii) Executive’s employment is terminated due to a No Severance Benefits Event (as defined in Section 6(d)), then, in either such event under clause (i) or (ii), the Partnership shall have no obligation to provide the severance benefits described in paragraphs (1) and (2) (above) of this Section 6(b), except to offer COBRA coverage (as required by COBRA law) but not at the discounted rate described in paragraph (2). Executive shall still be entitled to the minimum benefits provided under Section 6(a). The severance payments provided under Section 6(b) shall supersede and replace any severance payments under any severance pay plan that the Partnership or any Affiliate maintains for key management employees or employees generally.

          (c) Release Agreement. Notwithstanding any provision of the Agreement to the contrary, in order to receive the severance benefits provided under Section 6(b), the Executive must first execute an appropriate release agreement (on a form provided by the Partnership) whereby the Executive agrees to release and waive, in return for such severance benefits, any claims that Executive may have against the Partnership or any of its Affiliates including, without limitation, for unlawful discrimination (e.g., Title VII of the Civil Rights Act); provided, however, such release agreement shall not release any claim or cause of action by or on behalf of the Executive for (a) any payment or benefit that may be due or payable under this Agreement or any employee benefit plan or program prior to the receipt thereof, (b) nonpayment of salary or benefits to which Executive is entitled from the Partnership as of the Termination Date, or (c) a breach of this Agreement by the Partnership.

          (d) Definitions.

          (1) “Affiliate” means Holding Co., General Partner, the Subsidiaries and any parent or subsidiary company, or any other entity in whatever form, of which the

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	Partnership has any controlling ownership interest or ownership or management control, or vice-versa, as determined by the Partnership.
(2)	“Cause” means any of the following: (A) the Executive’s conviction by a court of competent jurisdiction of a crime involving moral turpitude or a felony, or entering the plea of nolo contendere to such crime by the Executive; (B) the commission by the Executive of a demonstrable act of fraud, or a misappropriation of funds or property, of or upon the Partnership or any Affiliate; (C) the engagement by the Executive, without the written approval of the Partnership and Holding Co., in any material activity which directly competes with the business of the Partnership or any Affiliate, or which would directly result in a material injury to the business or reputation of the Partnership or any Affiliate (including the partners of Holding Co.); or (D) (i) the breach by Executive of any material provision of this Agreement, and Executive’s continued failure to cure such breach within a reasonable time period set by the Partnership but in no event less than twenty (20) calendar days after Executive’s receipt of such notice.
(3)	“Code” means the Internal Revenue Code of 1986, as amended, or its successor. References herein to any Section of the Code shall include any successor provisions of the Code.
(4)	“Designated Beneficiary” means the Executive’s surviving spouse, if any. If there is no such surviving spouse at the time of Executive’s death, then the Designated Beneficiary hereunder shall be Executive’s estate.
(5)	“Disability” shall mean that (a) Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or last for a continuous period of not less than 12 months, or (b) by reason of any medically determinable physical or mental impairment which can be expected to result in death or to last for a continuous period of not less than 12 months, Executive is receiving income replacement for a period of not less than three months under an accident and health plan covering employees of the Partnership. Evidence of such Disability shall be certified by a physician acceptable to both the Partnership and Executive. In the event that the Parties are not able to agree on the choice of a physician, each shall select one physician who, in turn, shall select a third physician to render such certification. All costs relating to the determination of whether Executive has incurred a Disability shall be paid by the Partnership. Executive agrees to submit to any examinations that are reasonably required by the attending physician or other healthcare service providers to determine whether Executive has a Disability.
(6)	“Dispute” means any dispute, disagreement, claim, or controversy arising from, in connection with, or relating to (a) the employment, or termination of employment, of Executive, or (b) the Agreement, or the validity, interpretation, performance, breach or termination of the Agreement.
(7)	“Good Reason” means the occurrence of any of the following, if not cured and corrected by the Partnership or its successor, within 60 days after written notice thereof is provided by Executive to the Partnership or its successor: (a) the

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	demotion or reduction in title or rank of Executive, or the assignment to Executive of duties that are materially inconsistent with Executive’s current positions, duties, responsibilities and status with the Partnership, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions (other than a change due to the Executive’s Disability or as an accommodation under the American with Disabilities Act), except for any such demotion, reduction, assignment, removal or failure that occurs in connection with (i) Executive’s termination of employment for Cause, Disability or death, or (ii) Executive’s prior written consent; (b) the reduction of the Executive’s annual base salary or bonus opportunity as compared to base salary and bonus opportunity as effective immediately prior to such reduction without the prior written consent of Executive; (c) a relocation of Executive’s principal work location to a location in excess of 50 miles from its then current location.
(8)	“No Severance Benefits Event” means termination of Executive’s employment by the Partnership (i) for Cause (as defined above) or due to death or (ii) arising from or in connection with the sale of Holding Co. and its subsidiaries, in one transaction or in a series of related transactions, whether structured as (1) a sale or transfer of all or substantially all of the partnership or equity interest of the Partnership and its subsidiaries (including by way of merger, consolidation, share exchange or other similar transaction) or (2) the sale or transfer of all or substantially all of the assets of the Holding Co., and its subsidiaries or (3) a combination of (1) and (2).
(9)	“Retirement” means the termination of Executive’s employment for normal retirement at or after attaining age seventy (70), provided that, on the date of retirement, Executive has accrued at least five years of active service as an employee with the Partnership or its Affiliates.

     7. Notice of Termination. Any termination by the Partnership or the Executive shall be communicated by Notice of Termination to the other Party hereto. For purposes of this Agreement, the term “Notice of Termination” means a written notice which indicates the specific termination provision of this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

     8. No Mitigation. Subject to Section 6(b)(2), Executive shall not be required to mitigate the amount of any payment or other benefits provided under this Agreement by seeking other employment or in any other manner.

     9. Restrictive Covenants. As an inducement to the Partnership to enter into this Agreement, Executive represents to, and covenants with or in favor of, the Partnership that Executive will comply with all of the restrictive covenants in Sections 9 through 17, as a condition to the Partnership’s obligation to provide any benefits to Executive under this Agreement.

     10. Trade Secrets.

          (a) Access to Trade Secrets. As of the Effective Date and on an ongoing basis, the Partnership agrees to give Executive access to Trade Secrets which the Executive did not have access to, or knowledge of, before the Effective Date.

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          (b) Access to Specialized Training. As of the Effective Date and on an ongoing basis, the Partnership has provided, and agrees to provide on an ongoing basis, Executive with Specialized Training which the Executive does not have access to, or knowledge of, before the Effective Date.

          (c) Agreement Not to Use or Disclose Trade Secrets. In exchange for the Partnership’s promises to provide Executive with access to Trade Secrets and Specialized Training and the other consideration and benefits provided to Executive under this Agreement, Executive agrees, during the Employment Period, and any time thereafter, not to disclose to anyone, including, without limitation, any person, firm, corporation or other entity, or publish or use for any purpose, any Trade Secrets and Specialized Training, except as required in the ordinary course of the Partnership’s business or as authorized by the Partnership.

          (d) Agreement to Refrain from Defamatory Statements. Executive shall refrain, both during the Employment Period and thereafter, from publishing any oral or written statements about any directors, partners, officers, employees, agents, investors or representatives of the Partnership or any Affiliate that are slanderous, libelous, or defamatory; or that disclose private or confidential information about the business affairs, directors, partners, officers, employees, agents, investors or representatives of the Partnership or any Affiliate; or that constitute an intrusion into the seclusion or private lives of any such person; or that give rise to unreasonable publicity about the private life of any such person; or that place any such person in a false light before the public; or that constitute a misappropriation of the name or likeness of any such person. A violation or threatened violation of these restrictive covenants may be enjoined by a court of law notwithstanding the arbitration provisions of Section 29.

(e)	Definitions. The following terms, when used in this Agreement, are defined below:
(1)	“Restricted Territory” means, collectively each county (or equivalent subdivision) of any state, district, or territory of North America as to which the Partnership conducts its business; and any area adjacent to such counties (or equivalent territories) to the extent such are within a 50-mile radius of any producing property or leasehold of the Partnership.
(2)	“Specialized Training” includes the training the Partnership provides to Executive that is unique to its business and enhances Executive’s ability to perform Executive’s job duties effectively. Specialized Training includes, without limitation, sales methods/techniques training; operation methods training; engineering and scientific training; and computer and systems training.
(3)	“Trade Secrets” means any and all information and materials (in any form or medium) that are proprietary to the Partnership or an Affiliate, or are treated as confidential by the Partnership or Affiliate as part of, or relating to, all or any portion of its or their business, including information and materials about the products and services offered by the Partnership or an Affiliate; compilations of information, records and specifications, properties, processes, programs, and systems of the Partnership or Affiliate; research for the Partnership or an Affiliate; and methods of doing business of the Partnership or an Affiliate. Trade Secrets include, without limitation, all of the Partnership’s or Affiliate’s technical and business information, whether patentable or not, which is of a confidential, trade secret or proprietary character, and which is either developed by the Executive alone, or with others or by others; lists of customers; identity of customers; contract terms; bidding information and strategies; pricing methods or information; computer software; computer software methods and documentation;

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hardware; the Partnership’s or Affiliate’s methods of business operations; the procedures, forms and techniques used in conducting its business operations; and other documents, information or data that the Partnership requires to be maintained in confidence for the Partnership’s business success.

     11. Duty to Return Partnership Documents and Property. Upon termination of the Employment Period, Executive shall immediately return and deliver to the Partnership any and all papers, books, records, documents, memoranda and manuals, e-mail, electronic or magnetic recordings or data, including all copies thereof, belonging to the Partnership or relating to its business, in Executive’s possession, whether prepared by Executive or others. If at any time after the Employment Period, Executive determines that Executive has any Trade Secrets in Executive’s possession or control, Executive shall immediately return them to the Partnership, including all copies thereof.

     12. Best Efforts and Disclosure. Executive agrees that, while employed with the Partnership, Executive’s services shall be devoted on a full time basis to the Partnership’s business, and Executive shall use best efforts to promote its success. Further, Executive shall promptly disclose to the Partnership all ideas, inventions, computer programs, and discoveries, whether or not patentable or copyrightable, which Executive may conceive or make, alone or with others, during the Employment Period, whether or not during working hours, and which directly or indirectly:

          (a) relate to a matter within the scope, field, duties or responsibility of Executive’s employment with the Partnership; or

          (b) are based on any knowledge of the actual or anticipated business or interests of the Partnership; or

          (c) are aided by the use of time, materials, facilities or information of the Partnership.

     Executive assigns to the Partnership, without further compensation, any and all rights, titles and interest in all such ideas, inventions, computer programs and discoveries in all countries of the world. Executive recognizes that all ideas, inventions, computer programs and discoveries of the type described above, conceived or made by Executive alone or with others within 12 months after the Termination Date (voluntary or otherwise), are likely to have been conceived in significant part either while employed by the Partnership or as a direct result of knowledge Executive had of proprietary information or Trade Secrets. Accordingly, Executive agrees that such ideas, inventions or discoveries shall be presumed to have been conceived during the Employment Period, unless and until the contrary is clearly established by the Executive.

     13. Inventions and Other Works. Any and all writings, computer software, inventions, improvements, processes, procedures and/or techniques which Executive may make, conceive, discover, or develop, either solely or jointly with any other person or persons, at any time during the Employment Period, whether at the request or upon the suggestion of the Partnership or otherwise, which relate to or are useful in connection with any business now or hereafter carried on or contemplated by the Partnership, including developments or expansions of its present fields of operations, shall be the sole and exclusive property of the Partnership. Executive agrees to take any and all actions necessary or appropriate so that the Partnership can prepare and present applications for copyright or Letters Patent therefor, and secure such copyright or Letters Patent wherever possible, as well as reissue renewals, and extensions thereof, and obtain the record title to such copyright or patents. Executive shall not be entitled to any additional or special compensation or reimbursement regarding any such writings, computer software, inventions, improvements, processes, procedures and techniques. Executive acknowledges that the Partnership from time to time may have agreements with other persons or entities which impose

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obligations or restrictions on the Partnership regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. Executive agrees to be bound by all such obligations and restrictions, and to take all action necessary to discharge the obligations of the Partnership.

     14. Non-Solicitation Restriction. To protect Trade Secrets after termination of the Employment Period, it is necessary to enter into the following restrictive covenants, which are ancillary to the enforceable promises between the Partnership and Executive in Sections 9 through 13 and other provisions of this Agreement. Following the Termination Date (regardless of the reason for termination), Executive hereby covenants and agrees that Executive will not, directly or indirectly, without the prior written consent of the Partnership, either individually or as a principal, partner, agent, consultant, contractor, employee, or as a director or officer of any entity, or in any other manner or capacity whatsoever, except on behalf of the Partnership, solicit business, or attempt to solicit business, in products or services competitive with any products or services offered or performed by the Partnership or its Affiliates in any business which the Partnership or any of its Affiliates does business or has any business interest as of the Termination Date, or either (a) from those individuals or entities with whom the Partnership or Affiliate conducted business with or (b) with respect to any assets or holdings in which the Partnership or Affiliate had any interest, at any time during the one (1) year period ending on the Termination Date. The prohibitions set forth in this Section 15 shall remain in effect for a period of one (1) year following the Termination Date.

     15. Non-Competition Restriction. Executive hereby agrees that in order to protect Trade Secrets, it is necessary to enter into the following restrictive covenant, which is ancillary to the enforceable promises between the Partnership and Executive in Sections 9 through 14 and other provisions of this Agreement. Executive hereby covenants and agrees that during the Employment Period, and for a period of one (1) year following the Termination Date (regardless of the reason for termination), Executive will not, without the prior written consent of the Partnership, become interested in any capacity in which Executive would perform any similar duties to those performed while at the Partnership, directly or indirectly (whether as proprietor, stockholder, director, partner, employee, agent, independent contractor, consultant, trustee, or in any other capacity), with respect to any entity engaged in the business of oil and gas exploration and production within the Restricted Territory (a “Competing Enterprise”); provided, however, Executive shall not be deemed to be participating or engaging in a Competing Enterprise solely by virtue of the ownership of not more than one percent (1%) of any class of stock or other securities which are publicly traded on a national securities exchange or in a recognized over-the-counter market.

     16. No-Recruitment Restriction. Executive agrees that during the Employment Period, and for a period of one (1) year following the Termination Date (regardless of the reason for termination), Executive will not, either directly or indirectly, or by acting in concert with others, solicit or influence, or seek to solicit or influence, any employee or independent contractor performing services for the Partnership or any Affiliate to terminate, reduce or otherwise adversely affect Executive’s employment or other relationship with the Partnership or any Affiliate.

     17. Tolling. If Executive violates any of the restrictions contained in Sections 9 through 16, then notwithstanding any provision hereof to the contrary, the restrictive period will be suspended and will not run in favor of Executive from the time of the commencement of any such violation, unless and until such time when the Executive cures the violation to the reasonable satisfaction of the Partnership.

18. Reformation. If a court or arbitrator rules that any time period or the geographic area specified in any restrictive covenant in Sections 9 through 17 is unenforceable, then the time period will be reduced by the number of months, or the geographic area will be reduced by the elimination of such

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unenforceable portion, or both, so that the restrictions may be enforced in the geographic area and for the time to the full extent permitted by law.

     19. No Previous Restrictive Agreements. Executive represents that, except as disclosed in writing to the Partnership as of the Effective Date, Executive is not bound by the terms of any agreement with any previous employer or other third party to (a) refrain from using or disclosing any confidential or proprietary information in the course of Executive’s employment by the Partnership or (b) refrain from competing, directly or indirectly, with the business of such previous employer or any other person or entity. Executive further represents that Executive’s performance under this Agreement and work duties for the Partnership do not, and will not, breach any agreement to keep in confidence proprietary information, knowledge or data acquired by Executive in confidence or in trust prior to Executive’s employment with the Partnership, and Executive will not disclose to the Partnership or induce the Partnership to use any confidential or proprietary information or material belonging to any previous employer or others.

     20. Conflicts of Interest. In keeping with Executive’s fiduciary duties to the Partnership, Executive hereby agrees that Executive shall not become involved in a conflict of interest, or upon discovery thereof, allow such a conflict to continue at any time during the Employment Period. In this respect, Executive agrees to fully comply with the conflict of interest agreement entered into by Executive as an employee, officer or director of the Partnership or an Affiliate. In the instance of a violation of the conflict of interest agreement to which Executive is a party, it may be necessary for the Partnership to terminate Executive’s employment for Cause (as defined in Section 6(d)).

     21. Remedies. Executive acknowledges that the restrictions contained in Sections 9 through 20 of this Agreement, in view of the nature of the Partnership’s business, are reasonable and necessary to protect the Partnership’s legitimate business interests, and that any violation of this Agreement would result in irreparable injury to the Partnership. Notwithstanding the arbitration provisions in Section 28, in the event of a breach or a threatened breach by Executive of any provision of Sections 9 through 20 of this Agreement, the Partnership shall be entitled to a temporary restraining order and injunctive relief restraining Executive from the commission of any breach, and to recover the Partnership’s attorneys’ fees, costs and expenses related to the breach or threatened breach. Nothing contained in this Agreement shall be construed as prohibiting the Partnership from pursuing any other remedies available to it for any such breach or threatened breach, including, without limitation, the recovery of money damages, attorneys’ fees, and costs. These covenants and agreements shall each be construed as independent of any other provisions in this Agreement, and the existence of any claim or cause of action by Executive against the Partnership, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Partnership of such covenants and agreements.

     22. Withholdings; Right of Offset. The Partnership may withhold and deduct from any benefits and payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling, (b) all other normal employee deductions made with respect to Partnership’s employees generally, and (c) any advances made to Executive and owed to Partnership.

     23. Nonalienation. The right to receive payments under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance by Executive, dependents or beneficiaries of Executive, or to any other person who is or may become entitled to receive such payments hereunder. The right to receive payments hereunder shall not be subject to or liable for the debts, contracts, liabilities, engagements or torts of any person who is or may become entitled to receive such payments, nor may the same be subject to attachment or seizure

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by any creditor of such person under any circumstances, and any such attempted attachment or seizure shall be void and of no force and effect.

     24. Incompetent or Minor Payees. Should the Partnership determine, in its discretion, that any person to whom any payment is payable under this Agreement has been determined to be legally incompetent or is a minor, any payment due hereunder, notwithstanding any other provision of this Agreement to the contrary, may be made in any one or more of the following ways: (a) directly to such minor or person; (b) to the legal guardian or other duly appointed personal representative of the person or estate of such minor or person; or (c) to such adult or adults as have, in the good faith knowledge of the Partnership, assumed custody and support of such minor or person; and any payment so made shall constitute full and complete discharge of any liability under this Agreement in respect to the amount paid.

     25. Severability. It is the desire of the Parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held unenforceable by a court of competent jurisdiction or arbitrator (pursuant to Section 28), the Parties hereby agree and consent that such provision shall be reformed to create a valid and enforceable provision to the maximum extent permitted by law; provided, however, if such provision cannot be reformed, it shall be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement. This Agreement should be construed by limiting and reducing it only to the minimum extent necessary to be enforceable under then applicable law.

     26. Title and Headings; Construction. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. The words “herein”, “hereof”, “hereunder” and other compounds of the word “here” shall refer to the entire Agreement and not to any particular provision.

     27. Governing Law; Jurisdiction. All matters or issues relating to the interpretation, construction, validity, and enforcement of this Agreement shall be governed by the laws of the State of Texas, without giving effect to any choice-of-law principle that would cause the application of the laws of any jurisdiction other than Texas. Jurisdiction and venue of any action or proceeding relating to this Agreement or any Dispute (to the extent arbitration is not required under Section 28) shall be exclusively in Houston, Texas.

     28. Mandatory Arbitration. Except as provided in subsection (h) of this Section 28, any Dispute (as defined in Section 6(d)) must be resolved by binding arbitration in accordance with the following:

          (a) Either Party may begin arbitration by filing a demand for arbitration in accordance with the Arbitration Rules and concurrently notifying the other Party of that demand. If the Parties are unable to agree upon a panel of three arbitrators within ten days after the demand for arbitration was filed (and do not agree to an extension of that ten-day period), either Party may request the Houston, Texas office of the American Arbitration Association (“AAA”) to appoint the arbitrator or arbitrators necessary to complete the panel in accordance with the Arbitration Rules. Each arbitrator so appointed shall be deemed accepted by the Parties as part of the panel. Notwithstanding the foregoing, the Parties, by mutual consent, may agree to a single arbitrator instead of a panel of three arbitrators and, in such event, references herein to “panel” shall refer to the single appointed arbitrator.

          (b) The arbitration shall be conducted in the Houston, Texas metropolitan area at a place and time agreed upon by the Parties with the panel, or if the Parties cannot agree, as designated by the panel. The panel may, however, call and conduct hearings and meetings at such other places as the

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Parties may agree or as the panel may, on the motion of one Party, determine to be necessary to obtain significant testimony or evidence.

          (c) The panel may authorize any and all forms of discovery upon a Party’s showing of need that the requested discovery is likely to lead to material evidence needed to resolve the Dispute and is not excessive in scope, timing, or cost.

          (d) The arbitration shall be subject to the Federal Arbitration Act and conducted in accordance with the Arbitration Rules to the extent that they do not conflict with this Section 28. The Parties and the panel may, however, agree to vary to provisions of this Section 28 or the matters otherwise governed by the Arbitration Rules.

          (e) The arbitration hearing shall be held within 60 days after the appointment of the panel. The panel’s final decision or award shall be made within 30 days after the hearing. That final decision or award shall be made by unanimous or majority vote or consent of the arbitrators constituting the panel, and shall be deemed issued at the place of arbitration. The panel’s final decision or award shall be based on the terms and conditions of this Agreement and applicable law.

          (f) The panel’s final decision or award may include injunctive relief in response to any actual or impending breach of this Agreement or any other actual or impending action or omission of a Party under or in connection with this Agreement.

          (g) The panel’s final decision or award shall be final and binding upon the Parties, and judgment upon that decision or award may be entered in any court having jurisdiction. The Parties waive any right to apply or appeal to any court for relief from the preceding sentence or from any decision of the panel that is made before the final decision or award.

          (h) Nothing in this Section 28 limits the right of either Party to apply to a court having jurisdiction to (i) enforce the agreement to arbitrate in accordance with this Section 28, (ii) seek provisional or temporary injunctive relief, in response to an actual or impending breach of the Agreement or otherwise so as to avoid an irreparable damage or maintain the status quo, until a final arbitration decision or award is rendered or the Dispute is otherwise resolved, or (iii) challenge or vacate any final arbitration decision or award that does not comply with this Section 28. In addition, nothing in this Section 28 prohibits the Parties from resolving any Dispute (in whole or in part) at any time by mutual agreement or compromise. This Section 28 shall also not preclude the Parties at any time from mutually agreeing to pursue non-binding mediation of the Dispute.

          (i) The panel may proceed to an award notwithstanding the failure of any Party to participate in such proceedings. The prevailing Party in the arbitration proceeding may be entitled to an award of reasonable attorneys’ fees incurred in connection with the arbitration in such amount, if any, as determined by the panel in its discretion. The costs of the arbitration shall be borne equally by the Parties unless otherwise determined by the panel in its award.

          (j) The panel shall be empowered to impose sanctions and to take such other actions as it deems necessary to the same extent a judge could impose sanctions or take such other actions pursuant to the Federal Rules of Civil Procedure and applicable law. Each party agrees to keep all Disputes and arbitration proceedings strictly confidential except for disclosure of information required by applicable law which cannot be waived.

     29. Binding Effect: Third Party Beneficiaries. This Agreement shall be binding upon and inure to the benefit of the Parties hereto, and to their respective heirs, executors, beneficiaries, personal

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representatives, successors and permitted assigns hereunder. Holding Co. and its partners shall expressly be deemed to be third party beneficiaries of the covenants and agreements of the parties hereto; otherwise this Agreement shall not be for the benefit of any third parties.

     30. Entire Agreement; Amendment and Termination. This Agreement contains the entire agreement of the Parties hereto with respect to the matters covered herein; moreover, this Agreement supersedes all prior and contemporaneous agreements and understandings, oral or written, between the Parties concerning the subject matter hereof. This Agreement may be amended, waived or terminated only by a written instrument that is identified as an amendment, waiver or termination hereto, and is executed on behalf of both Parties.

     31. Survival of Certain Provisions. Wherever appropriate to the intention of the Parties, the respective rights and obligations of the Parties hereunder shall survive any termination or expiration of this Agreement.

     32. Waiver of Breach. No waiver by either Party hereto of a breach of any provision of this Agreement by any other Party, or of compliance with any condition or provision of this Agreement to be performed by such other Party, will operate or be construed as a waiver of any subsequent breach by such other Party or any similar or dissimilar provision or condition at the same or any subsequent time. The failure of either Party hereto to take any action by reason of any breach will not deprive such Party of the right to take action at any time while such breach continues.

     33. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Partnership and its Affiliates (and its and their successors), as well as upon any person or entity acquiring, whether by merger, consolidation, purchase of assets, dissolution or otherwise, all or substantially all of the capital stock, business and/or assets of the Partnership (or its successor) regardless of whether the Partnership is the surviving or resulting corporation. The Partnership shall require any successor (whether direct or indirect, by purchase, merger, consolidation, dissolution or otherwise) to all or substantially all of the capital stock, business or assets of the Partnership to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Partnership would be required to perform it if no such succession had occurred; provided, however, no such assumption shall relieve the Partnership of any of its duties or obligations hereunder unless otherwise agreed, in writing, by Executive.

     This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representative, executors, administrators, successors, and heirs. In the event of the death of Executive while any amount is payable hereunder, all such amounts shall be paid to the Designated Beneficiary (as defined in Section 6(d)).

     34. Notice. Each notice or other communication required or permitted under this Agreement shall be in writing and transmitted, delivered, or sent by personal delivery, prepaid courier or messenger service (whether overnight or same-day), or prepaid certified United States mail (with return receipt requested), addressed (in any case) to the other Party at the address for that Party set forth below that Party’s signature on this Agreement, or at such other address as the recipient has designated by Notice to the other Party.

     Each notice or communication so transmitted, delivered, or sent (a) in person, by courier or messenger service, or by certified United States mail shall be deemed given, received, and effective on the date delivered to or refused by the intended recipient (with the return receipt, or the equivalent record of the courier or messenger, being deemed conclusive evidence of delivery or refusal), or (b) by telecopy or facsimile shall be deemed given, received, and effective on the date of actual receipt (with the

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confirmation of transmission being deemed conclusive evidence of receipt, except where the intended recipient has promptly notified the other Party that the transmission is illegible). Nevertheless, if the date of delivery or transmission is not a business day, or if the delivery or transmission is after 5:00 p.m. on a business day, the notice or other communication shall be deemed given, received, and effective on the next business day.

     35. Executive Acknowledgment. Executive acknowledges (a) being knowledgeable and sophisticated as to business matters, including the subject matter of this Agreement, (b) having read this Agreement and understanding its terms and conditions, (c) having been given an ample opportunity to discuss this Agreement with Executive’s personal legal counsel prior to execution, and (d) that no strict rules of construction shall apply for or against the drafter or any other Party. Executive hereby represents that Executive is free to enter into this Agreement including, without limitation, that Executive is not subject to any covenant not to compete that would conflict with any duties under this Agreement.

     36. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party hereto, but together signed by both Parties.

[Signature page follows.]

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     IN WITNESS WHEREOF, Executive has executed this Agreement and the Partnership has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative, to be effective as of the Effective Date.

WITNESS:		EXECUTIVE:
Signature:	/s/ Bernard F. Clark	Signature:	/s/ Michael A. McCabe
	Name: Bernard F. Clark		Name: Michael A. McCabe
	Date: August 28, 2006		Date: 28 August 2006
			Address for Notices:
			11 Prentiss Place
			Medfield MA 02052

ATTEST:		ALTA MESA SERVICES, LP:
By:		By:	/s/ Harlan H. Chappelle
	Title:		Its: President
	Name:		Name: Harlan H. Chappelle
	Date:		Date: 28 August 2006
			Address for Notices:
			Alta Mesa Services, LP 6200 Highway 6 South, Suite 201 Houston, Texas 77083-1539
			Attention: Harlan H. Chappelle

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EX-10.7

Exhibit 10.7

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”), is made and entered into as of October 1, 2006 (the “Effective Date”), by and between Alta Mesa Services, LP, a Texas limited partnership (hereafter “Partnership”) and F. David Murrell (hereafter “Executive”). The Partnership and Executive may sometimes hereafter be referred to singularly as a “Party” or collectively as the “Parties.”

W I T N E S S E T H:

     WHEREAS, the Partnership desires to secure the employment services of Executive subject to the terms and conditions hereafter set forth;

     WHEREAS the Partnership provides various services including management services to Alta Mesa Holdings, LP (“Holding Co.”), Alta Mesa Holdings GP (“General Partner”), and all Subsidiaries of Holding Co., under the Shared Services and Expenses Agreement dated as of January 1, 2006 between the Partnership, Holding Co., General Partner and the Subsidiaries (“Services Agreement”); and

     WHEREAS, the Executive is willing to enter into this Agreement upon the terms and conditions hereafter set forth;

     NOW, THEREFORE, in consideration of Executive’s employment with the Partnership, and the premises and mutual covenants contained herein, the Parties hereto agree as follows:

     1. Employment. During the Employment Period (as defined in Section 4 hereof), the Partnership shall employ Executive, and Executive shall serve as, Vice President of Land and Business Development for the Partnership. Executive’s principal place of employment shall be at the main business offices of the Partnership in Houston, Texas.

     2. Compensation.

     (a) Base Salary. The Partnership shall pay to Executive during the Employment Period a base salary of $190,000 per year, as adjusted pursuant to the subsequent provisions of this paragraph (the “Base Salary”). The Base Salary shall be payable in accordance with the Partnership’s normal payroll schedule and procedures for its executives. Nothing contained herein shall preclude the payment of any other compensation to Executive at any time as determined by the Partnership. Employee’s Base Salary shall be reviewed periodically (at intervals of not more than 12 months) by Company executives for the purpose of considering increases thereof. In evaluating increases in salary, such factors as corporate performance, individual merit, inflation and other appropriate considerations shall be taken into account.

     (b) Annual Bonus. In addition to the Base Salary in Section 2(a), for each annual fiscal year of the Partnership during the Employment Period (as defined in Section 4) (each such annual period being referred to as a “Bonus Period”), Executive shall be entitled to a bonus equal to 0.5% of the after United States federal income tax profit (“AFIT Profit”) of the Holding Company to be paid within thirty (30) days of tax return filing for the preceding fiscal year (referred to herein as the “Annual Bonus”). Executive shall receive a minimum Annual Bonus of $50,000. Except as otherwise expressly provided in this Agreement, Executive shall be entitled to the Annual Bonus only if (i) Executive has met the performance criteria set by the Partnership for the applicable period, and (ii) Executive is still employed at the time the Partnership federal income tax return is filed for the preceding fiscal year. In no case shall

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the sum of the Annual Bonus and Base Salary for a given fiscal year exceed $1,000,000. The AFIT Profit of the Partnership shall be defined as the AFIT for Alta Mesa Holdings Limited Partnership.

     (c) Compensation in Event of Injury or Sickness. In the event Executive becomes injured or suffers a medically determinable physical or mental illness, as determined by a physician acceptable to both the Partnership and Executive in the same manner as provided in Section 6(d)(5), Executive shall be entitled to receive continued Base Salary as set forth in Section 2(a) for a period of three (3) months following the occurrence of such injury or sickness; provided, however, such Base Salary shall be reduced by any short-term and/or long-term disability benefits that are received by Executive under such programs sponsored by the Partnership during such three (3) month period.

     3. Duties and Responsibilities of Executive. During the Employment Period, Executive’s services shall be devoted on substantially a full-time basis to (i) the business of the Partnership as directed by the General Partner under the Services Agreement and (ii) performance of the duties and responsibilities assigned to Executive by the Chief Executive Officer or the Chief Operating Officer, to the best of Executive’s ability and with reasonable diligence. In determining Executive’s duties and responsibilities, Executive shall not be assigned duties and responsibilities that are inappropriate for Executive’s position. This Section 3 shall not be construed as preventing Executive from (a) engaging in reasonable volunteer services for charitable, educational or civic organizations, or (b) investing personal assets in such a manner that will not require a material amount of the Executive’s time or services in the operation of the businesses in which such investments are made; provided, however, no such other activity shall conflict with Executive’s loyalties and duties to the Partnership. Executive shall at all times use best efforts to comply in good faith with United States laws applicable to Executive’s actions on behalf of the Partnership and its Affiliates (as defined in Section 6(d)(1)). Executive understands and agrees that Executive may be required to travel from time to time for purposes of the Partnership’s business. The Parties agree that Executive’s principal work location cannot be relocated further than 50 miles from Executive’s principal work location on the Effective Date, except as mutually agreed by the Parties.

     4. Term of Employment. Executive’s initial term of employment with the Partnership under this Agreement shall be for the period from the Effective Date through the date that is one (1) year from the Effective Date (the “Initial Term of Employment”). Thereafter, the Employment Period hereunder shall be automatically extended repetitively for an additional one (1) year period on each anniversary of the Effective Date, unless Notice of Termination (pursuant to Section 7) is given by either the Partnership or Executive to the other Party at least sixty (60) days prior to the end of the Initial Term of Employment or any one-year extension thereof, as applicable, that the Agreement will not be renewed for a successive one-year period after the end of the current one-year period. The Partnership and Executive shall each have the right to give Notice of Termination at will, with or without cause, at any time subject, however, to the terms and conditions of this Agreement regarding the rights and duties of the Parties upon termination of employment. The Initial Term of Employment, and any one-year extension of employment hereunder, shall each be referred to herein as a “Term of Employment.” The period from the Effective Date through the date of Executive’s termination of employment with the Partnership and all Affiliates, for whatever reason, shall be referred to herein as the “Employment Period.” Notwithstanding the above, Executive agrees to remain available beyond the Employment Period to provide assistance to the Partnership or its Affiliates in the event the Partnership or its Affiliate become involved in litigation regarding matters of which Executive has relevant knowledge resulting from Executive’s employment with the Partnership. Such post-termination assistance shall be provided by Executive in the capacity of an independent contractor at a mutually agreed-upon, reasonable

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consulting fee, and shall not be deemed to create or continue an employee-employer relationship or to represent a continuation of any provision of this Agreement.

     5. Benefits. Subject to the terms and conditions of this Agreement, during the Employment Period, Executive shall be entitled to all of the following:

          (a) Reimbursement of Business Expenses. The Partnership shall pay or reimburse Executive for all reasonable travel, entertainment and other business expenses paid or incurred by Executive in the performance of duties hereunder. Such reimbursements shall be made in a timely manner in accordance with the Partnership’s policy upon Executive’s submittal of an expense report and approved by the Partnership. The Partnership shall also provide Executive with suitable office space, including staff support, paid parking, and necessary equipment, including but not limited to cellular telephone and laptop computer.

          (b) Other Employee Benefits. Executive shall be entitled to participate in any pension, retirement, 401(k), profit-sharing, and other employee benefits plans or programs of the Partnership to the same extent as available to other executive employees of the Partnership under the terms of such plans or programs. Executive shall also be entitled to participate in any group insurance, hospitalization, medical, dental, health, life, accident, disability and other employee benefits plans or programs of the Partnership to the extent available to other executive employees of the Partnership, and their spouses and eligible dependents, under the terms of such plans or programs, including any medical expense reimbursement account and post-retirement medical program as available to other executive employees of the Partnership.

          (c) Vacation and Holidays. Executive shall be entitled to four (4) weeks of paid vacation per calendar year (prorated in any calendar year during which Executive is employed for less than the entire year based on the number of days in such calendar year in which Executive was employed). Executive shall also be entitled to all paid holidays and personal days provided by the Partnership for its executive employees under the Partnership’s personnel policy as then effective. Unused vacation shall not carry over to the following year unless specifically approved by the Partnership.

          (d) Nonqualified Deferred Compensation. Executive shall be entitled to participate in any nonqualified plan of deferred compensation maintained by the Partnership, Holding Co., the General Partner or any of the Subsidiaries, to the same extent as available to any other executive employees of such entities. If, and to the extent, that any such plan relates or is attributable to compensation derived from the equity of Holding Co., such compensation shall come solely from the interests held by the Class A Limited Partners in Holding Co.

          (e) Equity Grants. Executive shall be entitled to participate in any long-term incentive plan providing for equity grants or other incentive awards, the amount of which is based upon the value of the Partnership or an Affiliate, to the same extent as available to any other executive employees of the Partnership. Such participation in any equity plan shall come solely from the interests held by the Class A Limited Partners in Holding Co.

          (f) Annual Physical. Executive shall be reimbursed by the Partnership for the full cost of an annual physical examination by a physician (i) selected by the Partnership or (ii) selected by Executive and approved by the Partnership.

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          (g) Key Man Life Insurance. The Partnership may, at any time during the term of this Agreement, apply for and procure as owner, and for its sole benefit, life insurance on the Executive’s life in such amounts and in such forms as the Partnership may select. Executive hereby acknowledges that Executive will have no interest whatsoever in any such insurance policy. Executive must submit to such medical examinations, supply such information, and execute such documents as may be reasonably requested by the insuring companies to obtain any such key man policy.

     6. Rights and Payments upon Termination. The Executive’s right to compensation and benefits for periods after the date on which Executive’s employment terminates with the Partnership and all Affiliates (the “Termination Date”), shall be determined in accordance with this Section 6, as follows:

          (a) Minimum Payments and Vesting. Executive shall be entitled to the following minimum payments under this Section 6(a), in addition to any other payments or benefits to which Executive is entitled to receive under the terms of any employee benefit plan or program or Section 6(b):

(1)	unpaid salary for the full month in which the Termination Date occurred; provided, however, if Executive is terminated for Cause (as defined in Section 6(d)), Executive shall only be entitled to receive accrued but unpaid salary through the Termination Date;
(2)	unpaid vacation days for that year which have accrued through the Termination Date;
(3)	reimbursement of reasonable business expenses which were incurred but unpaid as of the Termination Date; and
(4)	to the extent that the following can be distributed at the time of termination, all compensation or benefits accrued through the termination date under Nonqualified Deferred Compensation, Equity Grants and/or any other similar compensation or benefits.

     Such salary and accrued vacation days shall be paid to Executive within thirty (30) business days following the Termination Date in a cash lump sum less applicable withholdings. Business expenses shall be reimbursed in accordance with the Partnership’s normal procedures.

          (b) Other Severance Payments. In the event that during the Term of Employment (i) Executive’s employment is involuntarily terminated by the Partnership (except due to a “No Severance Benefits Event” (as defined in Section 6(d)), (ii) Executive’s employment is terminated due to “Disability” or “Retirement” (as such terms are defined in Section 6(d)) or (iii) Executive terminates his employment for Good Reason (as defined in Section 6(d)), then in any such event under clause (i), clause (ii) or clause (iii), the following severance benefits shall be provided to Executive or, in the event of death before receiving all such benefits, to Executive’s “Designated Beneficiary” (as defined in Section 6(d)) following death:

     (1) The Partnership shall pay as additional compensation (the “Additional Payment”), an amount equal to

(A) six (6) months of Base Salary in effect as of the Termination Date;

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plus

(B) fifty percent (50%) of the Annual Bonus then in effect.

     The Partnership shall make the Additional Payment to Executive in a cash lump sum, net of applicable withholdings, not later than thirty (30) calendar days following the Termination Date.

     (2) COBRA Coverage. The Partnership shall maintain continued group health plan coverage following the Termination Date under all plans subject to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) (as codified in Code Section 4980B and Part 6 of Subtitle B of Title I of ERISA) for Executive and Executive’s eligible spouse and dependents for the maximum period for which such qualified beneficiaries are eligible to receive COBRA coverage. However, Executive (and Executive’s spouse and dependents) shall not be required to pay more for such COBRA coverage than is charged by the Partnership to its executive employees who are then in active service for the Partnership and receiving coverage under such plan and, therefore, the Partnership shall be responsible for the difference between the amount charged hereunder and the full COBRA premiums for a period of six (6) months following Executive’s Termination Date. In all other respects, Executive (and Executive’s spouse and dependents) shall be treated the same as other COBRA qualified beneficiaries under the terms of such plans and the provisions of COBRA. In the event of any change to a group health plan following the Termination Date, Executive and Executive’s spouse and dependents, as applicable, shall be treated consistently with the then-current executive employees of the Partnership with respect to the terms and conditions of coverage and other substantive provisions of the plan. Executive and Executive’s spouse hereby agree to acquire and maintain any and all coverage that either or both of them are entitled to at any time during their lives under the Medicare program or any similar program of the United States or any agency thereof. Executive and Executive’s spouse further agree to pay any required premiums for Medicare coverage from their personal funds.

     For purposes of clarity, in the event that (i) Executive voluntarily resigns or otherwise voluntarily terminates employment, except due to Disability or Retirement (as such terms are defined in Section 6(d)) or for Good Reason, or (ii) Executive’s employment is terminated due to a No Severance Benefits Event (as defined in Section 6(d)) then, in either such event under clause (i) or (ii), the Partnership shall have no obligation to provide the severance benefits described in paragraphs (1) and (2) (above) of this Section 6(b), except to offer COBRA coverage (as required by COBRA law) but not at the discounted rate described in paragraph (2). Executive shall still be entitled to the minimum benefits provided under Section 6(a). The severance payments provided under Section 6(b) shall supersede and replace any severance payments under any severance pay plan that the Partnership or any Affiliate maintains for executive employees or employees generally.

          (c) Release Agreement Notwithstanding any provision of the Agreement to the contrary, in order to receive the severance benefits provided under Section 6(b), the Executive must first execute an appropriate release agreement (on a form provided by the Partnership) whereby the Executive agrees to release and waive, in return for such severance benefits, any claims that Executive may have against the Partnership or any of its Affiliates including, without limitation, for unlawful discrimination (e.g., Title VII of the Civil Rights Act); provided, however, such release agreement shall not release any claim or cause of action by or on behalf of the Executive for (a) any payment or benefit that may be due or payable under this Agreement or any employee benefit plan or program prior to the receipt thereof,

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(b) nonpayment of salary or benefits to which Executive is entitled from the Partnership as of the Termination Date, or (c) a breach of this Agreement by the Partnership.

(d)	Definitions.
(1)	“Affiliate” means Holding Co., General Partner, the Subsidiaries and any parent or subsidiary company, or any other entity in whatever form, of which the Partnership has any controlling ownership interest or ownership or management control, or vice-versa, as determined by the Partnership.
(2)	“Cause” means any of the following: (A) the Executive’s conviction by a court of competent jurisdiction of a crime involving moral turpitude or a felony, or entering the plea of nolo contendere to such crime by the Executive; (B) the commission by the Executive of a demonstrable act of fraud, or a misappropriation of funds or property, of or upon the Partnership or any Affiliate; (C) the engagement by the Executive, without the written approval of the Partnership and Holding Co., in any material activity which directly competes with the business of the Partnership or any Affiliate, or which would directly result in a material injury to the business or reputation of the Partnership or any Affiliate (including the partners of Holding Co.); or (D) (i) the breach by Executive of any material provision of this Agreement, and Executive’s continued failure to cure such breach within a reasonable time period set by the Partnership but in no event less than twenty (20) calendar days after Executive’s receipt of such notice.
(3)	“Code” means the Internal Revenue Code of 1986, as amended, or its successor. References herein to any Section of the Code shall include any successor provisions of the Code.
(4)	“Designated Beneficiary” means the Executive’s surviving spouse, if any. If there is no such surviving spouse at the time of Executive’s death, then the Designated Beneficiary hereunder shall be Executive’s estate.
(5)	“Disability” shall mean that (a) Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or last for a continuous period of not less than 12 months, or (b) by reason of any medically determinable physical or mental impairment which can be expected to result in death or to last for a continuous period of not less than 12 months, Executive is receiving income replacement for a period of not less than three months under an accident and health plan covering employees of the Partnership. Evidence of such Disability shall be certified by a physician acceptable to both the Partnership and Executive. In the event that the Parties are not able to agree on the choice of a physician, each shall select one physician who, in turn, shall select a third physician to render such certification. All costs relating to the determination of whether Executive has incurred a Disability shall be paid by the Partnership. Executive agrees to submit to any examinations that are reasonably required by the attending physician or other healthcare service providers to determine whether Executive has a Disability.

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(6)	“Dispute” means any dispute, disagreement, claim, or controversy arising from, in connection with, or relating to (a) the employment, or termination of employment, of Executive, or (b) the Agreement, or the validity, interpretation, performance, breach or termination of the Agreement.
(7)	“Good Reason” means the occurrence of any of the following, if not cured and corrected by the Partnership or its successor, within 60 days after written notice thereof is provided by Executive to the Partnership or its successor: (a) the demotion or reduction in title or rank of Executive, or the assignment to Executive of duties that are materially inconsistent with Executive’s current positions, duties, responsibilities and status with the Partnership, or any removal of the Executive from, or any failure to reelect the Executive to, any of such positions (other than a change due to the Executive’s Disability or as an accommodation under the American with Disabilities Act), except for any such demotion, reduction, assignment, removal or failure that occurs in connection with (i) Executive’s termination of employment for Cause, Disability or death, or (ii) Executive’s prior written consent; (b) the reduction of the Executive’s annual base salary or bonus opportunity as compared to base salary and bonus opportunity as effective immediately prior to such reduction without the prior written consent of Executive; (c) a relocation of Executive’s principal work location to a location in excess of 50 miles from its then current location.
(8)	“No Severance Benefits Event” means termination of Executive’s employment by the Partnership for (i) Cause (as defined above) or due to death or (ii) arising from or in connection with the sale of Holding Co. and its subsidiaries, in one transaction or in a series of related transactions, whether structured as (1) a sale or transfer of all or substantially all of the partnership or equity interest of the Partnership and its subsidiaries (including by way of merger, consolidation, share exchange or other similar transaction) or (2) the sale or transfer of all or substantially all of the assets of the Holding Co. and its subsidiaries or (3) a combination of (1) and (2); except, however, it is agreed and understood between the Executive and the Partnership that in the event the Equity Grants (as defined in Section 5(e) of this Agreement) are not established for the Executive, the Executive shall receive the Additional Payment as set out in Section 6(b) of this Agreement at termination under 8(ii) above. Likewise, if the Equity Grants are established for the Executive, the Executive shall not receive or be entitled to the Additional Payment under 8(ii) above.
(9)	“Retirement” means the termination of Executive’s employment for normal retirement at or after attaining age seventy (70), provided that, on the date of retirement, Executive has accrued at least five years of active service as an employee with the Partnership or its Affiliates.

     7. Notice of Termination. Any termination by the Partnership or the Executive shall be communicated by Notice of Termination to the other Party hereto. For purposes of this Agreement, the term “Notice of Termination” means a written notice which indicates the specific termination provision of this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

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     8. No Mitigation. Subject to Section 6(b)(2), Executive shall not be required to mitigate the amount of any payment or other benefits provided under this Agreement by seeking other employment or in any other manner.

     9. Restrictive Covenants. As an inducement to the Partnership to enter into this Agreement, Executive represents to, and covenants with or in favor of, the Partnership that Executive will comply with all of the restrictive covenants in Sections 9 through 17, as a condition to the Partnership’s obligation to provide any benefits to Executive under this Agreement.

     10. Trade Secrets.

          (a) Access to Trade Secrets. As of the Effective Date and on an ongoing basis, the Partnership agrees to give Executive access to Trade Secrets which the Executive did not have access to, or knowledge of, before the Effective Date.

          (b) Access to Specialized Training. As of the Effective Date and on an ongoing basis, the Partnership has provided, and agrees to provide on an ongoing basis, Executive with Specialized Training which the Executive does not have access to, or knowledge of, before the Effective Date.

          (c) Agreement Not to Use or Disclose Trade Secrets. In exchange for the Partnership’s promises to provide Executive with access to Trade Secrets and Specialized Training and the other consideration and benefits provided to Executive under this Agreement, Executive agrees, during the Employment Period, and any time thereafter, not to disclose to anyone, including, without limitation, any person, firm, corporation or other entity, or publish or use for any purpose, any Trade Secrets and Specialized Training, except as required in the ordinary course of the Partnership’s business or as authorized by the Partnership.

          (d) Agreement to Refrain from Defamatory Statements. Executive shall refrain, both during the Employment Period and thereafter, from publishing any oral or written statements about any directors, partners, officers, employees, agents, investors or representatives of the Partnership or any Affiliate that are slanderous, libelous, or defamatory; or that disclose private or confidential information about the business affairs, directors, partners, officers, employees, agents, investors or representatives of the Partnership or any Affiliate; or that constitute an intrusion into the seclusion or private lives of any such person; or that give rise to unreasonable publicity about the private life of any such person; or that place any such person in a false light before the public; or that constitute a misappropriation of the name or likeness of any such person. A violation or threatened violation of these restrictive covenants may be enjoined by a court of law notwithstanding the arbitration provisions of Section 29.

          (e) Definitions. The following terms, when used in this Agreement, are defined below:

(1) “Restricted Territory” means, collectively each specific geographical area in which the Holding Co. owns oil and gas properties, or area of mutual interest or contract areas defined under exploration agreements, participation agreements, operating agreements, or similar agreements, or areas delineated by the boundaries of 3D seismic acquired by the Partnership.

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(2) “Specialized Training” includes the training the Partnership provides to Executive that is unique to its business and enhances Executive’s ability to perform Executive’s job duties effectively. Specialized Training includes, without limitation, sales methods/techniques training; operation methods training; engineering and scientific training; legal, contracts and management training; and computer and systems training.

(3) “Trade Secrets” means any and all information and materials (in any form or medium) that are proprietary to the Partnership or an Affiliate, or are treated as confidential by the Partnership or Affiliate as part of, or relating to, all or any portion of its or their business, including information and materials about the products and services offered by the Partnership or an Affiliate; compilations of information, records and specifications, properties, processes, programs, and systems of the Partnership or Affiliate; research for the Partnership or an Affiliate; and methods of doing business of the Partnership or an Affiliate. Trade Secrets include, without limitation, all of the Partnership’s or Affiliate’s technical and business information, whether patentable or not, which is of a confidential, trade secret or proprietary character, and which is either developed by the Executive alone, or with others or by others; lists of customers; identity of customers; contract terms; bidding information and strategies; pricing methods or information; computer software; computer software methods and documentation; hardware; the Partnership’s or Affiliate’s methods of business operations; the procedures, forms and techniques used in conducting its business operations; and other documents, information or data that the Partnership requires to be maintained in confidence for the Partnership’s business success.

     11. Duty to Return Partnership Documents and Property. Upon termination of the Employment Period, Executive shall immediately return and deliver to the Partnership any and all papers, books, records, documents, memoranda and manuals, e-mail, electronic or magnetic recordings or data, including all copies thereof, belonging to the Partnership or relating to its business, in Executive’s possession, whether prepared by Executive or others. If at any time after the Employment Period, Executive determines that Executive has any Trade Secrets in Executive’s possession or control, Executive shall immediately return them to the Partnership, including all copies thereof.

     12. Best Efforts and Disclosure. Executive agrees that, while employed with the Partnership, Executive’s services shall be devoted on a full time basis to the Partnership’s business, and Executive shall use best efforts to promote its success. Further, Executive shall promptly disclose to the Partnership all ideas, inventions, computer programs, and discoveries, whether or not patentable or copyrightable, which Executive may conceive or make, alone or with others, during the Employment Period, whether or not during working hours, and which directly or indirectly:

     (a) relate to a matter within the scope, field, duties or responsibility of Executive’s employment with the Partnership; or

     (b) are based on any knowledge of the actual or anticipated business or interests of the Partnership; or

     (c) are aided by the use of time, materials, facilities or information of the Partnership.

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     Executive assigns to the Partnership, without further compensation, any and all rights, titles and interest in all such ideas, inventions, computer programs and discoveries in all countries of the world. Executive recognizes that all ideas, inventions, computer programs and discoveries of the type described above, conceived or made by Executive alone or with others within 12 months after the Termination Date (voluntary or otherwise), are likely to have been conceived in significant part either while employed by the Partnership or as a direct result of knowledge Executive had of proprietary information or Trade Secrets. Accordingly, Executive agrees that such ideas, inventions or discoveries shall be presumed to have been conceived during the Employment Period, unless and until the contrary is clearly established by the Executive.

     13. Inventions and Other Works. Any and all writings, computer software, inventions, improvements, processes, procedures and/or techniques which Executive may make, conceive, discover, or develop, either solely or jointly with any other person or persons, at any time during the Employment Period, whether at the request or upon the suggestion of the Partnership or otherwise, which relate to or are useful in connection with any business now or hereafter carried on or contemplated by the Partnership, including developments or expansions of its present fields of operations, shall be the sole and exclusive property of the Partnership. Executive agrees to take any and all actions necessary or appropriate so that the Partnership can prepare and present applications for copyright or Letters Patent therefor, and secure such copyright or Letters Patent wherever possible, as well as reissue renewals, and extensions thereof, and obtain the record title to such copyright or patents. Executive shall not be entitled to any additional or special compensation or reimbursement regarding any such writings, computer software, inventions, improvements, processes, procedures and techniques. Executive acknowledges that the Partnership from time to time may have agreements with other persons or entities which impose obligations or restrictions on the Partnership regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. Executive agrees to be bound by all such obligations and restrictions, and to take all action necessary to discharge the obligations of the Partnership.

     14. Non-Solicitation Restriction. To protect Trade Secrets after termination of the Employment Period, it is necessary to enter into the following restrictive covenants, which are ancillary to the enforceable promises between the Partnership and Executive in Sections 9 through 13 and other provisions of this Agreement. Following the Termination Date (regardless of the reason for termination), Executive hereby covenants and agrees that Executive will not, directly or indirectly, without the prior written consent of the Partnership, either individually or as a principal, partner, agent, consultant, contractor, employee, or as a director or officer of any entity, or in any other manner or capacity whatsoever, except on behalf of the Partnership, solicit business, or attempt to solicit business, in products or services directly competitive with any products or services offered or performed by the Partnership or its Affiliates in any business which the Partnership or any of its Affiliates does business as of the Termination Date, or either (a) from those individuals or entities with whom the Partnership or Affiliate conducted business with or (b) with respect to any assets or holdings in which the Partnership or Affiliate had any interest, at any time during the one (1) year period ending on the Termination Date. The prohibitions set forth in this Section 15 shall remain in effect for a period of 6 months following the Termination Date.

     15. Non-Competition Restriction. Executive hereby agrees that in order to protect Trade Secrets, it is necessary to enter into the following restrictive covenant, which is ancillary to the enforceable promises between the Partnership and Executive in Sections 9 through 14 and other provisions of this Agreement. Executive hereby covenants and agrees that during the Employment Period, and for a period of 6 months following the Termination Date (regardless of the reason for

10

termination), Executive will not, without the prior written consent of the Partnership, become interested in any capacity in which Executive would perform any similar duties to those performed while at the Partnership, directly or indirectly (whether as proprietor, stockholder, director, partner, employee, agent, independent contractor, consultant, trustee, or in any other capacity), with respect to any entity engaged in the business of oil and gas exploration and production within the Restricted Territory (a “Competing Enterprise”); provided, however, Executive shall not be deemed to be participating or engaging in a Competing Enterprise solely by virtue of the ownership of not more than one percent (1%) of any class of stock or other securities which are publicly traded on a national securities exchange or in a recognized over-the-counter market.

     16. No-Recruitment Restriction. Executive agrees that during the Employment Period, and for a period of 6 months following the Termination Date (regardless of the reason for termination), Executive will not, either directly or indirectly, or by acting in concert with others, solicit or influence, or seek to solicit or influence, any employee or independent contractor performing services for the Partnership or any Affiliate to terminate, reduce or otherwise adversely affect Executive’s employment or other relationship with the Partnership or any Affiliate. This provision shall not apply to family members of Executive that may be work for or provide services to the Partnership as an employee or contractor.

     17. Tolling. If Executive violates any of the restrictions contained in Sections 9 through 16. then notwithstanding any provision hereof to the contrary, the restrictive period will be suspended and will not run in favor of Executive from the time of the commencement of any such violation, unless and until such time when the Executive cures the violation to the reasonable satisfaction of the Partnership.

     18. Reformation. If a court or arbitrator rules that any time period or the geographic area specified in any restrictive covenant in Sections 9 through 17 is unenforceable, then the time period will be reduced by the number of months, or the geographic area will be reduced by the elimination of such unenforceable portion, or both, so that the restrictions may be enforced in the geographic area and for the time to the full extent permitted by law.

     19. No Previous Restrictive Agreements. Executive represents that, except as disclosed in writing to the Partnership as of the Effective Date, Executive is not bound by the terms of any agreement with any previous employer or other third party to (a) refrain from using or disclosing any confidential or proprietary information in the course of Executive’s employment by the Partnership or (b) refrain from competing, directly or indirectly, with the business of such previous employer or any other person or entity. Executive further represents that Executive’s performance under this Agreement and work duties for the Partnership do not, and will not, breach any agreement to keep in confidence proprietary information, knowledge or data acquired by Executive in confidence or in trust prior to Executive’s employment with the Partnership, and Executive will not disclose to the Partnership or induce the Partnership to use any confidential or proprietary information or material belonging to any previous employer or others.

     20. Conflicts of Interest. In keeping with Executive’s fiduciary duties to the Partnership, Executive hereby agrees that Executive shall not become involved in a conflict of interest, or upon discovery thereof, allow such a conflict to continue at any time during the Employment Period. In this respect, Executive agrees to fully comply with the conflict of interest agreement entered into by Executive as an employee, officer or director of the Partnership or an Affiliate. In the instance of a violation of the conflict of interest agreement to which Executive is a party, it may be necessary for the Partnership to terminate Executive’s employment for Cause (as defined in Section 6(d)).

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     21. Remedies. Executive acknowledges that the restrictions contained in Sections 9 through 20 of this Agreement, in view of the nature of the Partnership’s business, are reasonable and necessary to protect the Partnership’s legitimate business interests, and that any violation of this Agreement would result in irreparable injury to the Partnership. Notwithstanding the arbitration provisions in Section 28, in the event of a breach or a threatened breach by Executive of any provision of Sections 9 through 20 of this Agreement, the Partnership shall be entitled to a temporary restraining order and injunctive relief restraining Executive from the commission of any breach, and to recover the Partnership’s attorneys’ fees, costs and expenses related to the breach or threatened breach. Nothing contained in this Agreement shall be construed as prohibiting the Partnership from pursuing any other remedies available to it for any such breach or threatened breach, including, without limitation, the recovery of money damages, attorneys’ fees, and costs. These covenants and agreements shall each be construed as independent of any other provisions in this Agreement, and the existence of any claim or cause of action by Executive against the Partnership, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Partnership of such covenants and agreements.

     22. Withholdings; Right of Offset. The Partnership may withhold and deduct from any benefits and payments made or to be made pursuant to this Agreement (a) all federal, state, local and other taxes as may be required pursuant to any law or governmental regulation or ruling, (b) all other normal employee deductions made with respect to Partnership’s employees generally, and (c) any advances made to Executive and owed to Partnership.

     23. Nonalienation. The right to receive payments under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge or encumbrance by Executive, dependents or beneficiaries of Executive, or to any other person who is or may become entitled to receive such payments hereunder. The right to receive payments hereunder shall not be subject to or liable for the debts, contracts, liabilities, engagements or torts of any person who is or may become entitled to receive such payments, nor may the same be subject to attachment or seizure by any creditor of such person under any circumstances, and any such attempted attachment or seizure shall be void and of no force and effect.

     24. Incompetent or Minor Payees. Should the Partnership determine, in its discretion, that any person to whom any payment is payable under this Agreement has been determined to be legally incompetent or is a minor, any payment due hereunder, notwithstanding any other provision of this Agreement to the contrary, may be made in any one or more of the following ways: (a) directly to such minor or person; (b) to the legal guardian or other duly appointed personal representative of the person or estate of such minor or person; or (c) to such adult or adults as have, in the good faith knowledge of the Partnership, assumed custody and support of such minor or person; and any payment so made shall constitute full and complete discharge of any liability under this Agreement in respect to the amount paid.

     25. Severability. It is the desire of the Parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held unenforceable by a court of competent jurisdiction or arbitrator (pursuant to Section 28), the Parties hereby agree and consent that such provision shall be reformed to create a valid and enforceable provision to the maximum extent permitted by law; provided, however, if such provision cannot be reformed, it shall be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement. This Agreement should be construed by limiting and reducing it only to the minimum extent necessary to be enforceable under then applicable law.

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     26. Title and Headings; Construction. Titles and headings to Sections hereof are for the purpose of reference only and shall in no way limit, define or otherwise affect the provisions hereof. The words “herein”, “hereof”, “hereunder” and other compounds of the word “here” shall refer to the entire Agreement and not to any particular provision.

     27. Governing Law; Jurisdiction. All matters or issues relating to the interpretation, construction, validity, and enforcement of this Agreement shall be governed by the laws of the State of Texas, without giving effect to any choice-of-law principle that would cause the application of the laws of any jurisdiction other than Texas. Jurisdiction and venue of any action or proceeding relating to this Agreement or any Dispute (to the extent arbitration is not required under Section 28) shall be exclusively in Houston, Texas.

     28. Mandatory Arbitration. Except as provided in subsection (h) of this Section 28, any Dispute (as defined in Section 6(d)) must be resolved by binding arbitration in accordance with the following:

          (a) Either Party may begin arbitration by filing a demand for arbitration in accordance with the Arbitration Rules and concurrently notifying the other Party of that demand. If the Parties are unable to agree upon a panel of three arbitrators within ten days after the demand for arbitration was filed (and do not agree to an extension of that ten-day period), either Party may request the Houston, Texas office of the American Arbitration Association (“AAA”) to appoint the arbitrator or arbitrators necessary to complete the panel in accordance with the Arbitration Rules. Each arbitrator so appointed shall be deemed accepted by the Parties as part of the panel. Notwithstanding the foregoing, the Parties, by mutual consent, may agree to a single arbitrator instead of a panel of three arbitrators and, in such event, references herein to “panel” shall refer to the single appointed arbitrator.

          (b) The arbitration shall be conducted in the Houston, Texas metropolitan area at a place and time agreed upon by the Parties with the panel, or if the Parties cannot agree, as designated by the panel. The panel may, however, call and conduct hearings and meetings at such other places as the Parties may agree or as the panel may, on the motion of one Party, determine to be necessary to obtain significant testimony or evidence.

          (c) The panel may authorize any and all forms of discovery upon a Party’s showing of need that the requested discovery is likely to lead to material evidence needed to resolve the Dispute and is not excessive in scope, timing, or cost.

          (d) The arbitration shall be subject to the Federal Arbitration Act and conducted in accordance with the Arbitration Rules to the extent that they do not conflict with this Section 28. The Parties and the panel may, however, agree to vary to provisions of this Section 28 or the matters otherwise governed by the Arbitration Rules.

          (e) The arbitration hearing shall be held within 60 days after the appointment

of the panel. The panel’s final decision or award shall be made within 30 days after the hearing. That final decision or award shall be made by unanimous or majority vote or consent of the arbitrators constituting the panel, and shall be deemed issued at the place of arbitration. The panel’s final decision or award shall be based on the terms and conditions of this Agreement and applicable law.

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          (f) The panel’s final decision or award may include injunctive relief in response to any actual or impending breach of this Agreement or any other actual or impending action or omission of a Party under or in connection with this Agreement.

          (g) The panel’s final decision or award shall be final and binding upon the Parties, and judgment upon that decision or award may be entered in any court having jurisdiction. The Parties waive any right to apply or appeal to any court for relief from the preceding sentence or from any decision of the panel that is made before the final decision or award.

          (h) Nothing in this Section 28 limits the right of either Party to apply to a court having jurisdiction to (i) enforce the agreement to arbitrate in accordance with this Section 28, (ii) seek provisional or temporary injunctive relief, in response to an actual or impending breach of the Agreement or otherwise so as to avoid an irreparable damage or maintain the status quo, until a final arbitration decision or award is rendered or the Dispute is otherwise resolved, or (iii) challenge or vacate any final arbitration decision or award that does not comply with this Section 28. In addition, nothing in this Section 28 prohibits the Parties from resolving any Dispute (in whole or in part) at any time by mutual agreement or compromise. This Section 28 shall also not preclude the Parties at any time from mutually agreeing to pursue non-binding mediation of the Dispute.

          (i) The panel may proceed to an award notwithstanding the failure of any Party to participate in such proceedings. The prevailing Party in the arbitration proceeding may be entitled to an award of reasonable attorneys’ fees incurred in connection with the arbitration in such amount, if any, as determined by the panel in its discretion. The costs of the arbitration shall be borne equally by the Parties unless otherwise determined by the panel in its award.

          (j) The panel shall be empowered to impose sanctions and to take such other actions as it deems necessary to the same extent a judge could impose sanctions or take such other actions pursuant to the Federal Rules of Civil Procedure and applicable law. Each party agrees to keep all Disputes and arbitration proceedings strictly confidential except for disclosure of information required by applicable law which cannot be waived.

     29. Binding Effect: Third Party Beneficiaries. This Agreement shall be binding upon and inure to the benefit of the Parties hereto, and to their respective heirs, executors, beneficiaries, personal representatives, successors and permitted assigns hereunder. Holding Co. and its partners shall expressly be deemed to be third party beneficiaries of the covenants and agreements of the parties hereto; otherwise this Agreement shall not be for the benefit of any third parties.

     30. Entire Agreement; Amendment and Termination. This Agreement contains the entire agreement of the Parties hereto with respect to the matters covered herein; moreover, this Agreement supersedes all prior and contemporaneous agreements and understandings, oral or written, between the Parties concerning the subject matter hereof. This Agreement may be amended, waived or terminated only by a written instrument that is identified as an amendment, waiver or termination hereto, and is executed on behalf of both Parties.

     31. Survival of Certain Provisions. Wherever appropriate to the intention of the Parties, the respective rights and obligations of the Parties hereunder shall survive any termination or expiration of this Agreement.

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     32. Waiver of Breach. No waiver by either Party hereto of a breach of any provision of this Agreement by any other Party, or of compliance with any condition or provision of this Agreement to be performed by such other Party, will operate or be construed as a waiver of any subsequent breach by such other Party or any similar or dissimilar provision or condition at the same or any subsequent time. The failure of either Party hereto to take any action by reason of any breach will not deprive such Party of the right to take action at any time while such breach continues.

     33. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Partnership and its Affiliates (and its and their successors), as well as upon any person or entity acquiring, whether by merger, consolidation, purchase of assets, dissolution or otherwise, all or substantially all of the capital stock, business and/or assets of the Partnership (or its successor) regardless of whether the Partnership is the surviving or resulting corporation. The Partnership shall require any successor (whether direct or indirect, by purchase, merger, consolidation, dissolution or otherwise) to all or substantially all of the capital stock, business or assets of the Partnership to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Partnership would be required to perform it if no such succession had occurred; provided, however, no such assumption shall relieve the Partnership of any of its duties or obligations hereunder unless otherwise agreed, in writing, by Executive.

     This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representative, executors, administrators, successors, and heirs. In the event of the death of Executive while any amount is payable hereunder, all such amounts shall be paid to the Designated Beneficiary (as defined in Section 6(d)).

     34. Notice. Each notice or other communication required or permitted under this Agreement shall be in writing and transmitted, delivered, or sent by personal delivery, prepaid courier or messenger service (whether overnight or same-day), or prepaid certified United States mail (with return receipt requested), addressed (in any case) to the other Party at the address for that Party set forth below that Party’s signature on this Agreement, or at such other address as the recipient has designated by Notice to the other Party.

     Each notice or communication so transmitted, delivered, or sent (a) in person, by courier or messenger service, or by certified United States mail shall be deemed given, received, and effective on the date delivered to or refused by the intended recipient (with the return receipt, or the equivalent record of the courier or messenger, being deemed conclusive evidence of delivery or refusal), or (b) by telecopy or facsimile shall be deemed given, received, and effective on the date of actual receipt (with the confirmation of transmission being deemed conclusive evidence of receipt, except where the intended recipient has promptly notified the other Party that the transmission is illegible). Nevertheless, if the date of delivery or transmission is not a business day, or if the delivery or transmission is after 5:00 p.m. on a business day, the notice or other communication shall be deemed given, received, and effective on the next business day.

     35. Executive Acknowledgment. Executive acknowledges (a) being knowledgeable and sophisticated as to business matters, including the subject matter of this Agreement, (b) having read this Agreement and understanding its terms and conditions, (c) having been given an ample opportunity to discuss this Agreement with Executive’s personal legal counsel prior to execution, and (d) that no strict rules of construction shall apply for or against the drafter or any other Party. Executive hereby represents that Executive is free to enter into this Agreement including, without

15

limitation, that Executive is not subject to any covenant not to compete that would conflict with any duties under this Agreement.

     36. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a copy hereof containing multiple signature pages, each signed by one party hereto, but together signed by both Parties.

[Signature page follows.]

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     IN WITNESS WHEREOF, Executive has executed this Agreement and the Partnership has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative, to be effective as of the Effective Date.

WITNESS:		EXECUTIVE:
		F. DAVID MURRELL
Signature:	/s/ Carol Gore	Signature:	/s/ F. David Murrell
	Name: Carol Gore		Name: F. David Murrell
	Date: 9/18/06		Date: September 18, 2006
			Address for Notices:
			14010 Kingsride Lane
			Houston, TX
			77079

ALTA MESA SERVICES, LP:
By:	/s/ Harlan H. Chappelle
	Its: President
	Name: Harlan H. Chappelle
	Date: September 18, 2006
	Address for Notices:
	Alta Mesa Services, LP
	6200 Highway 6 South, Suite 201
	Houston, Texas 77083-1539
	Attention: Harlan H. Chappelle

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     IN WITNESS WHEREOF, Executive has executed this Agreement and the Partnership has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative, to be effective as of the Effective Date.

WITNESS:		EXECUTIVE:
		F. DAVID MURRELL
Signature:	/s/ Carol Gore	Signature:	/s/ F. David Murrell
	Name: Carol Gore		Name: F. David Murrell
	Date: 9/18/06		Date: September 18, 2006
			Address for Notices:
			14010 Kingsride Lane
			Houston, TX 77079

ALTA MESA SERVICES, LP:
By:	/s/ Harlan H. Chappelle
	Its: President
	Name: Harlan H. Chappelle
	Date: September 18, 2006
	Address for Notices:
	Alta Mesa Services, LP
	6200 Highway 6 South, Suite 201
	Houston, Texas 77083-1539
	Attention: Harlan H. Chappelle

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EX-10.8

Exhibit 10.8

Execution Version

AGREEMENT AND PLAN OF MERGER

By and Among

ALTA MESA HOLDINGS, LP,

ALTA MESA ACQUISITION SUB, LLC

and

THE MERIDIAN RESOURCE CORPORATION

Dated December 22, 2009

Execution Version

TABLE OF CONTENTS

Article I. CERTAIN DEFINED TERMS			1
	Section 1.1	Certain Defined Terms	1
Article II. THE MERGER			7
	Section 2.1	The Merger	7
	Section 2.2	Effective Time of the Merger	7
Article III. THE SURVIVING COMPANY			8
	Section 3.1	Certificate of Formation	8
	Section 3.2	Charter Documents	8
	Section 3.3	Directors and Officers	8
Article IV. CONVERSION OF SHARES			8
	Section 4.1	Conversion of Capital Stock	8
	Section 4.2	Surrender and Payment	9
	Section 4.3	Stock Options; Warrants	10
	Section 4.4	Dissenting Shares	11
	Section 4.5	Closing	12
Article V. REPRESENTATIONS AND WARRANTIES OF TARGET			12
	Section 5.1	Organization and Qualification	12
	Section 5.2	Capitalization	13
	Section 5.3	Authority	14
	Section 5.4	Consents and Approvals; No Violation	14
	Section 5.5	Target SEC Reports	15
	Section 5.6	Target Financial Statements	16
	Section 5.7	Absence of Undisclosed Liabilities; Liabilities as of Year End	16
	Section 5.8	Absence of Certain Changes	16
	Section 5.9	Taxes	17
	Section 5.10	Litigation	18
	Section 5.11	Employee Benefit Plans; ERISA	19
	Section 5.12	Environmental Matters	20
	Section 5.13	Compliance with Applicable Laws	21
	Section 5.14	Insurance	22
	Section 5.15	Labor Matters; Employees	22
	Section 5.16	Reserve Reports	23
	Section 5.17	[Reserved]	23
	Section 5.18	Material Contracts	23
	Section 5.19	Required Shareholder Vote; Board Action	24
	Section 5.20	Proxy Statement	25
	Section 5.21	Intellectual Property	25
	Section 5.22	Hedging	25
	Section 5.23	Brokers	25
	Section 5.24	Fairness Opinion	26
	Section 5.25	Takeover Laws	26
	Section 5.26	Net Profits Interest Agreements; Reeves/Mayell Agreements	26
	Section 5.27	Forbearances	27
	Section 5.28	Gas Balancing and Take-or-Pay Contracts	29

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	Section 5.29	Production Requirements	29
	Section 5.30	Well Bonus Plans	29
	Section 5.31	Interested Party Transactions	30
	Section 5.32	No Other Representations or Warranties	30
Article VI. REPRESENTATIONS AND WARRANTIES OF PARENT PARTIES			30
	Section 6.1	Organization and Qualification	30
	Section 6.2	Authority	30
	Section 6.3	Merger Sub	31
	Section 6.4	No Violation	31
	Section 6.5	Brokers	31
	Section 6.6	Parent Information	31
	Section 6.7	Target Stock	32
	Section 6.8	Financing	32
	Section 6.9	No Other Representations or Warranties	32
Article VII. CONDUCT OF BUSINESS PENDING THE MERGER			32
	Section 7.1	Conduct of Business by Target Pending the Merger	32
Article VIII. ADDITIONAL AGREEMENTS			36
	Section 8.1	Preparation of the Proxy Statement	36
	Section 8.2	Shareholders Meeting; Recommendations	37
	Section 8.3	Access to Information; Confidentiality	38
	Section 8.4	No Solicitation	38
	Section 8.5	Directors’ and Officers’ Indemnification and Insurance	42
	Section 8.6	Further Assurances	43
	Section 8.7	Expenses	43
	Section 8.8	Cooperation	43
	Section 8.9	Publicity	44
	Section 8.10	Additional Actions	44
	Section 8.11	Filings	44
	Section 8.12	Consents	44
	Section 8.13	Employee Matters	44
	Section 8.14	Notice of Certain Events	45
	Section 8.15	Site Inspections	46
	Section 8.16	Shareholder Litigation	46
	Section 8.17	Financing	46
	Section 8.18	[Reserved]	47
	Section 8.19	Shell Settlement	47
Article IX. CONDITIONS TO CONSUMMATION OF THE MERGER			47
	Section 9.1	Conditions to the Obligation of Each Party	47
	Section 9.2	Conditions to the Obligations of the Parent Parties	47
	Section 9.3	Conditions to the Obligations of the Target	48
Article X. SURVIVAL			49
	Section 10.1	Survival of Representations and Warranties	49
	Section 10.2	Survival of Covenants and Agreements	49
Article XI. TERMINATION, AMENDMENT AND WAIVER			49
	Section 11.1	Termination	49
	Section 11.2	Notice of Termination; Effect of Termination	51

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	Section 11.3	Expenses and Other Payments	51
Article XII. MISCELLANEOUS			53
	Section 12.1	Notices	53
	Section 12.2	Severability	54
	Section 12.3	Assignment	54
	Section 12.4	Interpretation	55
	Section 12.5	Counterparts	55
	Section 12.6	Entire Agreement	55
	Section 12.7	Governing Law	55
	Section 12.8	Submission to Jurisdiction	55
	Section 12.9	Attorneys’ Fees	55
	Section 12.10	No Third Party Beneficiaries	55
	Section 12.11	Disclosure Schedules	55
	Section 12.12	Amendments and Supplements	56
	Section 12.13	Extensions, Waivers, etc.	56
	Section 12.14	Specific Performance; Additional Remedies	56

Exhibit A	Form of Voting Agreement
Exhibit B	Form of Option Waiver, Cancellation and Release Agreement

iii

INDEX OF DEFINED TERMS

Term	Section
Acquisition Proposal		1.1
Affiliate		1.1
Affiliate Transaction		5.31
Aggregate Cost Overrun		7.1(b)(x)
Agreement	Preamble
AMI		5.26(b)
Ancillary Agreements		5.3
Assessment		8.15
Audit		1.1
Book Entry Shares		4.1(a)
Business Day		1.1
Business Employee		1.1
Cairn		1.1
Cancelled Excepted Option		4.3(c)
Change in the Target Recommendation		8.4(a)
Charter Documents		3.2
CIT Credit Agreement		5.27(c)
CIT Forbearance and Amendment Agreement		5.27(c)
Closing		4.5
Closing Date		4.5
Code		1.1
Confidentiality Agreement		8.3
Customary Post-Closing Consents		1.1
D&O Insurance		8.5(d)
Dissenting Shares		4.4(a)
Effective Time		2.2
Enforceability Exception		1.1
Engagement Letters		1.1
Environmental Laws		1.1
ERISA		1.1
Excepted Options		4.3(a)
Exchange Act		1.1
Exchange Agent		4.2(a)
Exchange Fund		4.2(a)
Exclusivity Arrangements		1.1
Existing Derivative Transactions		5.22
Expenses		1.1
Fairness Opinion		5.24
FEMT		5.27(b)
Fortis		5.27(a)
Fortis Forbearance Agreement		5.27(a)
Fortis Hedging Agreement		5.27(b)
GAAP		1.1
Governmental Authority		1.1
Hazardous Substances		1.1
Hedging Agreements		5.27(b)
Hedging Forbearance Agreement		5.27(b)
HSR Act		1.1
Hydrocarbons		1.1
Indemnified Liabilities		8.5(b)
Indemnified Party		8.5(b)
Intellectual Property		1.1
JAR		1.1
JP Morgan		1.1
Knowledge of Target		1.1
Liens		1.1
LOP		1.1
Material Production Decline		1.1
Mayell		5.26(a)
Mayell NPI Agreement		5.26(b)
Merger	Recitals
Merger Consideration		4.1(a)
Merger Sub	Preamble
Morgan Keegan		1.1
NPI Agreements		5.26(b)
Oil and Gas Interests		1.1
Option Waiver, Cancellation and Release Agreement		4.3(c)
Orion		5.27(d)
Orion Forbearance and Amendment Agreement		5.27(d)
Parent	Preamble
Parent Breach		11.1(d)
Parent Material Adverse Effect		1.1
Parent Parties	Preamble
PCBs		5.12(f)
Permits		1.1
Person		1.1
Proceeding		8.5(b)
Proved Developed Producing		1.1
Proxy Statement		8.1(a)
Reeves		5.26(a)
Reeves NPI Agreement		5.26(b)
Reeves Release		5.26(c)
Representatives		8.3
Rivington		1.1
Sarbanes-Oxley Act		1.1
SEC		1.1
Securities Act		1.1
Subsidiary		1.1
Severance Package Table		5.11(e)
Stock Certificate		4.1(a)
Superior Proposal		1.1
Surviving Company		2.1
Sydson		1.1
Target	Preamble
Target Acquisition Contract		8.4(a)
Target Benefit Plan		1.1
Target Breach		11.1(e)
Target CIT Lenders		5.27(c)
Target Common Shares		4.1(a)
Target Credit Agreement		5.27(a)

iv

Term	Section
Target Disclosure Schedule	Article V
Target Employee Agreement		1.1
Target Employees		5.11(e)
Target ERISA Affiliate		1.1
Target Lenders		5.27(a)
Target Material Adverse Effect		1.1
Target Material Contract		1.1
Target Options		4.3(a)
Target Preferred Shares		5.2(a)
Target Recommendation		5.19(b)
Target Reserve Report		5.16(a)
Target SEC Reports		1.1
Target Shareholders		1.1
Target Shareholders’ Approval		5.19(a)
Target Shareholders Meeting		8.2
Target Warrants		4.3(b)
Tax Authority		1.1
Tax Returns		1.1
Taxes		1.1
TBCA		1.1
TBOC		1.1
Termination Date		11.1(b)
Termination Fee		1.1
TODD		1.1
Transactions		4.5
Voting Agreement	Recitals
WARN Act		5.15(b)
Well Bonus Plans		5.30

v

AGREEMENT AND PLAN OF MERGER

     This Agreement and Plan of Merger (this “Agreement”) dated December 22, 2009, is entered into by and among ALTA MESA HOLDINGS, LP, a Texas limited partnership (“Parent”), ALTA MESA ACQUISITION SUB, LLC, a Texas limited liability company (“Merger Sub,” and, together with Parent, the “Parent Parties”), and THE MERIDIAN RESOURCE CORPORATION, a Texas corporation (“Target”).

RECITALS

     The respective boards of directors or other governing bodies of Parent, Merger Sub and Target deem it advisable and in the best interests of their respective entities, partners and members that Target merge with and into Merger Sub (the “Merger”) upon the terms and subject to the conditions set forth in this Agreement, and such boards of directors and governing bodies have approved this Agreement and the Merger.

     Concurrently with the execution of this Agreement as a condition and inducement to the Parent Parties entering into this Agreement and agreeing to perform their respective obligations hereunder, each director and executive officer of Target has executed and delivered to Parent a voting agreement in the form attached hereto as Exhibit A (individually, a “Voting Agreement” and, collectively, the “Voting Agreements”) pursuant to which they have each agreed, subject to the terms and conditions therein, to vote their Target Common Shares in favor of the Transactions.

     In consideration of the premises and the representations, warranties and agreements contained in this Agreement, the parties to this Agreement agree as follows:

ARTICLE I.
CERTAIN DEFINED TERMS

     Section 1.1 Certain Defined Terms. The following terms which are capitalized and used in this Agreement have the meanings set forth below:

     “Acquisition Proposal” means any offer or proposal by any third party concerning any (i) merger, consolidation, share exchange, tender offer, recapitalization, other business combination or similar transaction directly or indirectly involving Target, or any of its Subsidiaries, pursuant to which such Person would own fifty percent (50%) or more of the consolidated assets, revenues or net income of Target, and its Subsidiaries, taken as a whole, (ii) sale, lease, license or other disposition directly or indirectly by merger, consolidation, business combination, share exchange, joint venture or otherwise, of assets of Target, (including equity interests of any of its Subsidiaries) or any Subsidiary of Target, representing fifty percent (50%) or more of the consolidated assets, revenues or net income of Target and its Subsidiaries, taken as a whole, in each case in a single transaction or series of transactions, (iii) issuance or sale or other disposition (including by way of merger, consolidation, business combination, share exchange, joint venture or similar transaction) of equity interests representing fifty percent (50%) or more of the voting power of Target, (iv) transaction or series of transactions in which any Person would acquire beneficial ownership or the right to acquire beneficial ownership of equity

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interests representing fifty percent (50%) or more of the voting power of Target, or (v) any combination of the foregoing.

     “Affiliate” means, when used with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person. As used in the definition of “Affiliate,” the term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, partnership or other ownership interests, by contract or otherwise.

     “Audit” means any audit, assessment of Taxes, other examination by any Tax Authority, proceeding or appeal of such proceeding relating to Taxes.

     “Business Day” means any day other than a Saturday or Sunday, or a day on which banking institutions in the State of Texas are authorized or obligated by law or executive order to close.

     “Business Employee” means an individual who is employed by Target immediately prior to the Effective Time and who thereafter remains or becomes an employee of Merger Sub or an Affiliate of Merger Sub.

     “Cairn” means Cairn Energy USA, Inc., a wholly owned Subsidiary of Target.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Customary Post-Closing Consents” means approvals that are ministerial in nature and are customarily obtained from Governmental Authorities after the Effective Time in connection with transactions of the same nature as are contemplated hereby.

     “Enforceability Exception” means the effects of bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting the rights of creditors and of general principles of equity.

     “Engagement Letters” means (i) that engagement letter, dated May 14, 2009, between Rivington and Target, as amended, (ii) that engagement letter, dated July 22, 2008, between JP Morgan and Target, as amended, and (iii) that engagement letter, dated November 2, 2009, between Morgan Keegan and Target.

     “Environmental Laws” means all applicable federal, state and local statutes, ordinances, restrictions, licenses, rules, orders, regulations, permit conditions, injunctive obligations, standards, and legal requirements relating to the protection of the environment, the presence or release of Hazardous Substances and human health and safety, including the common law and the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. App. § 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean Water Act (33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. § 136 et seq.), and the Occupational Safety and Health Act (29 U.S.C. § 651 et seq.),

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as each is currently amended, and the regulations promulgated pursuant thereto, and all analogous state and local laws.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

     “Exclusivity Arrangements” means any agreement, provision or covenant limiting the ability of Target or its Subsidiaries to (i) sell products or services, (ii) engage in a line of business, (iii) establish or maintain contacts related to its business in a geographic area or (iv) obtain services from any Person or limiting such Person’s ability to provide products or services to Target or its Subsidiaries.

     “Expenses” shall include all reasonable out-of-pocket expenses (including all reasonable fees and expenses of outside counsel, accountants, financing sources, investment bankers, experts and consultants to a party hereto and its Affiliates) incurred by a party or on its behalf in connection with or related to the due diligence, authorization, preparation, negotiation, execution and performance of this Agreement, the preparation, printing, filing and mailing of the Proxy Statement, the solicitation of shareholder approvals, requisite HSR filings and all other matters related to the consummation of the Transactions (subject to reasonable documentation).

     “GAAP” means generally accepted accounting principles in the United States.

     “Governmental Authority” means any governmental agency or authority (including a court) of the United States, any other country, or any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers.

     “Hazardous Substances” means any chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, hazardous materials, petroleum, petroleum products or any substance regulated under any Environmental Law.

     “HSR Act” means the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976.

     “Hydrocarbons” means oil, condensate, natural gas, casinghead gas and other liquid or gaseous hydrocarbons.

     “Intellectual Property” means all patents, patent rights, trademarks, rights, trade names, trade name rights, service marks, service mark rights, copyrights, technology, know-how, processes and other proprietary intellectual property rights and computer programs.

     “JAR” means JAR Resource Holdings, LP.

     “JP Morgan” means J.P. Morgan Securities Inc.

     “knowledge of Target” and similar terms mean the current knowledge of: Paul D. Ching, President, Chief Executive Officer and Chairman of the Board of Directors; Lloyd V. DeLano,

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Senior Vice President, Chief Accounting Officer and Secretary; Alan S. Pennington, Vice President-Business Development — TMRX; A. Dale Breaux, Vice President-Operations — TMRX; Steven G. Ives, Vice President and Ethel Porciaux, Land Coordinator.

     “Liens” means all liens, mortgages, pledges, security interests, encumbrances, claims or charges of any kind.

     “LOP” means Louisiana Onshore Properties LLC, a wholly owned Subsidiary of Target.

     “Material Production Decline” means a decline of ten percent (10%) or more in the monthly aggregate average daily production rate of the Oil and Gas Interests of Target, as compared to those monthly aggregate reserves classified as “Proved Developed Producing” reserves in the Target Reserve Report; provided that, with respect to any wells identified as producing Hydrocarbons in the Target Reserve Report, if Target or any of its Subsidiaries takes any action with respect to any such well that is (i) outside the ordinary course of business (except to the extent in accordance with the standards applicable to a prudent operator) or (ii) inconsistent with the productive behavior thereof as contemplated by the third party engineering firm who prepared the Target Reserve Report, and any such action would or could be reasonably likely to cause an increase in production from any wells identified as producing Hydrocarbons in the Target Reserve Report, then such increases in production shall be disregarded for purposes of this definition.

     “Morgan Keegan” means Morgan Keegan & Company, Inc.

     “Oil and Gas Interests” means direct and indirect interests in and rights with respect to oil, gas, mineral, and related properties and assets of any kind and nature, direct or indirect, including working, leasehold and mineral interests and operating rights and royalties, overriding royalties, production payments, net profit interests and other non-working interests and non-operating interests; all interests in rights with respect to Hydrocarbons and other minerals or revenues therefrom, all contracts in connection therewith and claims and rights thereto (including all oil and gas leases, operating agreements, unitization and pooling agreements and orders, division orders, transfer orders, mineral deeds, royalty deeds, oil and gas sales, exchange and processing contracts and agreements, and in each case, interests thereunder), surface interests, fee interests, reversionary interests, reservations, and concessions; all easements, rights of way, licenses, permits, leases, and other interests associated with, appurtenant to, or necessary for the operation of any of the foregoing; and all interests in equipment and machinery (including wells, well equipment and machinery), oil and gas production, gathering, transmission, treating, processing, and storage facilities (including tanks, tank batteries, pipelines, and gathering systems), pumps, water plants, electric plants, gasoline and gas processing plants, refineries, and other tangible personal property and fixtures associated with, appurtenant to, or necessary for the operation of any of the foregoing.

     “Parent Material Adverse Effect” means any material adverse effect on the ability of Parent or Merger Sub to timely consummate the Merger and the Transactions.

4

     “Permits” means permits, licenses, certificates, consents, approvals, entitlements, plans, surveys, relocation plans, environmental impact reports and other authorizations of Governmental Authorities.

     “Person” means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including any Governmental Authority.

     “Rivington” means Rivington Capital Advisors, LLC.

     “Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002, as amended.

     “SEC” means the U.S. Securities and Exchange Commission.

     “Securities Act” means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

     “Subsidiary” means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, of which (i) at least a majority of the securities or other interests having by their terms voting power to elect a majority of the Board of Directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly beneficially owned or controlled by such party or by any one or more of its subsidiaries, or by such party and one or more of its subsidiaries, or (ii) such party or any Subsidiary of such party is a general partner of a partnership or a manager of a limited liability company.

     “Superior Proposal” means, with respect to Target, a bona fide written Acquisition Proposal that the Target Board determines in good faith (after consultation with Target’s financial advisor and outside legal counsel) to be (i) more favorable to the Target Shareholders than the Merger, and (ii) reasonably expected to be consummated, taking into consideration the timing, conditionality, legal, regulatory and other aspects of such Acquisition Proposal.

     “Sydson” means Sydson Energy, Inc.

     “Target Benefit Plan” means any individual or group employee benefit plans or arrangements of any type (including plans described in Section 3(3) of ERISA), sponsored, maintained or contributed to by Target or a Target ERISA Affiliate within six (6) years prior to the Effective Time.

     “Target Employee Agreement” means any employment, severance or similar agreement with respect to which Target or any Target ERISA Affiliate has any current or future obligation or liability.

     “Target ERISA Affiliate” means any trade or business, whether or not incorporated, which together with Target would, on the date of this Agreement, be deemed a “single employer” within the meaning of Section 414(b), (c) or (m) of the Code or Section 4001(b)(1) of ERISA.

5

     “Target Material Adverse Effect” means any event, circumstance, condition, development or occurrence causing, resulting in or having (or with the passage of time likely to cause, result in or have) a material adverse effect on the financial condition, business, assets, properties or results of operations of Target and its Subsidiaries, taken as a whole, including but not limited to any of the following: a Material Production Decline, the bankruptcy of Target or any of its Subsidiaries, uninsured casualty losses of Target and its Subsidiaries in excess of $1,000,000 in the aggregate, the initiation of litigation or an arbitration proceeding against Target or any of its Subsidiaries that could reasonably result in damages in excess of $1,000,000, the initiation of an investigation by the SEC, and the initiation of foreclosure proceedings against any of Target’s or its Subsidiaries’ assets or the delivery of a notice of cross default by any of Target’s or its Subsidiaries’ lenders; provided that in no event shall any of the following be deemed to constitute or be taken into account in determining a Target Material Adverse Effect: (i) general business or economic conditions or the capital, financial, banking or currency markets, or changes therein; (ii) conditions generally affecting the industry in which any of the Target or any of its Subsidiaries operate or changes therein, including the market price of oil or natural gas or changes thereof; (iii) the negotiation, execution, announcement, or pendency or performance of this Agreement or any of the Transactions contemplated hereby, including any change in the relationship of the Target or any of its Subsidiaries with their respective employees, customers, suppliers, investors and contractual counterparties, and any litigation resulting therefrom; (iv) (A) any action or omission required or permitted by this Agreement or (B) any action taken at the request of Parent; (v) any action taken by Parent or Merger Sub; (vi) any change in the market price for or trading volume of the Target’s stock; (vii) any changes in laws or applicable accounting regulations or principles, or interpretations thereof; and (viii) the commencement, continuation or escalation of war, terrorism or hostilities, or natural disasters or political events.

     “Target Material Contract” means each contract, lease, indenture, agreement, arrangement or understanding to which Target or any of its Subsidiaries is subject that is currently in effect and is of a type that would be required to be included as an exhibit to a Form S-1 registration statement pursuant to the rules and regulations of the SEC if such a registration statement were filed by Target.

     “Target SEC Reports” means each form, registration statement, report, schedule, proxy or information statement and other document (including exhibits and amendments thereto) required to be filed by the Target with the SEC since January 1, 2009 under the Securities Act or the Exchange Act.

     “Target Shareholders” shall mean the holders of Target Common Shares.

     “Tax Authority” means the Internal Revenue Service and any other domestic or foreign Governmental Authority responsible for the administration of any Taxes.

     “Tax Returns” means all Federal, state, local and foreign tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax Return relating to Taxes.

6

     “Taxes” means (i) any and all taxes, customs, duties, tariffs, imposts, charges, deficiencies, assessments, levies or other like governmental charges, including, without limitation, income, gross receipts, excise, real or personal property, ad valorem, value added, estimated, alternative minimum, stamp, sales, withholding, social security, occupation, use, service, service use, license, net worth, payroll, franchise, transfer and recording taxes and charges, imposed by any Tax Authority, whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such amounts, (ii) any liability for the payment of any amounts described in (i) as a result of being a member of an affiliated, consolidated, combined, unitary, or similar group or as a result of transferor or successor liability, and (iii) any liability for the payment of any amounts as a result of being a party to any tax sharing agreement or as a result of any obligation to indemnify any other person with respect to the payment of any amounts of the type described in clauses (i) or (ii).

     “TBCA” means the Texas Business Corporations Act, as amended, as applicable to the Target, Parent Parties and the Transactions.

     “TBOC” means the Texas Business Organizations Code, as amended, as applicable to Target, Parent Parties and the Transactions.

     “Termination Fee” means $3,000,000.

     “TMRX” means The Meridian Resource & Exploration LLC, a wholly owned Subsidiary of Target.

     “TODD” means Texas Oil Distribution & Development, Inc.

ARTICLE II.
THE MERGER

     Section 2.1 The Merger. Upon the terms and subject to the conditions hereof, at the Effective Time, Target shall merge with and into Merger Sub and the separate corporate existence of Target shall thereupon cease and Merger Sub shall be the surviving company in the Merger (sometimes referred to herein as the “Surviving Company”). The Merger shall have the effects set forth in Article 5.06 of the TBCA and Section 10.008 of the TBOC, including the Surviving Company’s succession to and assumption of all rights and obligations of Target.

     Section 2.2 Effective Time of the Merger. The Merger shall become effective (the “Effective Time”) upon the later of (i) the date of filing of a properly executed Certificate of Merger relating to the Merger with the Secretary of State of Texas in accordance with the TBOC, and (ii) at such later time as the parties shall agree and set forth in such Certificate of Merger. The filing of the Certificate of Merger referred to above shall be made as soon as practicable on the Closing Date set forth in Section 4.5.

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ARTICLE III.
THE SURVIVING COMPANY

     Section 3.1 Certificate of Formation. The Certificate of Formation of Merger Sub in effect immediately prior to the Effective Time shall be the Certificate of Formation of the Surviving Company at and after the Effective Time until thereafter amended in accordance with the terms thereof and the TBOC.

     Section 3.2 Charter Documents. The organizational documents, including the company agreement, of Merger Sub (the “Charter Documents”) as in effect immediately prior to the Effective Time shall be the Charter Documents of the Surviving Company at and after the Effective Time, and thereafter may be amended in accordance with their terms and as provided by the Surviving Company’s Charter Documents and the TBOC.

     Section 3.3 Directors and Officers. At and after the Effective Time, the directors and officers of Merger Sub shall be the directors and officers of the Surviving Company until their respective successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Company’s Charter Documents and the TBOC.

ARTICLE IV.
CONVERSION OF SHARES

     Section 4.1 Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holders of any capital stock described below:

     (a) All shares of issued and outstanding common stock of Target, par value $.01 per share (“Target Common Shares”) (other than (i) Target Common Shares held by Parent, Merger Sub or any wholly owned Subsidiary of Parent or Merger Sub, (ii) the Dissenting Shares and (iii) Target Common Shares held in Target’s treasury), shall be converted into the right to receive an amount in cash, without interest, equal to $0.29 per Target Common Share (the “Merger Consideration”). At the Effective Time, all Target Common Shares converted into Merger Consideration pursuant to this Section 4.1 shall cease to be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate (“Stock Certificate”) or of non-certificated Target Common Shares represented by a book entry (the “Book Entry Shares”) that, immediately prior to the Effective Time represented such Target Common Shares shall cease to have any rights with respect thereto, except the right to receive Merger Consideration, without interest.

     (b) Each Target Common Share issued and held in Target’s treasury shall (i) cease to be outstanding, (ii) be canceled and retired without payment of any consideration therefor, and (iii) cease to exist.

     (c) With respect to the Dissenting Shares, subject to Section 4.4, such Dissenting Shares, by virtue of the Merger and without any action on the part of the holders thereof, shall no longer be outstanding and shall be canceled and retired and shall cease to exist, and each Dissenting Shareholder shall thereafter cease to have any rights

8

with respect to such Dissenting Shares, except the rights, if any, as are granted by Article 5.13 of the TBCA or Subchapter H of Chapter 10 of the TBOC, as applicable.

     (d) Each Target Common Share held by Parent, Merger Sub or any other Subsidiary of Parent shall (i) cease to be outstanding, (ii) be canceled and retired without payment of any consideration therefor, and (iii) cease to exist.

     (e) All of the membership interest of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into the membership interest of the Surviving Company with the same rights, powers and privileges as the membership interest so converted and shall constitute the only outstanding membership interest of the Surviving Company.

     Section 4.2 Surrender and Payment

     (a) Parent and Target shall authorize a transfer agent, commercial bank or trust company reasonably acceptable to both parties to act as exchange agent under this Agreement (the “Exchange Agent”) for payment of the Merger Consideration upon surrender of Stock Certificates and Book Entry Shares representing the Target Common Shares. At or prior to the Effective Time, Parent or Merger Sub shall deposit with the Exchange Agent for the benefit of the holders of Target Common Shares, cash in an amount equal to the aggregate amount of Merger Consideration to which holders of Target Common Shares shall be entitled at the Effective Time pursuant to Section 4.1 in exchange for outstanding Target Common Shares (such amounts being hereinafter referred to as the “Exchange Fund”). The Exchange Agent shall, pursuant to irrevocable instructions, deliver the Merger Consideration in exchange for surrendered Stock Certificates or Book Entry Shares pursuant to Section 4.1 out of the Exchange Fund. Except as contemplated by Section 4.2(d), the Exchange Fund shall not be used for any other purpose.

     (b) Promptly but in any event within five (5) Business Days after the Effective Time, the Surviving Company shall cause the Exchange Agent to send to each holder of record of Stock Certificates or Book Entry Shares a letter of transmittal for use in such exchange (which shall specify that the delivery shall be effected, and risk of loss and title with respect to the Stock Certificates or Book Entry Shares shall pass, only upon proper delivery of the Stock Certificates or Book Entry Shares to the Exchange Agent, and which shall be in a form reasonably acceptable to Target), and instructions for use in effecting the surrender of Stock Certificates or Book Entry Shares for payment therefor in accordance herewith. Upon proper surrender of a Stock Certificate or Book Entry Shares for exchange and cancellation to the Exchange Agent, together with such properly completed letter of transmittal, duly executed, the holder of such Stock Certificate or Book Entry Shares shall be entitled to receive in exchange therefor the amount of Merger Consideration provided in Section 4.1(a), and the Stock Certificate or Book Entry Shares so surrendered shall forthwith be cancelled.

     (c) If any portion of the Merger Consideration is to be issued or paid to a Person other than the registered holder of Target Common Shares represented by the

9

Stock Certificates or Book Entry Shares surrendered in exchange therefor, no such issuance or payment shall be made unless (i) the Stock Certificates or Book Entry Shares so surrendered have been properly endorsed or otherwise be in proper form for transfer and (ii) the Person requesting such issuance has paid to the Exchange Agent any transfer or other Taxes required as a result of such issuance to a Person other than the registered holder or establish to the Exchange Agent’s satisfaction that such tax has been paid or is not applicable.

     (d) Any portion of the Exchange Fund that remains unclaimed by the holders of Target Common Shares one (1) year after the Effective Time shall be returned to Merger Sub, upon demand, and any such holder who has not exchanged such holder’s Target Common Shares in accordance with this section prior to that time shall thereafter look only to the Surviving Company, as a general creditor thereof, to exchange such Target Common Shares or to pay amounts to which such holder is entitled pursuant to Section 4.1. If outstanding Target Common Shares are not surrendered prior to six (6) years after the Effective Time (or, in any particular case, prior to such earlier date on which any Merger Consideration issuable or payable upon the surrender of such Target Common Shares would otherwise escheat to or become the property of any Governmental Authority), the Merger Consideration issuable or payable upon the surrender of such Target Common Shares shall, to the extent permitted by applicable law, become the property of the Surviving Company, free and clear of all claims or interest of any Person previously entitled thereto. Notwithstanding the foregoing, none of Parent, Merger Sub, Target or the Surviving Company shall be liable to any holder of Target Common Shares for any amount paid, or Merger Consideration delivered, to a public official pursuant to applicable abandoned property, escheat or similar laws.

     (e) If any Stock Certificate is lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Stock Certificate is lost, stolen or destroyed and, if required by the Surviving Company, the posting by such Person of a bond in such reasonable amount as the Surviving Company may direct as indemnity against any claim that may be made against it with respect to such Stock Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Stock Certificate the Merger Consideration in respect thereof pursuant to this Agreement.

     Section 4.3 Stock Options; Warrants

     (a) Except with respect to the stock options set forth on Section 4.3(a) of the Target Disclosure Schedule (the “Excepted Options”), Target represents and warrants that each stock option of Target (the “Target Options”) that is not fully exercisable as of the date of this Agreement will automatically become fully vested and exercisable immediately prior to the Effective Time pursuant to the terms of the applicable employee benefit plan and other agreements. The consideration for the cancellation of each Target Option shall be (x) the amount by which the Merger Consideration exceeds the per share exercise price of such Target Option multiplied by (y) the number of Target Common Shares covered by the outstanding portion of the cancelled Target Option; provided that if the exercise price of such Target Option is equal to or greater than the Merger Consideration, such Target Option shall be cancelled without any cash payment being

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made in respect thereof. Any payment made pursuant to this Section 4.3(a) shall be reduced by any income or employment Tax withholding required under (i) any applicable state or local Tax laws or (ii) any other applicable laws. Each Target Option shall be cancelled and no longer be outstanding at or immediately prior to the Effective Time. The Surviving Company shall pay such consideration to the holders of Target Options promptly after the Effective Time, but in no event more than two (2) Business Days after the Effective Time. Target will take any and all actions necessary on or before the Effective Time to terminate all Excepted Options as provided in Section 4.3(c).

     (b) Target shall cause each warrant of Target (the “Target Warrants”) to become fully exercisable immediately prior to the Effective Time. The consideration for the cancellation of each Target Warrant shall be (x) the amount by which the Merger Consideration exceeds the per share exercise price of such Target Warrant multiplied by (y) the number of Target Common Shares covered by the outstanding portion of the cancelled Target Warrant. Each Target Warrant shall be cancelled and no longer be outstanding at or immediately prior to the Effective Time. The Surviving Company shall pay such consideration to the holders of Target Warrants promptly after the Effective Time, but in no event more than two (2) Business Days after the Effective Time.

     (c) With respect to the Excepted Options, each Excepted Option that is not fully exercisable and that is outstanding immediately prior to the Effective Time, will automatically become fully vested and exercisable immediately prior to the Effective Time. Prior to the Effective Time, Target shall cause each holder of an Excepted Option to enter into a written agreement, substantially in the form attached hereto as Exhibit B, pursuant to which the aggregate number of such Excepted Options will be canceled at the Effective Time and converted into the right to receive a $10.00 cash payment, without interest (the “Option Waiver, Cancellation and Release Agreement”). Each optionholder who holds an Excepted Option that has been canceled (a “Cancelled Excepted Option”) shall have no rights with respect to such Cancelled Excepted Option to receive any other consideration in connection with the Merger or otherwise. Any payments made to a holder of an Excepted Option will be reduced by any income or employment Tax withholding required under (x) the Code, (y) any applicable state or local Tax laws, or (z) any other applicable laws. To the extent that any amounts are so withheld, those amounts shall be treated as having been paid to the holder of a Cancelled Excepted Option for all purposes under this Agreement. Target shall make the payments in respect of the Cancelled Excepted Options as promptly as practicable following the cancellation of such Cancelled Excepted Options as contemplated by this Section 4.3(c).

     Section 4.4 Dissenting Shares

     (a) Notwithstanding Section 4.1(a), Target Common Shares that are held by any holder who has exercised such holder’s right to demand appraisal for such shares in accordance with the TBCA or TBOC (the “Dissenting Shares”) shall not be converted into the right to receive the Merger Consideration (unless such holder fails to perfect or withdraws or otherwise loses the right to appraisal). Holders of Dissenting Shares shall have those rights, but only those rights, of holders who perfect their appraisal rights pursuant to the TBCA or TBOC, as applicable; provided, however, that any holder of

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Dissenting Shares who shall have failed to perfect or shall have withdrawn or lost his rights to appraisal of such Dissenting Shares, in each case under the TBCA or TBOC, as applicable, shall forfeit the right to appraisal of such Dissenting Shares, and such Dissenting Shares shall be treated as if they had been converted into the right to receive, as of the Effective Time, the Merger Consideration, without interest. Notwithstanding anything to the contrary contained in this section, if the Merger is terminated, rescinded or abandoned, then the right of any Target Shareholder to be paid the fair value of such shareholder’s Dissenting Shares shall cease. The Surviving Company shall comply with all of its obligations under the TBCA or TBOC, as applicable, with respect to holders of Dissenting Shares.

     (b) Target shall give the Parent Parties (i) prompt written notice of any demands for appraisal, any withdrawals of such demands received by Target and any other related instruments served pursuant to the TBCA or TBOC, as applicable, and received by Target, and (ii) the right to participate in all negotiations and proceedings with respect to demands for appraisal under the TBCA or TBOC, as applicable. Target shall not, except with the prior written consent of the Parent, voluntarily make any payment with respect to any demands for appraisal or offer to settle or settle any such demands.

     Section 4.5 Closing. The closing (the “Closing”) of the transactions contemplated by this Agreement (the “Transactions”) shall take place as soon as practicable, and in any event not later than one (1) Business Day following the date on which the conditions to the Closing set forth in Article IX (excluding conditions that, by their terms, cannot be satisfied until the Closing, but subject to the satisfaction or waiver of such conditions at the Closing) have been satisfied or waived or at such other place, time and date as the parties hereto may agree in writing (the “Closing Date”). The Closing shall take place at the offices of Haynes and Boone, LLP, 1221 McKinney Street, Suite 2100, Houston, Texas, 77010 on the Closing Date.

ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF TARGET

     Except as disclosed in the disclosure letter, dated as of the date of this Agreement and delivered to Parent in connection with the execution and delivery of this Agreement (the “Target Disclosure Schedule”), which disclosure shall be subject to Section 12.11 hereof, the Target represents and warrants to the Parent Parties as follows:

     Section 5.1 Organization and Qualification

     (a) Target is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, has the corporate power to own, use or lease its properties and to carry on its business as it is now being conducted, and is duly qualified and in good standing to do business in each jurisdiction in which the failure to be so duly qualified and in good standing would reasonably be expected to have a Target Material Adverse Effect. Target has made available to the Parent Parties a complete and correct copy of its articles of incorporation and bylaws (or similar organizational documents), each as amended to the date hereof. Target is not in violation of any

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provision of its articles of incorporation or bylaws (or similar organizational documents), except for any such violation as would not reasonably be expected to have a Target Material Adverse Effect.

     (b) Section 5.1(b) of the Target Disclosure Schedule lists, as of the date hereof, the name and jurisdiction of organization of each Subsidiary of Target and the jurisdictions in which each such Subsidiary is qualified or holds licenses to do business as a foreign corporation or other organization. Each such Subsidiary is a corporation or other organization duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has the requisite corporate power to own, use or lease its properties and to carry on its business as it is now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the failure to be so duly qualified and in good standing would reasonably be expected to have a Target Material Adverse Effect. Target has made available to the Parent Parties a complete and correct copy of the articles of incorporation and bylaws (or similar organizational documents) of each of Target’s Subsidiaries, each as amended to the date hereof. No Subsidiary of Target is in violation of any provision of its articles of incorporation or bylaws (or similar organizational documents) except for any such violation as would not reasonably be expected to have a Target Material Adverse Effect. Other than Target’s Subsidiaries, Target does not beneficially own or control, directly or indirectly, five percent (5%) or more of any class of equity or similar securities of any corporation or other organization, whether incorporated or unincorporated.

     Section 5.2 Capitalization

     (a) The authorized capital stock of Target consists of 200,000,000 Target Common Shares and 25,000,000 shares of preferred stock, par value $1.00 per share (“Target Preferred Shares”). As of December 17, 2009, (i) 92,475,527 Target Common Shares were issued and outstanding, (ii) no Target Preferred Shares were issued and outstanding, (iii) stock options to acquire 449,000 Target Common Shares were outstanding under all stock option plans and agreements of Target and all such options have an exercise price in excess of the Merger Consideration, and (iv) 3,300,998 warrants of Target were outstanding, of which 1,428,000 of such warrants have an exercise price of $5.85 and, if unexercised, will expire on December 29, 2009. There are no bonds, debentures, notes or other indebtedness issued or outstanding having the right to vote with the Target Shareholders, whether together or as a separate class, on any matters on which the Target Shareholders may vote. All of the outstanding Target Common Shares are validly issued, fully paid and nonassessable, and free of preemptive rights. Except as set forth above or in Section 5.2(a) of the Target Disclosure Schedule, and other than this Agreement, as of the date hereof, there are no outstanding subscriptions, options, rights, warrants, convertible securities, stock appreciation rights, phantom equity, or other agreements or commitments (including “rights plans” or “poison pills”) obligating Target to issue, transfer, sell, redeem, repurchase or otherwise acquire any shares of its capital stock of any class. Except for the Voting Agreements, there are no agreements, arrangements or other understandings to which Target is a party with respect to the right to vote any shares of capital stock of Target.

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     (b) Except as set forth in Section 5.2(b) of the Target Disclosure Schedule, Target is, directly or indirectly, the record and beneficial owner of all of the outstanding shares of capital stock of each Subsidiary of Target, there are no irrevocable proxies with respect to any such shares, and no equity securities of any Subsidiary of Target are or may become required to be issued because of any options, warrants, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable or exercisable for, any shares of capital stock of any Subsidiary of Target. As of the date hereof, there are no contracts, commitments, understandings or arrangements by which Target or any Subsidiary of Target is or may be bound to issue additional shares of capital stock of any Subsidiary of Target or securities convertible into or exchangeable or exercisable for any such shares. Except as set forth in Section 5.2(b) of the Target Disclosure Schedule, all of such shares Target owns are validly issued, fully paid and nonassessable and are owned by it free and clear of all Liens, other than Liens imposed by applicable securities laws.

     Section 5.3 Authority. Target has all necessary corporate power and authority to execute and deliver this Agreement and any ancillary agreements relating to the Transactions to which Target is or will be a party (the “Ancillary Agreements”) and, subject to obtaining the Target Shareholders’ Approval, to consummate the Transactions. The execution, delivery and performance of this Agreement and the Ancillary Agreements to which Target is or will be a party and the consummation of the Transactions have been duly and validly authorized by Target’s Board of Directors, and no other corporate proceedings on the part of Target are necessary to authorize this Agreement and the Ancillary Agreements to which Target is or will be a party or to consummate the Transactions, other than the Target Shareholders’ Approval and the filing of the Certificate of Merger, in each case, pursuant to the requirements of the TBOC and TBCA, as applicable. This Agreement has been, and the Ancillary Agreements to which Target is or will be a party are, or upon execution will be, duly and validly executed and delivered by Target and, assuming the due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, constitutes, or upon execution will constitute, valid and binding obligations of Target enforceable against Target in accordance with their respective terms, except as such enforceability may be subject to the effects of the Enforceability Exception.

     Section 5.4 Consents and Approvals; No Violation. The execution and delivery of this Agreement by Target, the consummation of the Transactions by Target and the performance by Target of its obligations hereunder will not:

     (a) subject to receipt of the Target Shareholders’ Approval, conflict with any provision of Target’s articles of incorporation or bylaws, as amended, or other similar organizational documents of any of its Subsidiaries;

     (b) subject to obtaining the Target Shareholders’ Approval and the filing of the Certificate of Merger with the Secretary of State of Texas, require any consent, waiver, approval, order, authorization or permit of, or registration, filing with or notification to, (i) any Governmental Authority, except for applicable requirements of the HSR Act, the Securities Act, the Securities Exchange Act, state laws relating to takeovers, if applicable, state securities or blue sky laws, except as set forth in

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Section 5.4(b) of the Target Disclosure Schedule and except for Customary Post-Closing Consents or (ii) except as set forth in Section 5.4(b) of the Target Disclosure Schedule, any third party other than a Governmental Authority, other than such non-Governmental Authority third party consents, waivers, approvals, orders, authorizations and Permits that would not (i) impair in any material respect the ability of Target or any of its Subsidiaries, as the case may be, to perform its obligations under this Agreement or any Ancillary Agreement or (ii) prevent the consummation of any of the Transactions;

     (c) except as set forth in Section 5.4(c) of the Target Disclosure Schedule, result in any violation of or the breach of or constitute a default (with notice or lapse of time or both) under, or give rise to any right of termination, cancellation or acceleration or guaranteed payments or a loss of a material benefit under, any of the terms, conditions or provisions of any note, lease, mortgage, license, agreement or other instrument or obligation to which Target, or any of its Subsidiaries, is a party or by which Target or any of its Subsidiaries or any of their respective properties or assets may be bound, except for such violations, breaches, defaults, or rights of termination, cancellation or acceleration, or losses as to which requisite waivers or consents have been obtained or which, individually or in the aggregate, would not (i) materially impair the ability of Target or any of its Subsidiaries to perform their obligations under this Agreement or any Ancillary Agreement or (ii) prevent the consummation of any of the Transactions;

     (d) except as set forth in Section 5.4(d) of the Target Disclosure Schedule, violate the provisions of any order, writ, injunction, judgment, decree, statute, rule or regulation applicable to Target or any of its Subsidiaries; or

     (e) except as set forth in Section 5.4(e) of the Target Disclosure Schedule, result in the creation of any Liens upon any shares of capital stock or properties or assets of Target or any of its Subsidiaries under any agreement or instrument to which Target or any of its Subsidiaries is a party or by which Target or any of its Subsidiaries or any of their properties or assets is bound.

     Section 5.5 Target SEC Reports

     (a) Target has filed with the SEC true and complete copies of the Target SEC Reports. As of the respective dates the Target SEC Reports were filed or, if any Target SEC Reports were amended, as of the date such amendment was filed, each Target SEC Report: (i) included all financial statements, schedules and exhibits required to be included therein, (ii) complied in all material respects with all applicable requirements of the Securities Act and the Exchange Act, as the case may be, and (iii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No event since the date of the last Target SEC Report has occurred that would require Target to file a current report on Form 8-K other than the execution of this Agreement and the agreements referred to in Section 5.26 and Section 5.27 and executed concurrently with this Agreement.

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     (b) The chief executive officer and principal financial officer of Target have made all certifications (without qualification or exceptions to the matters certified) required by, and would be able to make such certifications (without qualification or exception to the matters certified) as of the date hereof as if required to be made as of the date hereof pursuant to, the Sarbanes-Oxley Act and any related rules and regulations promulgated by the SEC, and the statements contained in any such certifications are complete and correct; neither Target nor its officers have received notice from any Governmental Authority questioning or challenging the accuracy, completeness, form or manner of filing or submission of such certification. Target maintains “disclosure controls and procedures” (as defined in Rule 13a-14(c) under the Exchange Act); such disclosure controls and procedures are effective to ensure that all material information concerning Target and its Subsidiaries is made known on a timely basis to the individuals responsible for preparing Target SEC Reports and other public disclosures and Target is otherwise in compliance with all applicable effective provisions of the Sarbanes-Oxley Act and any related rules and regulations promulgated by the SEC.

     Section 5.6 Target Financial Statements. Each of the audited consolidated financial statements and unaudited consolidated interim financial statements of Target (including any related notes and schedules) included (or incorporated by reference) in its annual reports on Form 10-K for each of the three fiscal years ended December 31, 2006, 2007 and 2008 and its quarterly reports on Form 10-Q for its fiscal quarters ended March 31, June 30 and September 30, 2009 have been prepared from, and are in accordance with, the books and records of Target and its consolidated Subsidiaries, comply in all material respects with GAAP and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP applied on a consistent basis (except as may be indicated in the notes thereto and subject, in the case of quarterly financial statements, to normal and recurring year-end adjustments) and fairly present, in conformity with GAAP applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of Target and its Subsidiaries as of the date thereof and the consolidated results of operations and cash flows (and changes in financial position, if any) of Target and its Subsidiaries for the periods presented therein (subject to normal year-end adjustments and the absence of financial footnotes in the case of any unaudited interim financial statements).

     Section 5.7 Absence of Undisclosed Liabilities; Liabilities as of Year End. Except (a) as set forth in Section 5.7 of the Target Disclosure Schedule, (b) as reflected, reserved for or disclosed in the Target SEC Reports filed and publicly available prior to the date hereof, (c) for liabilities and obligations incurred in the ordinary course of business and consistent with past practice since September 30, 2009, and (d) liabilities and obligations incurred in connection with this Agreement and the Transactions, neither Target nor any of its Subsidiaries have incurred any material liabilities or obligations of any nature (contingent or otherwise) that would be required by GAAP to be reflected on a consolidated balance sheet of Target and its Subsidiaries or the notes thereto which are not reflected.

     Section 5.8 Absence of Certain Changes. Except (a) as disclosed in the Target SEC Reports filed and publicly available prior to the date hereof, (b) as set forth in Section 5.8 of the Target Disclosure Schedule or (c) as contemplated by this Agreement, from December 31, 2008 to the date hereof (i) Target and its Subsidiaries have conducted their respective businesses

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only in the ordinary course of business, (ii) there has not been a Target Material Adverse Effect, (iii) there has not been any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of Target, or any repurchase, redemption or other acquisition by Target or any of its Subsidiaries of any outstanding shares of capital stock or other securities of, or other ownership interests in, Target or any of its Subsidiaries, (iv) there has not been any amendment of any term of any outstanding security of Target or any of its Subsidiaries, and (v) there has not been any change in any method of accounting or accounting practice by Target or any of its Subsidiaries, except for any such change required because of a concurrent change in GAAP or to conform a Subsidiary’s accounting policies and practices to those of Target.

     Section 5.9 Taxes. Except as otherwise disclosed in Section 5.9 of the Target Disclosure Schedule:

     (a) Target and each of its Subsidiaries have timely filed (or have had timely filed on their behalf) or will file or cause to be timely filed, all material Tax Returns required by applicable law to be filed by any of them prior to or as of the Closing Date taking into account all extensions of time to file. As of the time of filing, the foregoing Tax Returns correctly reflected the material facts regarding the income, business, assets, operations, activities, status, or other matters of Target and its Subsidiaries. Such material Tax Returns are true, correct and complete.

     (b) Target and each of its Subsidiaries have paid (or have had paid on their behalf), or will pay or cause to be paid on or before the Closing Date, or where payment is not yet due, have established (or have had established on their behalf), or will establish or cause to be established on or before the Closing Date, an adequate accrual for, all Taxes due with respect to any period ending prior to or as of the Closing Date; provided, however, no amount shall be included in such accrual for any Taxes which may arise as a result of the consummation of the Merger. Target and each of its Subsidiaries have withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party.

     (c) No Audit by a Tax Authority is pending or to the knowledge of Target, threatened, with respect to any material Tax Returns filed by, or material Taxes due from, Target or any of its Subsidiaries. No issue has been raised by any Tax Authority in any Audit of Target or any of its Subsidiaries that if raised with respect to any other period not so audited could be expected to result in a material proposed deficiency for any period not so audited. No material deficiency or adjustment for any Taxes has been, proposed, asserted, assessed or to the knowledge of Target, threatened, against Target or any of its Subsidiaries. There are no Liens for Taxes upon the assets of Target or any of its Subsidiaries, except Liens for current Taxes not yet delinquent.

     (d) Neither Target nor any of its Subsidiaries has given or been requested to give any waiver of statutes of limitations relating to the payment of Taxes or have executed powers of attorney with respect to Tax matters, which will be outstanding as of the Closing Date.

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     (e) Neither Target nor any of its Subsidiaries is a party to any agreement or understanding providing for the allocation or sharing of Taxes, other than with respect to each other.

     (f) Except for the group of which it is currently a member, during the last six (6) years neither Target nor any Subsidiary thereof has been a member of an affiliated group of corporations, within the meaning of Section 1504 of the Code.

     (g) Neither Target nor any of its Subsidiaries has agreed or, to the knowledge of Target, will be required to make any adjustment under Section 481(a) of the Code by reason of change in accounting method or otherwise.

     (h) During the last two (2) years, neither Target nor any of its Subsidiaries has distributed stock of another Person, or has had its stock distributed by another Person in a transaction that was purported or intended to be governed in whole or in part by Code Section 355 or 361.

     (i) Neither Target nor any of its Subsidiaries has assets subject to a lease to a “tax exempt entity” within the meaning of Section 168(h)(2) of the Code.

     (j) Each of Target and each of its Subsidiaries has made available to the Parent Parties correct and complete copies of (i) all of their Tax Returns filed within the past five (5) years, (ii) all Audit reports, letter rulings, technical advice memoranda and similar documents issued by a Governmental Authority within the past five (5) years relating to the federal, state, local or foreign Taxes due from or with respect to any of them and (iii) any closing letters or agreements with respect to Taxes entered into by any of them with any Tax Authorities within the past five (5) years.

     Section 5.10 Litigation. Except as disclosed in the Target SEC Reports filed and publicly available prior to the date hereof or Section 5.10 of the Target Disclosure Schedule, there is no material suit, claim, action, proceeding or investigation pending or, to the knowledge of Target, threatened against or directly affecting Target, any Subsidiaries of Target or any of the directors or officers of Target or any of its Subsidiaries in their capacity as such, nor is there any reasonable basis therefore. Except as disclosed on the Target SEC Reports filed and publicly available prior to the date hereof or Section 5.10 of the Target Disclosure Schedule, neither Target nor any of its Subsidiaries, nor any officer, director or employee of Target or any of its Subsidiaries has been permanently or temporarily enjoined by any order, judgment or decree of any court or any other Governmental Authority from engaging in or continuing any conduct or practice in connection with the business, assets or properties of Target or such Subsidiary nor, to the knowledge of Target, is Target, any of its Subsidiaries or any officer, director or employee of Target or any of its Subsidiaries under investigation by any Governmental Authority. Except as disclosed in the Target SEC Reports filed and publicly available prior to the date hereof or Section 5.10 of the Target Disclosure Schedule, there is no order, judgment or decree of any court or other tribunal or other agency extant enjoining or requiring Target or any of its Subsidiaries to take any action of any kind with respect to its business, assets or properties.

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     Section 5.11 Employee Benefit Plans; ERISA

     (a) Section 5.11(a)(1) of the Target Disclosure Schedule contains a true and complete list of the Target Benefit Plans (other than the Target Employee Agreements) and Section 5.11(a)(2) of the Target Disclosure Schedule lists each Target Employee Agreement.

     (b) Except as set forth in Section 5.11(b) of the Target Disclosure Schedule, with respect to each Target Benefit Plan: (i) if intended to qualify under Section 401(a) or 401(k) of the Code, such plan satisfies in all material respects the requirements of such Section, Target or a Target ERISA Affiliate has received a favorable determination letter from the Internal Revenue Service with respect to such plan’s qualification under Section 401(a) of the Code, and such plan’s related trust has been determined to be exempt from tax under Section 501(a) of the Code and, to the knowledge of Target, nothing has occurred since the date of such letter which would reasonably be expected to adversely affect such qualification or exemption; (ii) each such plan has been administered in all material respects in substantial compliance with its terms and applicable law; (iii) neither Target nor any Target ERISA Affiliate has engaged in, and to the knowledge of Target no other Person has engaged in, any transaction or acted or failed to act in any manner that would subject Target or any Target ERISA Affiliate to any liability for a breach of fiduciary duty under ERISA that would result in a Target Material Adverse Effect; (iv) no disputes are pending or, to the knowledge of Target, threatened; (v) neither Target nor any Target ERISA Affiliate has engaged in, and to the knowledge of Target no other Person has engaged in, any transaction in violation of Section 406(a) or (b) of ERISA or Section 4975 of the Code for which no exemption exists under Section 408 of ERISA or Section 4975(c) of the Code or Section 4975(d) of the Code; (vi) contributions due under a plan subject to Section 401(a) of the Code have been made on a timely basis, and (vii) such plan may be terminated on a prospective basis without any continuing liability for benefits other than benefits accrued to the date of such termination. Contributions made under any Target Benefit Plan that is subject to Section 401(a) of the Code that are deductible under Section 404 of the Code have satisfied the requirements for deduction under Section 404 of the Code, and all contributions which are required and which have not been made have been properly recorded on the books of Target or a Target ERISA Affiliate.

     (c) Neither Target nor any Target ERISA Affiliate has ever adopted, established, maintained or contributed to, or has any liability with respect to, a plan that is subject to Title IV of ERISA, Part 3 of Title I of ERISA or Section 412 of the Code. No Target Benefit Plan is a “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA) or a “multiple employer plan” (within the meaning of Section 413(c) of the Code). No event has occurred with respect to Target or a Target ERISA Affiliate in connection with which Target could be subject to any liability, lien or encumbrance that would result in a Target Material Adverse Effect with respect to any Target Benefit Plan or any employee benefit plan described in Section 3(3) of ERISA maintained, sponsored or contributed to by a Target ERISA Affiliate under ERISA or the Code, except for regular contributions and benefit payments in the ordinary course of plan business.

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     (d) Except as set forth in Section 5.11(d) of the Target Disclosure Schedule, no present or former employees of Target or any of its Subsidiaries are covered by any Target Employee Agreements or other plans for which Target has any liability that provide or will provide severance pay, post-termination health or life insurance benefits (except as required pursuant to Section 4980(B) of the Code) or any similar benefits, and the consummation of the Transactions shall not cause any payments or benefits to any employee of Target or any of its Subsidiaries to be either subject to an excise tax or non-deductible to Target under Sections 4999 and 280G of the Code, respectively.

     (e) Attached as Section 5.11(e) of the Target Disclosure Schedule is a current list of Target’s employees (the “Target Employees”), and a severance package table (the “Severance Package Table”) which lists the maximum amount of all cash amounts as of the date of this Agreement that Target is obligated to pay to Target Employees pursuant to severance arrangements.

     Section 5.12 Environmental Matters. Except (i) as set forth in Section 5.12 of the Target Disclosure Schedule and (ii) with respect to any matters that would not reasonably be expected to result in a Target Material Adverse Effect:

     (a) The businesses of Target and its Subsidiaries have been and are operated in compliance with all Environmental Laws.

     (b) Neither Target nor any of its Subsidiaries has caused or allowed the generation, treatment, manufacture, processing, distribution, use, storage, discharge, release, disposal, transport or handling of any Hazardous Substances, except in compliance with all Environmental Laws, and no generation, treatment, manufacture, processing, distribution, use, storage, discharge, release, disposal, transport or handling of any Hazardous Substances has occurred at any property or facility owned, leased or operated by Target for any of its Subsidiaries except in compliance with all Environmental Laws.

     (c) Neither Target nor any of its Subsidiaries has received any written notice from any Governmental Authority or third party or, to the knowledge of Target, any other communication alleging or concerning any violation by Target or any of its Subsidiaries of, or responsibility, obligation or liability of Target or any of its Subsidiaries under, any Environmental Law. There are no pending, or to the knowledge of Target, threatened, claims, suits, actions, proceedings or investigations with respect to any violation of, or responsibility, obligation or liability under, any Environmental Law or the release of any Hazardous Substances on, at or under any property or facility owned, leased, or operated by Target or any of its Subsidiaries, nor does Target have any knowledge of any fact or condition that could give rise to such a claim, suit, action, proceeding or investigation.

     (d) Neither Target nor any of its Subsidiaries has received any notice that it has been identified by the U.S. Environmental Protection Agency, or any similar state authority, as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) or any similar or analogous state

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law and neither Target nor any of its Subsidiaries has received any request for information issued under CERCLA.

     (e) Target and its Subsidiaries have obtained and are in compliance with Permits under all Environmental Laws required for the operation of the businesses of Target and its Subsidiaries as currently conducted; there are no pending or, to the knowledge of Target, threatened, actions, proceedings or investigations alleging violations of or seeking to modify, revoke or deny renewal of any of such Permits; and Target does not have knowledge of any fact or condition that is reasonably likely to give rise to any action, proceeding or investigation regarding the violation of or seeking to modify, revoke or deny renewal of any of such Permits. All such Permits are listed on Section 5.12(e) of the Target Disclosure Schedule.

     (f) Except as described in Section 5.12(e), without in any way limiting the generality of the foregoing, (i) to Target’s knowledge, all offsite locations where Target or any of its Subsidiaries has transported, released, discharged, stored, disposed or arranged for the disposal of Hazardous Substances are licensed and operating as required by law and (ii) no polychlorinated biphenyls (“PCBs”), PCB-containing items, underground storage tanks, asbestos-containing materials, or radioactive materials are used or stored at any property owned, leased or operated by Target or any of its Subsidiaries except in compliance with Environmental Laws.

     (g) The Target has provided to Parent copies of all audits, studies, reports, analyses and results of investigations which relate to environmental issues or compliance by Target and its Subsidiaries with applicable Environmental Laws that are in the possession of the Target or its Subsidiaries and created within the past two (2) years.

     (h) No claims have been asserted or, to Target’s knowledge, threatened to be asserted against Target or its Subsidiaries for any personal injury (including wrongful death) or property damage (real or personal) arising out of alleged exposure or otherwise related to Hazardous Substances used, handled, generated, transported or disposed by Target or its Subsidiaries.

     Section 5.13 Compliance with Applicable Laws

     (a) Except for Customary Post-Closing Consents, Target and each of its Subsidiaries hold all material Permits necessary for the lawful conduct of their respective businesses, as now conducted, and such businesses are not being, and neither Target nor any of its Subsidiaries have received any notice from any Person that any such business has been or is being, conducted in violation of any applicable law, ordinance or regulation (including any applicable law, ordinance or regulation relating to occupational health and safety) that is material to the operation of the business as now conducted, provided, however, no representation or warranty in this section is made with respect to Environmental Laws, which are covered exclusively in Section 5.12.

     (b) Neither Target, any Subsidiary of Target, nor, to the knowledge of Target, any director, officer, agent, employee or other Person acting on behalf of Target or any of

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its Subsidiaries, has used any corporate or other funds for unlawful contributions, payments, gifts, or entertainment, or made any unlawful expenditures relating to political activity to government officials or others, or established or maintained any unlawful or unrecorded funds in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any other domestic or foreign law.

     Section 5.14 Insurance. Section 5.14 of the Target Disclosure Schedule lists each insurance policy of Target and its Subsidiaries currently in effect. Target has made available to the Parent Parties a true, complete and correct copy of each such policy or the binder therefor. With respect to each such insurance policy or binder none of Target, any of its Subsidiaries or, to Target’s knowledge, any other party to the policy is in material breach or default thereunder (including with respect to the payment of premiums or the giving of notices), and Target does not know of any occurrence or any event which (with notice or the lapse of time or both) would constitute such a material breach or default or permit termination, modification or acceleration under the policy. Section 5.14 of the Target Disclosure Schedule describes any self-insurance arrangements affecting Target or its Subsidiaries. To Target’s knowledge, the insurance policies listed in Section 5.14 of the Target Disclosure Schedule include all material policies which are required in connection with the operation of the businesses of Target and its Subsidiaries as currently conducted by applicable laws and all agreements relating to Target and its Subsidiaries.

     Section 5.15 Labor Matters; Employees

     (a) Except as set forth in Section 5.15 of the Target Disclosure Schedule, (i) there is no labor strike, dispute, slowdown, work stoppage or lockout actually pending or, to the knowledge of Target, threatened against or affecting Target or any of its Subsidiaries and, during the past five (5) years, there has not been any such action, (ii) none of Target or any of its Subsidiaries is a party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of Target or any of its Subsidiaries, (iii) none of the employees of Target or any of its Subsidiaries are represented by any labor organization and none of Target or any of its Subsidiaries have any knowledge of any current union organizing activities among the employees of Target or any of its Subsidiaries nor does any question concerning representation exist concerning such employees, (iv) Target and its Subsidiaries have each at all times been in material compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment, wages, hours of work and occupational safety and health, and are not engaged in any unfair labor practices as defined in the National Labor Relations Act or other applicable law, ordinance or regulation, (v) there is no unfair labor practice charge or complaint against Target or any of its Subsidiaries pending or, to the knowledge of Target, threatened before the National Labor Relations Board or any similar state or foreign agency, (vi) there is no grievance or arbitration proceeding arising out of any collective bargaining agreement or other grievance procedure relating to Target or any of its Subsidiaries, (vii) neither the Occupational Safety and Health Administration nor any other federal or state agency has threatened to file any citation, and there are no pending citations, relating to Target or any of its Subsidiaries, and (viii) to Target’s knowledge, there is no employee or governmental claim or investigation, including any charges to the

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Equal Employment Opportunity Commission or state employment practice agency, investigations regarding Fair Labor Standards Act compliance, audits by the Office of Federal Contractor Compliance Programs, Workers’ Compensation claims, sexual harassment complaints or demand letters or threatened claims.

     (b) Since the enactment of the Worker Adjustment and Retraining Notification Act of 1988 (“WARN Act”), none of Target or any of its Subsidiaries have effectuated (i) a “plant closing” (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of Target or any of its Subsidiaries, or (ii) a “mass layoff” (as defined in the WARN Act) affecting any site of employment or facility of Target or any of its Subsidiaries, nor has Target or any of its Subsidiaries been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local law.

     Section 5.16 Reserve Reports

     (a) All information (including the statement of the percentage of reserves from the oil and gas wells and other interests evaluated therein to which Target or its Subsidiaries are entitled and the percentage of the costs and expenses related to such wells or interests to be borne by Target or its Subsidiaries) supplied to T. J. Smith & Co., Inc. by or on behalf of Target and its Subsidiaries that was material to such firm’s estimates of proved oil and gas reserves attributable to the Oil and Gas Interests of Target in connection with the preparation of the proved oil and gas reserve reports concerning the Oil and Gas Interests of Target and its Subsidiaries as of January 1, 2009 and prepared by such engineering firm (the “Target Reserve Report”) was (at the time supplied or as modified or amended prior to the issuance of the Target Reserve Report) true and correct in all material respects and Target has no knowledge of any material errors in such information that existed at the time of such issuance. Except for (i) changes generally affecting the oil and gas industry (including changes in commodity prices), (ii) changes reflected in the interim reserve report prepared by Target, dated October 1, 2009, a copy of which has been provided to Parent, and (iii) other normal adjustments since that date, including, but not limited to, production, there has been no material change in respect of the matters addressed in the Target Reserve Report.

     (b) Set forth in Section 5.16(b) of the Target Disclosure Schedule is a list of all material Oil and Gas Interests that were included in the Target Reserve Report that have been disposed of prior to the date hereof.

     Section 5.17 [Reserved]

     Section 5.18 Material Contracts

     (a) Set forth in Section 5.18(a) of the Target Disclosure Schedule is a list of each Target Material Contract that has not been filed and made publicly available in a Target SEC Report at least two (2) days prior to the date hereof, except for agreements

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referred to in Section 5.26 and Section 5.27 and executed concurrently with this Agreement.

     (b) Except as set forth in Section 5.18(b) of the Target Disclosure Schedule or the Target SEC Reports filed and publicly available prior to the date hereof, the Oil and Gas Interests of Target and its Subsidiaries are not subject to (i) any instrument or agreement evidencing or related to indebtedness for borrowed money, whether directly or indirectly, or (ii) any agreement not entered into in the ordinary course of business in which the amount involved is in excess of $500,000. In addition, (A) all Target Material Contracts are the valid and legally binding obligations of Target and, to the knowledge of Target, each of the other parties thereto, and are enforceable in accordance with their respective terms, except as such enforceability may be subject to the Enforceability Exception; (B) except as set forth in the Target SEC Reports filed and publicly available prior to the date hereof, Target is not in material breach or default with respect to, and to the knowledge of Target, no other party to any Target Material Contract is in material breach or default with respect to, its obligations thereunder, including with respect to payments or otherwise; (C) no party to any Target Material Contract has given notice of any action to terminate, cancel, rescind or procure a judicial reformation thereof; and (D) except as set forth in the Target SEC Reports filed and publicly available prior to the date hereof no Target Material Contract contains any provision that prevents Target or any of its Subsidiaries from owning, managing and operating the Oil and Gas Interests of Target and its Subsidiaries in accordance with historical practices.

     (c) As of the date hereof, except as set forth in Section 5.18(c) of the Target Disclosure Schedule, with respect to authorizations for expenditure executed after December 31, 2008, (i) there are no outstanding calls for payments in excess of $250,000 that are due or that Target or its Subsidiaries are committed to make that have not been made; (ii) there are no operations with respect to which Target or its Subsidiaries have become a non-consenting party; and (iii) there are no commitments for the material expenditure of funds for drilling or other capital projects other than projects with respect to which a third party operator is not required under the applicable operating agreement to seek consent.

     (d) Except as set forth in Section 5.18(d) of the Target Disclosure Schedule, (i) there are no provisions applicable to the Oil and Gas Interests of Target and its Subsidiaries which increase the royalty percentage of the lessor thereunder; and (ii) none of the Oil and Gas Interests of Target and its Subsidiaries are limited by terms fixed by a certain number of years (other than primary terms under oil and gas leases).

     Section 5.19 Required Shareholder Vote; Board Action.

     (a) The affirmative vote of holders of at least two-thirds of the Target Common Shares (the “Target Shareholders’ Approval”) is the only vote necessary by the Target Shareholders for the approval of this Agreement and the Merger.

     (b) On or prior to the date of this Agreement, the Board of Directors of Target has unanimously (i) determined that this Agreement, the Merger, the Ancillary

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Agreements, the Voting Agreements and the other Transactions are advisable and in the best interests of Target and the Target Shareholders, (ii) approved and declared advisable this Agreement, the Merger, the Ancillary Agreements, the Voting Agreements and the other Transactions and (iii) resolved to recommend that the Agreement and the Merger be approved by the Target Shareholders (the “Target Recommendation”).

     Section 5.20 Proxy Statement. None of the information to be supplied by Target for inclusion in the Proxy Statement relating to the Target Shareholder Meeting, to be filed by Target with the SEC, and any amendments or supplements thereto, will, at the time of filing, at the time the Proxy Statement or any amendment or supplement thereto is first mailed to the Target shareholders, and at the time of the Target Shareholder Meeting and at the Effective Time (taking into account all additional definitive proxy materials filed by the Target subsequent to the mailing of the Proxy Statement), contain any untrue statement of a material fact or omit to state any material fact required to be made therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, except that no representation or warranty is made by the Target with respect to statements made or incorporated by reference therein based on information supplied by or on behalf of Parent or any of its Subsidiaries for inclusion or incorporation by reference in the Proxy Statement.

     Section 5.21 Intellectual Property. Target or its Subsidiaries own, or are licensed or otherwise have the right to use, all Intellectual Property currently used in the conduct of the business of Target and its Subsidiaries. No Person has notified either Target or any of its Subsidiaries in writing and Target does not have any knowledge that their use of the Intellectual Property infringes on the rights of any Person, and, to Target’s knowledge, no Person is infringing on any right of Target or any of its Subsidiaries with respect to any such Intellectual Property. No claims are pending or, to Target’s knowledge, threatened that Target or any of its Subsidiaries is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property. No material software license will terminate by its terms due to the Merger, and all software licenses material to the business of Target will transfer to the Surviving Company pursuant to the Merger.

     Section 5.22 Hedging. Section 5.22 of the Target Disclosure Schedule sets forth for the periods shown obligations of Target and each of its Subsidiaries for the delivery of Hydrocarbons attributable to any of the properties of Target or any of its Subsidiaries in the future on account of prepayment, advance payment, take-or-pay or similar obligations without then or thereafter being entitled to receive full value therefor. Except as set forth in Section 5.22 of the Target Disclosure Schedule, as of the date hereof, neither Target nor any of its Subsidiaries is bound by futures, hedge, swap, collar, put, call, floor, cap, option or other contracts that are intended to benefit from, relate to or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons, or securities (“Existing Derivative Transactions”).

     Section 5.23 Brokers. No broker, finder or investment banker (other than Rivington, JP Morgan and Morgan Keegan, the fees and expenses of which will be paid by Target) is entitled to any brokerage, finder’s fee or other fee or commission payable by Target or any of its Subsidiaries in connection with the Transactions based upon arrangements made by and on behalf of Target or any of its Subsidiaries.

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     Section 5.24 Fairness Opinion. Target’s Board of Directors has received a written opinion (or oral opinion to be confirmed in writing) from Morgan Keegan to the effect that, as of the date of such opinion, the Merger Consideration is fair, from a financial point of view, to the Target Shareholders (the “Fairness Opinion”). True and complete copies of the Fairness Opinion have been given to the Parent Parties for informational purposes only, and Morgan Keegan has agreed to the inclusion of the Fairness Opinion in the Proxy Statement for the Target Shareholder Meeting.

     Section 5.25 Takeover Laws. Assuming the representation and warranty set forth in Section 6.7 is true, no “fair price”, “moratorium”, “control share acquisition” or other similar antitakeover statute or regulation enacted under state or federal laws in the United States applicable to Target is applicable to the Merger or the Transactions.

     Section 5.26 Net Profits Interest Agreements; Reeves/Mayell Agreements

     (a) Except as set forth in this Section 5.26 and as set forth in Section 5.26(a) of the Target Disclosure Schedule:

(i)	there are no net profits interest agreements between Target or any of its Subsidiaries and any other Person,
(ii)	by the Termination Agreement dated April 29, 2008, between Target and Joseph A. Reeves, Jr. (“Reeves”), Target has terminated, except to the extent that such net profit interests were modified and recognized as vested therein, the agreement between Target and Reeves, dated June 27, 1995 (effective January 1, 1994), as amended by that certain “AMENDMENT TO AGREEMENT DATED JUNE 27, 1995”, said amendment having been filed of record under document number 20090356605 in the public records of Harris County, Texas,
(iii)	by the Termination Agreement dated April 29, 2008, between Target and Michael J. Mayell (“Mayell”), Target has terminated, except to the extent that such net profit interests were modified and recognized as vested therein, the agreement between Target and Mayell, dated June 27, 1995 (effective January 1, 1994), as amended by that certain “AMENDMENT TO AGREEMENT DATED JUNE 27, 1995”, said amendment having been filed of record under document number 20090356606 in the public records of Harris County, Texas,
(iv)	any and all net profits interests owned or controlled by Reeves and Mayell, or assigns of Reeves and Mayell, have specifically been excluded from the Target Reserve Report,
(v)	there are no other net profit interests owned or controlled by Reeves or Mayell, or which Reeves and Mayell or assigns of Reeves and Mayell have the right to acquire, pursuant to

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	agreements that are or were in effect with Target or any of its Subsidiaries, and
(vi)	Target has no contractual duty to obtain the approval of Reeves or Mayell, or assigns of Reeves and Mayell, for any sales transactions of all or part of Target’s interests, including without limitation, third party sales, farmouts, joint venture agreements or any other conveyance transaction.

     (b) Each of the (i) Omnibus Agreement Relating to Assigned Interests, dated as of December 22, 2009, among Reeves, Target, TMRX, TODD, JAR, LOP and Cairn (the “Reeves NPI Agreement”) and (ii) Agreement With Cross-Release, dated as of December 17, 2009, among Mayell, Target, TMRX, Sydson, LOP and Cairn (the “Mayell NPI Agreement,” and, together with the Reeves NPI Agreement, the “NPI Agreements”) is the valid and legally binding obligation of Target and, to the knowledge of Target, each of the other parties thereto and is enforceable in accordance with its terms, except as such enforceability may be subject to the Enforceability Exception. Target is not in material breach or default with respect to, and to the knowledge of Target, no other party to any NPI Agreement is in material breach or default with respect to, its obligations thereunder. Target has made available to the Parent Parties true, complete and correct copies of the NPI Agreements.

     (c) The Settlement and Release Agreement, dated as of December 22, 2009, among Target, TODD, JAR and Reeves (the “Reeves Release”) is the valid and legally binding obligations of Target and, to the knowledge of Target, each of the other parties thereto, and is enforceable in accordance with its terms, except as such enforceability may be subject to the Enforceability Exception. Target is not in material breach or default with respect to, and to the knowledge of Target, no other party to the Reeves Release is in material breach or default with respect to, its obligations thereunder. Target has made available to the Parent Parties a true, complete and correct copy of the Reeves Release.

     Section 5.27 Forbearances

     (a) Credit Facility Forbearance. The Forbearance and Amendment Agreement, dated as of September 3, 2009, the First Amendment to Forbearance and Amendment Agreement, dated as of September 30, 2009, the Second Amendment to Forbearance and Amendment Agreement, dated October 2, 2009, the Third Amendment to Forbearance and Amendment Agreement, dated as of October 20, 2009, the Fourth Amendment to Forbearance and Amendment Agreement, dated as of November 13, 2009, the Fifth Amendment to Forbearance and Amendment Agreement, dated as of November 20, 2009, the Sixth Amendment to Forbearance and Amendment Agreement, dated as of November 30, 2009, the Seventh Amendment to Forbearance and Amendment Agreement, dated as of December 2, 2009, the Eighth Amendment to Forbearance and Amendment Agreement, dated as of December 4, 2009, the Ninth Amendment to Forbearance and Amendment Agreement, dated as of December 14, 2009, the Tenth Amendment to Forbearance and Amendment Agreement, dated as of December

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21, 2009, and the Eleventh Amendment to Forbearance and Amendment Agreement, dated as of the date of this Agreement (collectively, and as may be subsequently amended from time to time, the “Fortis Forbearance Agreement”), among Target, certain of its Subsidiaries, Fortis Capital Corp., as administrative agent, and the several banks, financial institutions and other entities from time to time parties thereto (collectively, the “Target Lenders”), amending that certain Amended and Restated Credit Agreement, dated as of December 23, 2004, as amended, among Target, Fortis Capital Corp. (“Fortis”), as administrative agent, and the lenders party thereto (“Target Credit Agreement”) are in effect. Except as set forth in Section 5.27(a) of the Target Disclosure Schedule, no default or event of default under the Target Credit Agreement has occurred, other than as set forth in the Fortis Forbearance Agreement, and no Target Lender has sent a default or cross-default notice to Target. Target is in compliance with all of its covenants under the Fortis Forbearance Agreement, and has obtained the consent of the Target Lenders to the Transactions.

     (b) Hedging Agreements Forbearance. The (i) ISDA Master Agreement, dated as of August 9, 2007, between The Bank of Nova Scotia and Target, and the ISDA Schedule thereto, and (ii) ISDA 2002 Master Agreement, dated October 28, 2004, between Fortis Energy LLC and Target, the Schedule thereto and the ISDA Credit Support Annex to such Schedule (“Fortis Hedging Agreement”, and collectively, the “Hedging Agreements”) are in effect. Target and certain of its Subsidiaries on the one hand, and Fortis and Fortis Energy Marketing & Trading GP on the other hand, have entered into a forbearance agreement with respect to the Fortis Hedging Agreement, and the First Amendment to Forbearance Agreement, dated as of December 4, 2009, the Second Amendment to Forbearance Agreement, dated as of December 14, 2009, and the Third Amendment to Forbearance Agreement, dated as of December 16, 2009 (collectively, and as may be subsequently amended from time to time, the “Hedging Forbearance Agreement”). Except as set forth in Section 5.27(b) of the Target Disclosure Schedule, no default or event of default under the Hedging Agreements has occurred, other than as set forth in the Hedging Forbearance Agreement, and Target has not received a default or cross-default notice with respect to any of the Hedging Agreements. Target is in compliance with all of its covenants under the Hedging Forbearance Agreement.

     (c) CIT Forbearance. The Forbearance and Amendment Agreement, dated as of September 3, 2009, and the First Amendment to Forbearance and Amendment Agreement, dated as of December 4, 2009, the Second Amendment to Forbearance and Amendment Agreement, dated as of December 14, 2009, the Third Amendment to Forbearance and Amendment Agreement, dated as of December 21, 2009, and the Fourth Amendment to Forbearance and Amendment Agreement, dated as of the date of this Agreement (collectively, and as may be subsequently amended from time to time, the “CIT Forbearance and Amendment Agreement”), among Target, certain of its Subsidiaries, and The CIT Group/Equipment Financing, Inc., as administrative agent and lender (“Target CIT Lenders”), amending that certain Credit Agreement, dated as of May 2, 2008, as amended, among TMR Drilling Corporation, The CIT Group/Equipment Financing, Inc., as administrative agent, and the lenders party thereto (“CIT Credit Agreement”) are in effect. Except as set forth in Section 5.27(c) of the Target Disclosure

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Schedule, no default or event of default under the CIT Credit Agreement has occurred, other than as set forth in the CIT Forbearance and Amendment Agreement, and no Target CIT Lender has sent a default or cross-default notice to Target. Target is in compliance with all of its covenants under the CIT Forbearance and Amendment Agreement and has obtained from the Target CIT Lenders their consent to the Transactions and their agreement that the Surviving Company shall succeed to the CIT Forbearance and Amendment Agreement and the CIT Credit Agreement pursuant to their terms.

     (d) Orion Forbearance. The Forbearance and Amendment Agreement, dated as of September 3, 2009 (“Orion Forbearance and Amendment Agreement”), among Target, certain of its Subsidiaries, and Orion Drilling Company LLC, successor to Orion Drilling Company, LP (collectively, “Orion”) is in effect. Except as set forth in Section 5.27(d) of the Target Disclosure Schedule, no default or event of default under the Orion Forbearance and Amendment Agreement and the other agreements referenced therein has occurred, other than as set forth in the Orion Forbearance and Amendment Agreement, and Orion has not sent a default or cross-default notice to Target. Target is in compliance with all of its covenants under the Orion Forbearance and Amendment Agreement and has obtained from Orion its consent (if required) to the Transactions, and the Surviving Company has the right to succeed to the Orion Forbearance and Amendment Agreement and related agreements pursuant to their terms.

     (e) Extension. Target has entered into an agreement with the Target Lenders to extend the Fortis Forbearance Agreement until the Effective Time.

     Section 5.28 Gas Balancing and Take-or-Pay Contracts. Except as set forth in Section 5.28 of the Target Disclosure Schedule, neither Target nor any of its Subsidiaries, or any Oil and Gas Interests of any of them, is subject to or encumbered by a balancing, take-or-pay/make-up, deferred production, Hydrocarbon banking or other arrangement under which one or more third parties may take a portion of the Hydrocarbons produced without full payment therefor, in cash or immediately available funds at the market price or value thereof, as a result of Hydrocarbons having been taken from, or as a result of other actions or inactions with respect to, such Oil and Gas Interests.

     Section 5.29 Production Requirements. None of the production of Hydrocarbons which have heretofore been produced from the Oil and Gas Interests of Target or its Subsidiaries has been in excess of allowable production quotas allowed or permitted to such Oil and Gas Interests by any applicable regulatory authority so as to subject, after the Effective Time, any well located thereon to restrictions or penalties on allowables for overproduction.

     Section 5.30 Well Bonus Plans. Section 5.30 of the Target Disclosure Schedule sets forth, with respect to each of the TMRC Geoscientist Well Bonus Plan, TMRC Management Well Bonus Plan and the TMRC TMR Employees Trust Well Bonus Plan (collectively, the “Well Bonus Plans”) (a) all Oil and Gas Interests subject to each such Well Bonus Plan as of the date hereof, (b) each current or former Target Employee that has been granted an award under each such Well Bonus Plan, which award is currently accruing payments of net profits interests (as defined in each of the respective Well Bonus Plans) thereunder and (c) the percentage of such net profits interest awarded to each such Target Employee. Subject to Section 8.13(a), such net

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profits interests will continue to accrue in accordance with the Well Bonus Plans until the Effective Time, and will continue to accrue after the Effective Time if the Surviving Company adopts the Well Bonus Plans.

     Section 5.31 Interested Party Transactions. Except as set forth in the Target SEC Reports filed prior to the date hereof, Target Benefit Plans or Target Employee Agreements, Section 5.31 of the Target Disclosure Schedule sets forth a correct and complete list of the contracts or arrangements that are in existence as of the date of this Agreement under which any of Target or its Subsidiaries has any existing or future liabilities between any of Target or its Subsidiaries, on the one hand, and, on the other hand, any (a) present or former officer or director of any of Target or its Subsidiaries or any Person that has served as such an officer or director within the past two (2) years or any of such officer’s or director’s immediate family members, (b) record or beneficial owner of more than five percent (5%) of Target’s Common Shares as of the date hereof, or (c) to the knowledge of Target, any Affiliate of any such officer, director or owner (other than Target or its Subsidiaries) (each an “Affiliate Transaction”). Target has provided or made available to Parent correct and complete copies of each such contract or other relevant documentation (including any amendments or modifications thereto) providing for each Affiliate Transaction.

     Section 5.32 No Other Representations or Warranties. Except for the representations and warranties contained in this Article V, neither the Target nor any other Person makes any other express or implied representation or warranty on behalf of the Target or any of its Affiliates in connection with this Agreement or the Transactions.

ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF PARENT PARTIES

     The Parent Parties hereby represent and warrant to Target as follows:

     Section 6.1 Organization and Qualification. Parent is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Texas. Merger Sub is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Texas.

     Section 6.2 Authority. Each of Parent and Merger Sub has all necessary power and authority to execute and deliver this Agreement and any Ancillary Agreements to which it is or will be a party and to consummate the Transactions. The execution, delivery and performance of this Agreement and the Ancillary Agreements to which Parent or Merger Sub are or will be a party and the consummation of the Transactions have been duly and validly authorized by the governing bodies of Parent and Merger Sub and no other proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement and the Ancillary Agreement to which Parent or Merger Sub are or will be a party or to consummate the Transactions, other than the filing of the Certificate of Merger pursuant to the requirements of the TBOC or the TBCA. Parent, as the sole member of Merger Sub has adopted and approved this Agreement, including the Merger. This Agreement has been, and the Ancillary Agreements to which Parent or Merger Sub are or will be a party are, or upon execution will be, duly and validly executed and delivered by each of the Parent Parties and, assuming the due authorization, execution and delivery hereof

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and thereof by the other parties hereto and thereto, constitutes or upon execution will constitute, the valid and binding obligations of each of the Parent Parties enforceable against such Persons in accordance with their respective terms, except for the Enforceability Exception.

     Section 6.3 Merger Sub. Merger Sub was formed solely for the purpose of engaging in the Transactions. All of the outstanding membership interests of Merger Sub are owned directly by Parent. As of the date of this Agreement and the Effective Time, except for obligations or liabilities incurred in connection with its formation or organization and the Transactions, Merger Sub has not and will not have incurred, directly or indirectly, through any Subsidiary or Affiliate, any obligations or liabilities or engaged in any business activities of any type whatsoever or entered into any agreements or arrangements with any Person, except as would not reasonably be expected to have a material adverse effect on the ability of Merger Sub to timely consummate the Transactions. The organizational documents of Merger Sub provided to Target by Parent are true and correct copies of the organizational documents in effect for Merger Sub on the date of this Agreement.

     Section 6.4 No Violation. The execution and delivery of this Agreement, the consummation of the Transactions and the performance by the Parent Parties of their respective obligations hereunder will not:

     (a) conflict with any provision of Parent or Merger Sub’s organizational documents, as amended;

     (b) result in any violation of or the breach of or constitute a default (with notice or lapse of time or both) under, or give rise to any right of termination, cancellation or acceleration or guaranteed payments or a loss of a material benefit under, any of the terms, conditions or provisions of any note, lease, mortgage, license, agreement or other instrument or obligation to which Parent, Merger Sub, or any of their respective Subsidiaries, is a party or by which Parent, Merger Sub or any of their respective Subsidiaries or any of their respective properties or assets may be bound, except for such violations, breaches, defaults, or rights of termination, cancellation or acceleration, or losses as to which requisite waivers or consents have been obtained or which, individually or in the aggregate, would not (i) materially impair the ability of Parent, Merger Sub, or any of their respective Subsidiaries to perform their obligations under this Agreement or any Ancillary Agreement or (ii) prevent the consummation of any of the Transactions.

     Section 6.5 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder’s fee or other fee or commission payable by Parent or any of its Affiliates in connection with the Transactions based upon arrangements made by and on behalf of Parent or any of its Affiliates.

     Section 6.6 Parent Information. None of the information to be supplied by or on behalf of Parent or Merger Sub for inclusion in the Proxy Statement relating to the Target Shareholder Meeting, to be filed by Target with the SEC, and any amendments or supplements thereto, will, at the time of the filing, at the time the Proxy Statement or any amendment or supplement thereto is first mailed to the Target Shareholders, and at the time of the Target

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Shareholder Meeting and at the Effective Time (taking into account all additional definitive proxy materials filed by Target subsequent to such mailing of the Proxy Statement), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation or warranty is made by Parent or Merger Sub with respect to statements made or incorporated by reference therein based on information supplied by or on behalf of Target for inclusion or incorporation by reference in the Proxy Statement.

     Section 6.7 Target Stock. None of Parent, Merger Sub, or their respective Affiliates (i) owns (directly or indirectly, beneficially or of record) any securities of the Target or (ii) holds any right to acquire, hold, vote or dispose of any securities in the Target, except as contemplated by the Voting Agreements. Neither Parent nor Merger Sub is an “affiliated shareholder” of the Target as defined in Section 13.02A.(2) of the TBCA and Section 21.602 of the TBOC. Parent and Merger Sub represent and warrant that as of the date hereof, more than three (3) years has lapsed since any Affiliate of Parent or Merger Sub first became an “affiliated shareholder” in the Target as defined in Section 13.02A.(2) of the TBCA and Section 21.602 of the TBOC.

     Section 6.8 Financing. Parent has sufficient cash, available lines of credit or other sources of immediately available funds to enable it to cause Merger Sub to make payment of the aggregate Merger Consideration by Merger Sub under the Merger and all related fees and expenses and to otherwise consummate the Transactions. Parent acknowledges that obtaining of any financing is not a condition to closing.

     Section 6.9 No Other Representations or Warranties. Except for the representations and warranties contained in this Article VI, neither Parent, Merger Sub nor any other Person makes any other express or implied representation or warranty on behalf of Parent or Merger Sub or any of their respective Affiliates in connection with this Agreement or the Transactions.

ARTICLE VII.
CONDUCT OF BUSINESS PENDING THE MERGER

     Section 7.1 Conduct of Business by Target Pending the Merger.

     (a) From the date hereof until the earlier of the termination of this Agreement or the Effective Time, except (i) as set forth in Section 7.1(a) of the Target Disclosure Schedule, (ii) as required, expressly contemplated or permitted by this Agreement, (iii) as required by applicable law, or (iv) with the prior written consent of Parent (which consent shall not be unreasonably withheld, conditioned or delayed), Target (A) shall conduct its business in the ordinary course and (B) shall use all commercially reasonable efforts to preserve intact its business organizations and relationships with third parties and to keep available the services of its present officers and key employees, subject to the terms of this Agreement.

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     (b) During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, except (i) as set forth in Section 7.1(b) of the Target Disclosure Schedule, (ii) as required, expressly contemplated or permitted by this Agreement, (iii) as required by applicable law, or (iv) with the prior written consent of Parent (which consent shall not be unreasonably withheld, conditioned or delayed), the Target shall not, and shall not permit any of its Subsidiaries to:

          (i) cause or permit any change to its articles of incorporation or bylaws (or similar organizational documents);

          (ii) (A) declare, set aside or pay any dividend or other distribution with respect to any shares of capital stock of Target, or (B) repurchase, redeem or otherwise acquire any outstanding shares of capital stock or other securities of, or other ownership interests in, Target, except (1) from former employees, directors and consultants in accordance with agreements providing for the repurchase of shares in connection with any termination of service to it or any of its Subsidiaries, and (2) the acceptance of Target Common Shares in payment of the exercise price or withholding Taxes incurred by any holder in connection with the exercise of options or the lapse of restrictions on restricted shares;

          (iii) merge or consolidate with any other Person or acquire capital assets other than Oil and Gas Interests of any other Person for aggregate consideration in excess of $100,000 in any single transaction (or series of transactions), or enter a new line of business or commence business operations in any country in which Target or any of its Subsidiaries is not operating as of the date hereof;

          (iv) sell, lease, license or otherwise surrender, relinquish or dispose of or grant any Liens with respect to, any assets or properties (other than to Merger Sub and its direct and indirect wholly owned Subsidiaries) with an aggregate fair market value exceeding $100,000 in any single transaction (or series of transactions) (other than sales of Hydrocarbons in the ordinary course of business), except pursuant to Target Material Contracts in force on the date of this Agreement;

          (v) settle any Audit that would require Target to make any material payment to a Governmental Authority, make or change any material Tax election or file any material amended Tax Return, except in the ordinary course of business;

          (vi) Except as otherwise permitted by this Agreement or as set forth in Section 7.1(b) of the Target Disclosure Schedule, Target shall not, and shall not permit any of its Subsidiaries to, issue any securities (whether through the issuance or granting of options, warrants, rights or otherwise and except pursuant to existing obligations disclosed in the Target SEC Reports filed and publicly available prior to the date hereof or the Target Disclosure Schedule), enter into any amendment of any term of any outstanding security of Target or of any of its Subsidiaries, fail to make any required contribution to any Target Benefit Plan, increase compensation, bonus (except for compensation or bonuses as set forth in Section 7.1(b) of the Target Disclosure Schedule)

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or other benefits payable to (except for payments pursuant to 401(k) plans), or modify or amend any employment agreements or severance agreements with, any executive officer or former employee or enter into any settlement or consent with respect to any pending litigation in excess of $100,000 other than settlements in the ordinary course of business;

          (vii) change any method of accounting or accounting practice by Target or any of its Subsidiaries except for any such change required by GAAP or the rules and regulations promulgated by the SEC;

          (viii) take any action that would give rise to a claim under the WARN Act or any similar state law or regulation because of a “plant closing” or “mass layoff” (each as defined in the WARN Act) without in good faith attempting to comply with the WARN Act;

          (ix) amend or otherwise change the terms of any arrangements of the type described in Section 5.23, except to the extent that any such amendment or change would result in terms more favorable to Target;

          (x) become bound or obligated to make any expenditure, capital expenditure, participate in any operation, or consent to participate in any operation, with respect to any Oil and Gas Interests that will, in the aggregate, cost in excess of $250,000 over the total amount budgeted in the budget set forth in Section 7.1(b) of the Target Disclosure Schedule (the “Aggregate Cost Overrun”), and except for utilization of the Aggregate Cost Overrun, neither Target nor any of its Subsidiaries shall, with respect to any of the individual projects set forth in Section 7.1(b) of the Target Disclosure Schedule, become bound to or expend funds in excess of the amount budgeted for such project as set forth in Section 7.1(b) of the Target Disclosure Schedule;

          (xi) fail to timely meet their royalty payment obligations in connection with their respective oil and gas leases;

          (xii) (A) enter into any futures, hedge, swap, collar, put, call, floor, cap, option or other contracts that are intended to benefit from or reduce or eliminate the risk of fluctuations in the price of commodities, including Hydrocarbons or securities, other than in the ordinary course of business in accordance with Target’s current policies and as contemplated by this Agreement, or (B) enter into any fixed price commodity sales agreements with a duration of more than three (3) months, other than in the ordinary course of business in accordance with Target’s current policies;

          (xiii) (i) adopt, amend (other than amendments that reduce the amounts payable by Target or any Subsidiary, or amendments required by law to preserve the qualified status of a Target Benefit Plan or otherwise comply with ERISA, the Code or other applicable law) or assume any obligation to contribute to any employee benefit plan or arrangement of any type or collective bargaining agreement or enter into any employment, severance or similar contract with any Person (including contracts with management of Target or any Subsidiary that might require that payments be made upon consummation of the Transactions) or amend any such existing contracts to increase any

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amounts payable thereunder or benefits provided thereunder, (ii) engage in any transaction (either acting alone or in conjunction with any Target Benefit Plan or trust created thereunder) in connection with which Target or any Subsidiary would reasonably be expected to be subject (directly or indirectly) to either a civil penalty assessed pursuant to subsections (c), (i) or (l) of Section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code, (iii) terminate any Target Benefit Plan in a manner, or take any other action with respect to any Target Benefit Plan, that could result in the liability of Target or any Subsidiary to any person, (iv) take any action that could adversely affect the qualification of any Target Benefit Plan or its compliance with the applicable requirements of ERISA, (v) fail to make full payment when due of all amounts which, under the provisions of any Target Benefit Plan, any agreement relating thereto or applicable law, Target or any Subsidiary is required to pay as contributions thereto or (vi) fail to file, on a timely basis, all reports and forms required by federal regulations with respect to any Target Benefit Plan;

          (xiv) (A) approve an increase in salary for any Target Employees, or (B) terminate any Target Employee entitled to any severance payment upon such termination, (C) or enter into, renew, permit to extend or amend any employment, severance, termination or similar agreement or arrangement with any director, officer, employee or consultant;

          (xv) permit any of its Subsidiaries to organize or acquire any Person that could become a Subsidiary;

          (xvi) permit any of its Subsidiaries to enter into any commitment or agreement to license or purchase seismic data, other than pursuant to agreements or commitments existing on the date hereof;

          (xvii) (A) enter into any Exclusivity Arrangements that would be applicable after the Closing Date to Parent and its Subsidiaries or (B) other than in the ordinary course of business, (1) amend or modify in any material respect or terminate any Target Material Contract or (2) waive, release or assign any material rights, claims or benefits of Target and its Subsidiaries under any Target Material Contract;

          (xviii) except for the payment of any deductible under an existing insurance policy (or a commercially reasonable substitute for a company engaged in businesses similar to those of Target and its Subsidiaries) with respect to a claim that is being settled by such insurance company, settle, pay, compromise or discharge any claim that (A) requires any payment by Target and its Subsidiaries in excess of $100,000 in the aggregate or (B) involves any restrictions on the conduct of Target or its Subsidiaries or any of its Affiliates’ business or other equitable remedies that materially adversely affect the business of Target and its Subsidiaries, and Target and its Subsidiaries shall not settle, pay, compromise or discharge any claim against Target and its Subsidiaries with respect to or arising out of the Transactions;

          (xix) incur, create, assume, modify, guarantee or otherwise become liable for any obligation for borrowed money, purchase money indebtedness or any

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obligation of any other Person, whether or not evidenced by a note, bond, debenture, guarantee, indemnity or similar instrument, except for (A) borrowings and renewals, amendments, extensions or increases thereof under credit lines existing at the date of this Agreement, (B) trade payables incurred in the ordinary course of business consistent with past practice, (C) indebtedness with any Subsidiary, (D) obligations under Existing Derivative Transactions, and (E) other obligations not exceeding $100,000 in the aggregate outstanding at any one time;

          (xx) sublet, sublease, assign, extend, terminate or otherwise modify the material terms of the commercial real estate lease for the property located at 1401 Enclave Parkway, Houston, Texas 77077 used for the offices of Target and its Subsidiaries;

          (xxi) pay, discharge, settle or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise) prior to the same being due in excess of $100,000 in the aggregate, other than pursuant to mandatory terms of any agreement, understanding or arrangement as in effect on the date hereof;

          (xxii) fail to continuously maintain in full force and effect its current insurance or a commercially reasonable substitute for a company engaged in business similar to those of Target and its Subsidiaries.

          (xxiii) adopt a plan of complete or partial liquidation, dissolution, or reorganization; and

          (xxiv) agree or commit to do any of the foregoing.

ARTICLE VIII.
ADDITIONAL AGREEMENTS

     Section 8.1 Preparation of the Proxy Statement

     (a) As promptly as is practicable following the date of this Agreement, Target shall prepare a proxy statement (together with any amendments thereof or supplements thereto, the “Proxy Statement”) in order to seek the Target Shareholders’ Approval. The Proxy Statement shall comply as to form in all material respects with the applicable provisions of the Exchange Act and other applicable law. Each of Parent and Target also agrees to use reasonable best efforts to obtain all necessary state securities law or “Blue Sky” permits and approvals required to carry out the Transactions. Target shall respond to any comments from the SEC as promptly as practicable following the receipt of such comments. Target will use its reasonable best efforts to cause the SEC to complete its review of the Proxy Statement as promptly as is practicable after such filing, and Target shall use its reasonable best efforts to cause the Proxy Statement to be mailed to the holders of Target Common Shares as promptly as is practicable after the SEC shall have notified Target that it has no further comments regarding the Proxy Statement.

     (b) No filing of or amendment or supplement to the Proxy Statement and all responses to requests for additional information and replies to comments prior to these

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being filed with or sent to the SEC will be made by Target, without providing Parent and its counsel a reasonable opportunity to review and comment thereon prior to its being filed with the SEC. Target agrees, as to itself and its Subsidiaries, that none of the information supplied or to be supplied by it for inclusion or incorporation by reference in the Proxy Statement and any amendment or supplement thereto will, at the date of mailing to shareholders and at the time of the Target Shareholder Meeting contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which such statement was made, not misleading. If at any time prior to the Effective Time, any information relating to Target, or any of its Affiliates, directors or officers, should be determined by Target to have rendered the Proxy Statement misleading in any material way (whether as a result of the misstatement of a material fact or the omission of a material fact), Target shall promptly prepare and file with the SEC an amendment or supplement to the Proxy Statement, so that the Proxy Statement would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Target shall promptly notify the Parent of such material misstatement or omission and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the shareholders of Target. Target shall notify Parent promptly of the receipt of any comments from the SEC and of any request by the SEC or the staff of the SEC for amendments or supplements to the Proxy Statement or for additional information and shall supply Parent with (i) copies of all correspondence and a description of all material oral discussions between it or any of its respective Representatives, on the one hand, and the SEC or the staff of the SEC, on the other hand, with respect to the Proxy Statement or the Merger and (ii) copies of all orders of the SEC relating to the Proxy Statement.

     Section 8.2 Shareholders Meeting; Recommendations. Subject to Section 8.4, Target shall take all actions necessary under applicable law to call, give notice of, convene and hold a meeting of the Target Shareholders (the “Target Shareholders Meeting”) as soon as reasonably practicable following the date of this Agreement for the purpose of securing the Target Shareholders’ Approval. Target shall consult with Parent regarding the date of the meeting and use its reasonable best efforts to have the Target Shareholder Meeting be a date not more than forty-five (45) days following the mailing of the Proxy Statement. The Proxy Statement shall (i) state that the Target Board has unanimously (x) approved this Agreement and the Transactions, (y) determined that this Agreement and the Transactions are advisable and in the best interests of Target and its shareholders, and (z) include the Target Recommendation (except to the extent that Target effects a Change in the Target Recommendation in accordance with Section 8.4 of this Agreement) and (ii) include the written opinion of Morgan Keegan, a Target financial advisor, as of the date of this Agreement, as to the fairness from a financial perspective of the Merger Consideration to be received by the holders of Target Common Shares pursuant to this Agreement. Target shall use its reasonable best efforts to solicit from shareholders of Target votes in favor of the Target Shareholders’ Approval. The Target Board shall not effect a Change in the Target Recommendation except pursuant to and solely as permitted by Section 8.4. Notwithstanding any Change in the Target Recommendation, unless this Agreement has been terminated pursuant to the terms hereof, this Agreement shall be

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submitted to the shareholders of Target at the Target Shareholder Meeting and nothing contained herein shall be deemed to relieve Target of such obligation. In addition to the foregoing, during the term of this Agreement, Target shall not submit to the vote of its shareholders any Acquisition Proposal other than the Merger.

     Section 8.3 Access to Information; Confidentiality. To the extent permitted by applicable law and subject to restrictions imposed upon the Target and any Target Subsidiary by any agreement of confidentiality with any Person, Target will provide and will cause Target’s Subsidiaries and its and their respective directors, officers, employees, accountants, consultants, legal counsel, investment bankers, advisors, and agents and other representatives (collectively, the “Representatives”) to provide Parent and its authorized Representatives, during normal business hours and upon reasonable advance notice access to the offices, employees, customers, suppliers, properties, books and records of Target (so long as such access does not unreasonably interfere with the operations of Target) as Parent may reasonably request. With respect to any information disclosed pursuant to this section, Parent shall comply with, and shall cause each of its Representatives to comply with, all of its obligations under the confidentiality agreement, dated September 1, 2009, previously executed by Parent and Target (the “Confidentiality Agreement”). Target shall not be required to provide access to or disclose any information where such access or disclosure would jeopardize any attorney-client privilege of such party or any Subsidiary of such party or contravene any contract, law or order (it being agreed that the parties shall use their respective reasonable best efforts to cause such information to be provided in a manner that would not result in such jeopardy or contravention). Parent will use its reasonable efforts to minimize any disruption to the businesses of the Target and the Target Subsidiaries which may result from the requests for access, data and information hereunder.

     Section 8.4 No Solicitation

     (a) General Prohibitions. Subject to Section 8.4(b), Target shall not, nor shall it authorize or permit any of its Subsidiaries or authorize any of its or their respective Representatives to, directly or indirectly, (A) solicit, initiate, encourage or knowingly facilitate, any inquiries or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal for Target, (B) enter into or engage in any discussions or negotiations regarding, or that could reasonably be expected to lead to, any Acquisition Proposal for Target, furnish to any third party (or any Representative of any third party) any information (whether orally or in writing) in connection with, or in furtherance of, any Acquisition Proposal for Target, or afford access to the business, properties, assets, books or records of Target or any of its Subsidiaries, otherwise cooperate in any way with, or knowingly assist, participate in, facilitate or encourage any effort by, any third party (or any Representative of any third party) that has made, is seeking to make or has informed Target of any intention to make, or has publicly announced an intention to make, an Acquisition Proposal for Target, (C) fail to make, withdraw, qualify, amend or modify or publicly propose to withdraw, qualify, amend or modify the Target Recommendation (it being understood that, subject to and without limitation of Section 8.4(f), taking a neutral position or no position with respect to any Acquisition Proposal for Target shall be considered an amendment or modification), or recommend, adopt or approve, or publicly propose to recommend, adopt or approve, an Acquisition Proposal for Target, or take any action or make any

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statement inconsistent with the Target Recommendation (any of the foregoing in this clause (C), a “Change in the Target Recommendation”), (D) take any action to make the provisions of any “fair price,” “moratorium,” “control share acquisition,” “business combination” or other similar anti-takeover statute or regulation (including approving any transaction under, or a third party becoming an “affiliated shareholder” under, Section 21.606 of the TBOC), or any restrictive provision of any applicable anti-takeover provision in Target’s articles of incorporation or bylaws, inapplicable to any transactions contemplated by an Acquisition Proposal, (E) enter into any agreement in principle, letter of intent, term sheet, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other contract or instrument constituting or relating to an Acquisition Proposal for Target (other than a confidentiality agreement of the type referred to in Section 8.4(b)), or any contract or agreement in principle compelling Target to abandon, terminate or breach any of its obligations hereunder, or fail to consummate the Transactions (any of the foregoing agreements in this clause (E), a “Target Acquisition Contract”), (F) enter into any confidentiality or similar agreement with any third party which prohibits Target from providing or making available to Parent pursuant to Section 8.4(b) any of the information to be provided to such third party in the time periods provided in Section 8.4(b), (G) grant or permit any third party any waiver or release under, or fail to enforce any provision of, any confidentiality, “standstill” or similar agreement with respect to any class of securities of Target or any of its Subsidiaries or (H) resolve, propose or agree to do any of the foregoing. Without limiting the foregoing, it is agreed that any violation of the restrictions on Target set forth in the preceding sentence by any Representative of Target or any of its Subsidiaries shall be a breach of this section by Target.

     (b) Exceptions after Receipt of Certain Proposals. Notwithstanding anything to the contrary in this Agreement, at any time prior to obtaining the Target Shareholders’ Approval (and in no event after obtaining the Target Shareholders’ Approval), the Target Board, directly or indirectly through its Representatives, may, subject to compliance with Section 8.4(c), (A) (i) contact a third party or its Representatives for the purpose of clarifying any inquiry or Acquisition Proposal and the material terms and conditions thereof so as to determine whether such inquiry or Acquisition Proposal is a Superior Proposal or is reasonably likely to lead to a Superior Proposal or (ii) engage in negotiations or discussions with any third party that the Target Board determines in good faith is credible and reasonably capable of consummating a Superior Proposal for Target, and that has made after the date of this Agreement a Superior Proposal for Target or a bona fide written Acquisition Proposal for Target that the Target Board determines in good faith (after consultation with its financial advisor and outside legal counsel) is reasonably likely to lead to a Superior Proposal, (B) thereafter, furnish to such third party nonpublic information relating to Target or any of its Subsidiaries pursuant to a confidentiality agreement with terms in the aggregate at least as restrictive to such third party as those contained in the Confidentiality Agreement and which contains a “standstill” or similar provision on terms no more materially favorable to such third party than the terms of any “standstill” or similar agreement, or provision in any agreement, applicable to Parent with respect to Target; provided, that the terms of such “standstill” or similar provision may allow such third party to make Acquisition Proposals to Target in connection with the negotiations or discussions permitted by this section (a copy of such

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confidentiality agreement shall, subject to Section 8.4(c), be provided promptly after its execution, and which copy and the terms and existence thereof shall be subject to the confidentiality obligations imposed on the Parent Parties pursuant to the Confidentiality Agreement), provided, that, subject to Section 8.4(c), all such nonpublic information (to the extent that such nonpublic information has not been previously provided or made available to Parent) is provided or made available to Parent, as the case may be, prior to or substantially concurrently with the time it is provided or made available to such third party), and provided, further, that, if such Superior Proposal for Target or Acquisition Proposal for Target is made by a third party who or which, on the date hereof, is party to a confidentiality agreement with Target which would prohibit Target from complying with any of the terms of this section or Section 8.4(c) requiring the provision by Target of information, agreements or the documents to Parent, then Target may take the actions described in clauses (A) and (B) of this section only if such confidentiality agreement with such third party has been amended to (x) allow Target to fully comply with such terms of this section and Section 8.4(c) without violating such confidentiality agreement and (y) include, if not already included, a “standstill” or similar provision on terms no more materially favorable to such third party than the terms of any “standstill” or similar agreement, or provision in any agreement applicable to Parent with respect to Target; provided, that the terms of such “standstill” or similar provision may allow such third party to make Acquisition Proposals to Target in connection with the negotiations or discussions permitted by this section and (C) subject to compliance with Section 8.4(d), make a Change in the Target Recommendation; but in each case referred to in the foregoing clauses (A), (B) and (C) only if the Target Board determines in good faith, after consultation with outside legal counsel to Target, that its failure to take such action would likely be inconsistent with the Target Board’s fiduciary duties to the Target Shareholders.

     (c) Required Notices. Target shall not take any of the actions referred to in Section 8.4(b) unless Target shall have delivered to Parent one (1) Business Day’s prior written notice advising Parent that it intends to take such action, and Target shall continue to advise Parent after taking such action, on a current basis, of the status and terms of any discussions and negotiations with the third party. In addition, Target shall notify Parent promptly (but in no event later than one (1) Business Day) after receipt by Target (or any of its Representatives) of any Acquisition Proposal, or any amendment or modification to any Acquisition Proposal, for Target or of any request for information relating to Target or any of its Subsidiaries or for access to the business, properties, assets, books or records of Target or any of its Subsidiaries by any third party that, to the knowledge of Target, is considering making, or has made, an Acquisition Proposal for Target, which notice shall be provided orally and in writing and shall identify the third party making, and the material terms and conditions of, any such Acquisition Proposal for Target, indication or request (including, in each case, any changes thereto). Target shall keep Parent informed, on a current basis, of the status and details of any such Acquisition Proposal for Target, indication or request (including, in each case, any changes thereto) and shall promptly (but in no event later than one (1) Business Day after receipt) provide to Parent copies of (i) all drafts of the definitive documents relating to any Acquisition Proposal sent or provided to Target or any of its Subsidiaries and (ii)

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from to time thereafter, all documents containing material changes to such definitive documents.

     (d) Limitations on Ability to Change Recommendation or Terminate the Agreement. Notwithstanding Section 8.4(b), the Target Board shall not make any Change in the Target Recommendation or terminate this Agreement pursuant to Section 11.1(h) unless and until (A) Target promptly notifies Parent, in writing, at least three (3) Business Days before taking that action, of its intention to do so, (B) if requested by Parent, during the three-Business-Day period, Target shall negotiate in good faith with Parent with respect to any revised proposal from Parent in respect of the terms of the Transactions and (C) if in response to an Acquisition Proposal for Target that constitutes a Superior Proposal for Target, Parent does not make, within such three-Business-Day period, an offer that is at least as favorable to the shareholders of Target, as determined by the Target Board in good faith (after considering the advice of Target’s financial advisor), as such Superior Proposal (it being understood that, with respect to the termination of this Agreement pursuant to Section 11.1(h), Target shall not terminate this Agreement pursuant to Section 11.1(h) during such three-Business-Day period, and that any amendment to the financial terms or other material terms of such Superior Proposal shall require a new written notification from Target and an additional three-Business-Day period that satisfies this section).

     (e) Obligation to Terminate Existing Discussions. Target shall, and shall cause its Subsidiaries and its and their respective Representatives to, cease immediately and cause to be terminated any and all existing soliciting activities, discussions or negotiations and access to nonpublic information, if any, with, to or by any third party conducted prior to the date hereof with respect to any Acquisition Proposal for Target. Target shall promptly request that each third party, if any, in possession of Confidential Information (as such term is defined in the Confidentiality Agreement) about Target or any of its Subsidiaries that was furnished by or on behalf of Target or any of its Subsidiaries in connection with its consideration of any potential Acquisition Proposal to return or destroy all Confidential Information heretofore furnished to such third party in compliance with the applicable confidentiality agreement entered into with such third party.

     (f) Certain Exceptions. Nothing in this section shall prohibit the Target Board from (A) taking and disclosing to the Target Shareholders a position contemplated by Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A promulgated under the Exchange Act, or other applicable law, or (B) making any disclosure to the Target Shareholders if the Target Board determines, after consultation with outside counsel, that failure to so disclose such position would be reasonably likely to give rise to a violation of applicable laws; provided, however, that any such disclosure of a position contemplated by Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act, other than (x) a “stop, look and listen” or similar communication of the type contemplated by Rule 14d-9(f) promulgated under the Exchange Act, (y) an express rejection of an applicable Acquisition Proposal or (z) an express reaffirmation of its Target Recommendation, shall be deemed a Change in the Target Recommendation. In addition, it is understood and agreed that, for purposes of this Agreement (including this

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Article VI), a factually and materially accurate public statement by Target that describes Target’s receipt of an Acquisition Proposal for Target and the operation of this Agreement with respect thereto shall not be deemed a Change in the Target Recommendation if Target affirmatively reaffirms in such disclosure the Target Recommendation.

     Section 8.5 Directors’ and Officers’ Indemnification and Insurance

     (a) The organizational documents of the Merger Sub and of the Surviving Company shall, with respect to indemnification of directors, officers, employees and agents, not be amended, repealed or otherwise modified after the date of this Agreement in any manner that would adversely affect the rights thereunder of the Persons who at any time prior to the Effective Time were identified as prospective indemnitees under Target’s articles of incorporation or the bylaws in respect of actions or omissions occurring at or prior to the Effective Time (including the Transactions).

     (b) From and after the Effective Time, the Surviving Company shall indemnify, defend and hold harmless each person who is now, or has been at any time prior to the date hereof or who becomes prior to the Effective Time, an officer or director of Target or any of its Subsidiaries (each an “Indemnified Party”), who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, or investigative (a “proceeding”) against all losses, claims, damages, costs, liabilities, fees and expenses (including reasonable fees and disbursements of counsel and experts and judgments, fines, losses, claims, liabilities and amounts paid in settlement (provided that any such settlement is effected with the prior written consent of Parent, which will not be unreasonably withheld, conditioned or delayed) actually and reasonably incurred by the Indemnified Party based in whole or in part out of the fact the Indemnified Party is or was an officer or director of Target or any Subsidiary of Target or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in which such Indemnified Party was serving at the request of the Target, and pertaining to any matter existing or occurring, or any acts or omissions occurring, at or prior to the Effective Time including any act or omission relating to this Agreement or the Transactions (the “Indemnified Liabilities”), to the full extent permitted under Texas law. If an Indemnified Party makes or asserts any claim for Indemnified Liabilities, any determination required to be made with respect to whether an Indemnified Party’s conduct complies with the standards set forth under the TBCA or TBOC, as applicable, shall be made by independent counsel mutually acceptable to the Surviving Company and the Indemnified Party; provided, further, that nothing herein shall impair any rights or obligations of any Indemnified Party. If any claim or claims are brought against any Indemnified Party (whether arising before or after the Effective Time), counsel selected for the defense of such claim shall be reasonably acceptable to Target (if selected before the Effective Time) and the Surviving Company (if selected after the Effective Time).

     (c) The Surviving Company shall promptly advance all reasonable out-of-pocket expenses of each Indemnified Party in connection with any such action or proceeding described above, as such expenses are incurred, to the fullest extent permitted

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by the TBOC, subject to the receipt by the Surviving Company of an undertaking by or on behalf of such Indemnified Party to repay such amount if it shall ultimately be determined that such Indemnified Party is not entitled to be indemnified by the Surviving Company.

     (d) The Surviving Company shall maintain Target’s existing officers’ and directors’ liability insurance policy (“D&O Insurance”) for a period of at least six (6) years after the Effective Time, but only to the extent related to actions or omissions prior to the Effective Time; provided, that the Surviving Company may substitute therefor policies of substantially similar coverage and amounts containing terms no less advantageous to such former directors or officers; provided further, that the aggregate amount of annual premiums to be paid with respect to the maintenance of such D&O Insurance for such six-year period shall not exceed one hundred seventy-five percent (175%) of the aggregate amount of annual premiums currently paid by Target for such D&O Insurance.

     (e) In the event Parent or any of its successors or assigns or the Surviving Company or any of its successors or assigns (i) consolidates with or merges into any of its Affiliates and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any of its Affiliates, then, and in each such case, proper provision shall be made so that the successors and assigns of Parent or the Surviving Company, as applicable, assume the obligations set forth in this section.

     (f) The provisions of this Section 8.5 shall survive the Effective Time and are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives.

     Section 8.6 Further Assurances. Each party shall use commercially reasonable efforts to obtain all consents and approvals and to do all other things necessary for the consummation of the Transactions. The parties shall take such further action to deliver or cause to be delivered to each other at the Closing and at such other times thereafter as shall be reasonably agreed by such parties such additional agreements or instruments as any of them may reasonably request for the purpose of carrying out this Agreement and the Transactions. The parties shall afford each other access to all information, documents, records and personnel who may be necessary for any party to comply with laws or regulations (including the filing and payment of Taxes and handling Audits), to fulfill its obligations with respect to indemnification hereunder or to defend itself against suits or claims of others. Parent and Target shall duly preserve all files, records or any similar items of Parent or Target received or obtained as a result of the Transactions with the same care and for the same period of time as it would preserve its own similar assets.

     Section 8.7 Expenses. Except as provided in Section 11.3, each party shall bear solely and entirely, all Expenses that they incur.

     Section 8.8 Cooperation. Subject to compliance with applicable law, from the date hereof until the Effective Time, Target shall confer on a regular and frequent basis with one

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or more Representatives of Parent to report and consult on operational matters of materiality and the general status of ongoing operations, including, without limitation, matters relating to drilling of wells, whether or not within the ordinary course of business, and shall promptly provide Parent or its counsel with copies of all filings made by Target with any Governmental Authority in connection with this Agreement and the Transactions.

     Section 8.9 Publicity. Neither Target, Parent, Merger Sub nor any of their respective Affiliates shall issue or cause the publication of any press release or other announcement with respect to the Transactions without the prior consultation with and consent of the other party (such consent not to be unreasonably withheld, conditioned or delayed), except as may be reasonably determined to be required by applicable law or by obligations pursuant to any listing agreement with any national securities exchange, and each party shall use reasonable efforts to provide copies of such release or other announcement to the other party hereto, and give due consideration to such comments as each such other party may have, prior to such release or other announcement.

     Section 8.10 Additional Actions. Subject to the terms and conditions of this Agreement, each party agrees to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations, or to remove any injunctions or other impediments or delays, to consummate and make effective the Transactions, subject, however, to the Target Shareholders’ Approval.

     Section 8.11 Filings. Each party shall make all filings such party is required to make in connection herewith or desirable to achieve the purposes contemplated hereby, and shall cooperate as needed with respect to any such filing by any other party.

     Section 8.12 Consents. Each of Parent, Merger Sub and Target shall use commercially reasonable efforts to obtain all consents necessary or advisable in connection with its obligations hereunder.

     Section 8.13 Employee Matters

     (a) Subsequent to the Effective Time, the Surviving Company shall perform or cause Target to perform the obligations of Target under the Well Bonus Plans and the severance agreements and severance plans to which Target is a party or subject and which are set forth in Sections 5.11(e) and 5.30 of the Target Disclosure Schedule. From the date of this Agreement until the Effective Time, Target agrees not to add any additional wells or make any additional grants to new or current participants under any of the Well Bonus Plans.

     (b) To the extent service is relevant for purposes of eligibility, participation or vesting (but not the accrual of benefits) under any employee benefit plan, program or arrangement established or maintained by the Surviving Company or its Affiliates in which Business Employees may participate, such Business Employees shall be credited for service accrued as of the Effective Time with Target and its Subsidiaries to the extent such service was credited under a similar plan, program or arrangement of Target.

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     (c) To the extent Business Employees and their dependents enroll in any health plan sponsored by the Surviving Company or its Affiliates, the Surviving Company shall waive any preexisting condition limitation applicable to such Business Employees to the extent that the employee’s or dependent’s condition would not have operated as a preexisting condition under the group health plan maintained by Target. In addition, the Surviving Company shall cause such health plans (i) to waive all preexisting condition exclusions and waiting periods otherwise applicable to Business Employees and their dependents, other than exclusions or waiting periods that are in effect with respect to such individuals as of the Effective Time to the extent not satisfied, under the corresponding benefit plans of Target, and (ii) to provide each Business Employee and his or her dependents with corresponding credit for any co-payments and deductibles paid by them under the corresponding benefit plans of Target during the portion of the respective plan year prior to the Effective Time.

     (d) With respect to the 401(k) accounts of those Business Employees who become eligible to participate in the Surviving Company’s 401(k) Plan after the Effective Time, Merger Sub agrees to take one or more of the following actions: (i) to establish an arrangement under which such Business Employees are provided with payroll withholding for purposes of repaying any loan that is outstanding under Target’s 401(k) Plan as of the Effective Time; (ii) to permit such Business Employees to voluntarily transfer or rollover their accounts (including loans) from Target’s 401(k) Plan to the Surviving Company’s 401(k) Plan; or (iii) to cause the Surviving Company’s 401(k) Plan to accept a direct trustee-to-trustee transfer of assets from Target’s 401(k) Plan into the Surviving Company’s 401(k) Plan, including any outstanding loans, on behalf of such Business Employees. Merger Sub and Target agree that they shall take all actions necessary, including the amendment of their respective plans, to effect the actions selected by Merger Sub under the preceding sentence.

     (e) With respect to any Business Employees who become employed by Merger Sub or its Affiliates after the Effective Time, Merger Sub or such Affiliate shall give service credit for purposes of determining post Effective Time vacation, sick leave and any other paid time off entitlements that Merger Sub or such Affiliate provides to its employees generally.

     (f) Target and Merger Sub shall cooperate with each other in all reasonable respects relating to any actions to be taken pursuant to this section.

     Section 8.14 Notice of Certain Events. Each party to this Agreement shall promptly as reasonably practicable notify the other parties of:

     (a) any notice or other communication from any Person alleging that the consent of such Person (or other Person) is or may be required in connection with the Transactions;

     (b) any notice or other communication from any Governmental Authority in connection with the Transactions;

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     (c) any actions, suits, claims, investigations or proceedings commenced or, to the best of its knowledge, threatened against, relating to or involving or otherwise affecting it or any of its Subsidiaries which, if pending on the date hereof, would have been required to have been disclosed pursuant to Section 5.10 or Section 5.12, or which relate to the consummation of the Transactions;

     (d) any notice of, or other communication relating to, a breach, default or event under this Agreement or otherwise that, with notice or lapse of time or both, would become a breach or default, received by it or any of its Subsidiaries subsequent to the date hereof, under any material agreement and could reasonably be expected to cause the conditions set forth in Article IX not to be satisfied; and

     (e) any Target Material Adverse Effect or the occurrence of any event which is reasonably likely to result in a Target Material Adverse Effect.

     Section 8.15 Site Inspections. Subject to compliance with applicable law, from the date hereof until the Effective Time, the Parent Parties may undertake (at the Parent Parties’ sole cost and expense) a reasonable environmental and operational assessment or assessments (an “Assessment”) of the Target’s operations, business and/or properties that are the subject of this Agreement. An Assessment may include a review of permits, files and records including, but not limited to, environmental investigations, audits, assessments, studies, testing and management plans and systems, as well as visual and physical inspections and testing. An Assessment will include any soil borings, groundwater or any other “Phase II” testing if required in the reasonable discretion of the Parent Parties without the consent of the Target, the Parent Parties shall confer with the Target regarding the nature, scope and scheduling of such Assessment, and shall comply with such conditions as the Target may reasonably impose to (a) avoid interference with the Target’s operations or business; (b) require the Parent Parties’ representatives responsible for performing the Assessment to maintain insurance coverage as required by the Target; and (c) keep the Target’s property free and clear of any Liens arising out of any entry onto or inspection of the subject property. The Target shall cooperate in good faith with the Parent Parties’ effort to conduct an Assessment. The Parent Parties shall jointly and severally indemnify Target and its Subsidiaries from any claims made against Target or any of its Subsidiaries in respect of personal or bodily injury to, sickness, disease, death or loss of services or wages of or respecting, any employee, agent or contractor of any Parent Party, arising from any investigations, audits, assessments, studies, testing and inspections conducted by a Parent Party pursuant to this Section 8.15.

     Section 8.16 Shareholder Litigation. Target shall give the Parent Parties the reasonable opportunity to participate in the defense of any litigation against Target and its directors relating to the Transactions.

     Section 8.17 Financing

     (a) Prior to the Effective Time, Target shall cooperate with the Parent Parties, the Parent Parties’ financing sources, and the Parent Parties’ auditors and attorneys in connection with the Parent Parties’ financing efforts with respect to the Transactions, including without limitation any refinancing of existing credit facilities of the Parent

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Parties or Target. Without limiting the generality of the foregoing, Target shall provide, and Target shall instruct its auditors to provide, to the Parent Parties such financial and other information that Parent or its Representatives reasonably requests for inclusion in any materials to be used by the Parent Parties or provided to any financing sources in connection with such financing.

     (b) Target shall not take any actions that would terminate or otherwise invalidate the agreement to extend the Fortis Forbearance Agreement until the Effective Time.

     Section 8.18 [Reserved]

     Section 8.19 Shell Settlement. Target agrees that, prior to the Effective Time, it shall use reasonable best efforts to enter into a settlement agreement with Shell, to be effective as of the Effective Time, relating to the pending arbitration proceeding on terms that are materially similar to the terms of the proposed Compromise and Settlement Agreement previously disclosed to Parent. Target shall keep Parent informed, on a current basis, of the status and details of such agreement and shall provide to Parent copies of all correspondence and a description of all material oral discussions between Target and Shell (or between Target’s Representatives and Shell’s Representatives) with respect to the terms of the proposed settlement.

ARTICLE IX.
CONDITIONS TO CONSUMMATION OF THE MERGER

     Section 9.1 Conditions to the Obligation of Each Party. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions:

     (a) The Target Shareholders’ Approval shall have been obtained.

     (b) No action, suit or proceeding instituted by any Governmental Authority may be pending and no statute, rule, order, decree or regulation and no injunction, order, decree or judgment of any court or Governmental Authority of competent jurisdiction may be in effect, in each case which would prohibit, restrain, enjoin or restrict the consummation of the Transactions; provided, however, that if Target seeks to terminate this Agreement pursuant to this subsection (b), Target must have used all reasonable best efforts to prevent the entry of such injunction or other order.

     (c) Each of Target, Parent and Merger Sub shall have obtained all material Permits required to consummate the Transactions.

     Section 9.2 Conditions to the Obligations of the Parent Parties. The obligation of the Parent Parties to effect the Merger is subject to the satisfaction at or prior to the Closing Date of the following conditions, any or all which may be waived by them, in whole or in part, to the extent permitted by applicable law:

     (a) The representations and warranties of Target set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as

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though made on such date (except to the extent such representations and warranties are expressly made only as of a specific date, in which case as of such specific date), except where the failures to be so true and correct (for this purpose disregarding any qualification or limitation as to materiality or a Target Material Adverse Effect) do not have, and would not reasonably be expected to have, individually or in the aggregate, a Target Material Adverse Effect. Parent shall have received a certificate signed on behalf of Target by an executive officer of Target to such effect.

     (b) Target shall have performed in all material respects its obligations required to be performed by it under this Agreement. Parent shall have received a certificate signed on behalf of Target by an executive officer of Target to such effect.

     (c) Since the date of this Agreement, there shall not have occurred a Target Material Adverse Effect.

     (d) Each consent, waiver and approval set forth in Section 5.4(b) and Section 5.4(c) of the Target Disclosure Schedule must have been obtained, and Target must have provided Merger Sub with copies thereof.

     (e) Target shall have provided to Parent the executed Compromise and Settlement Agreement with Shell relating to the arbitration proceeding between the parties, and the terms of such agreement shall be materially similar to the terms previously disclosed to Parent.

     (f) No more than five percent (5%) of the holders of Target Common Shares shall have notified Target or the Parent Parties of their intent to exercise dissenter’s rights.

     (g) The Fairness Opinion, as described in Section 5.24, shall not have been withdrawn.

     (h) Except for the Well Bonus Plans and any other employee incentive plans being assumed by the Surviving Company, all employee incentive plans shall terminate on or prior to the Effective Time.

     (i) All of Target’s payment and other obligations under the Engagement Letters shall have terminated, except for the indemnity and confidentiality provisions thereunder.

     (j) Each holder of an Excepted Option shall have delivered to Parent an executed Option Waiver, Cancellation and Release Agreement cancelling such Excepted Options.

     Section 9.3 Conditions to the Obligations of the Target. The obligations of the Target to effect the Merger shall be subject to the satisfaction at or prior to the Closing Date of the following conditions, any or all of which may be waived by the Target, in whole or in part, to the extent permitted by applicable law:

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     (a) The representations and warranties of Parent and Merger Sub set forth in this Agreement shall be true and correct, in each case as of the date of this Agreement and as of the Closing Date as though made on such date (except to the extent such representations and warranties are expressly made only as of a specific date, in which case as of such specific date), except where the failures to be so true and correct (for this purpose disregarding any qualification or limitation as to materiality or a Parent Material Adverse Effect) do not have, and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. The Target shall have received a certificate signed on behalf of Parent and Merger Sub by an executive officer of Parent and Merger Sub to such effect.

     (b) Parent and Merger Sub shall have performed in all material respects the respective obligations required to be performed by them under this Agreement, and the Target shall have received a certificate signed on behalf of Parent and Merger Sub by an executive officer of Parent and Merger Sub to such effect.

ARTICLE X.
SURVIVAL

     Section 10.1 Survival of Representations and Warranties. The representations and warranties of the parties contained in this Agreement shall not survive the Effective Time.

     Section 10.2 Survival of Covenants and Agreements. The covenants and agreements of the parties to be performed after the Effective Time contained in this Agreement shall survive the Effective Time.

ARTICLE XI.
TERMINATION, AMENDMENT AND WAIVER

     Section 11.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval by the shareholders of Target:

     (a) by the mutual written consent of Parent and Target by action of their respective boards of directors or governing bodies, at any time prior to the Effective Time;

     (b) by either Parent or Target if the Effective Time has not occurred on or before 11:59 p.m. Central time on May 31, 2010 (the “Termination Date”), provided that the party seeking to terminate this Agreement pursuant to this section shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the failure to consummate the Merger on or before the Termination Date;

     (c) by either Target or Parent, if any Governmental Authority issues an order, decree or ruling or takes any other action permanently enjoining, restraining or otherwise prohibiting the Merger and, such order, decree, ruling or other action shall have become final and non-appealable;

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     (d) by Target if there has been a breach by Parent or Merger Sub of any representation, warranty, covenant or agreement set forth in this Agreement which breach would cause the conditions set forth in Section 9.3(a) and Section 9.3(b) not to be satisfied and such breach (if susceptible to cure) has not been cured in all material respects within twenty (20) Business Days following receipt by Parent of notice of such breach (a “Parent Breach”);

     (e) by Parent, if (i) there has been a breach by Target of any representation, warranty, covenant or agreement set forth in this Agreement (other than as described in clause (ii) of this Section 11.1(e)) which breach would cause the conditions set forth in Section 9.2(a) and Section 9.2(b) not to be satisfied and such breach (if susceptible to cure) has not been cured in all respects within twenty (20) Business Days following receipt by Target of notice of such breach, or (ii) the Target Lenders terminate the Forbearance Period (as defined in the Fortis Forbearance Agreement) pursuant to Section 11(e) of the Fortis Forbearance Agreement, or Target breaches the covenant set forth in Section 8.17(b) (in the case of (i) and (ii), a “Target Breach”);

     (f) by Parent or Target if the Target Shareholder Meeting (or any postponement or adjournment thereof) shall have concluded and the Target Shareholders’ Approval shall not have been obtained;

     (g) by Parent if (i) a Change in the Target Recommendation shall have occurred, whether or not permitted by Section 8.4, (ii) following the date of any bona fide Acquisition Proposal by a third party for Target or any material modification thereto is first publicly announced, disclosed or otherwise made known prior to the time at which Target receives the Target Shareholders’ Approval, Target fails to issue a press release that expressly reaffirms the Target Recommendation within ten (10) Business Days following Parent’s written request to do so (which request may be made by Parent one time following any such Acquisition Proposal or any material modifications thereto), (iii) any tender offer or exchange offer constituting an Acquisition Proposal for Target is commenced or materially modified by any third party with respect to the outstanding Target Common Shares prior to the time at which Target receives the Target Shareholders’ Approval, and the Target Board shall not have recommended that the Target Shareholders reject such tender offer or exchange offer and not tender their Target Common Shares into such tender offer or exchange offer within ten (10) Business Days after commencement or material modification of such tender offer or exchange offer, unless Target has issued a press release that expressly reaffirms the Target Recommendation within such ten (10) Business Day period, (iv) Target or the Target Board approves, endorses, recommends, adopts or enters into any Acquisition Proposal by a third party for Target or any Target Acquisition Contract, whether or not permitted by Section 8.4, (v) Target shall have materially breached its obligations under Section 8.4, or (vi) Target or the Target Board announces, resolves or proposes to do any of the foregoing, whether or not permitted by Section 8.4; provided, however, that Parent’s right to terminate this Agreement pursuant to this Section 11.1(g) shall only be available for a ten (10) Business Day period following the applicable triggering event set forth in clauses (i), (ii), (iii), (iv) and (vi) of this Section 11.1(g);

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     (h) by Target, at any time prior to the time at which Target receives the Target Shareholders’ Approval, if the Target Board determines to enter into a definitive agreement with respect to a Superior Proposal in accordance with Section 8.4(b), provided that it pays to Parent the Termination Fee concurrently with such termination; and

     (i) by Parent, at any time, provided that it pays to Target the Termination Fee concurrently with such termination.

     Section 11.2 Notice of Termination; Effect of Termination.

     (a) Other than pursuant to Section 11.1(a), a terminating party shall provide written notice of termination to the other party specifying with particularity the reason for such termination, and any such termination in accordance with Section 11.1 shall be effective immediately upon delivery of such written notice to the other party or, if such termination is due to a Target Breach or a Parent Breach, immediately upon the expiration of the applicable cure period.

     (b) In the event of termination of this Agreement by any party as provided in Section 11.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of any party except with respect to this Article XI, Section 8.3, Section 8.9 and Section 12.14.

     (c) Upon termination of this Agreement, each of the Voting Agreements and the Option Waiver, Cancellation and Release Agreements will terminate according to its terms.

     Section 11.3 Expenses and Other Payments.

     (a) If this Agreement is terminated pursuant to Section 11.1(b), Section 11.1(f), Section 11.1(g) or Section 11.1(h), then Target shall reimburse Parent, in cash, for Parent’s Expenses by wire transfer of immediately available funds to an account designated by Parent, no later than two (2) Business Days after receipt by Target of an invoice from Parent for Parent’s Expenses; provided, however, that in no event shall the amount reimbursed to Parent for its Expenses exceed $1,000,000. In all other cases, each party shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the Transactions, whether or not the Merger shall be consummated.

     (b) If Parent terminates this Agreement pursuant to Section 11.1(g), then Target shall pay Parent the Termination Fee, in cash, by wire transfer of immediately available funds to an account designated by Parent, no later than two (2) Business Days after such termination.

     (c) If Target terminates this Agreement pursuant to Section 11.1(h), then Target shall pay Parent the Termination Fee, in cash, by wire transfer of immediately available funds to an account designated by Parent, concurrently with such termination.

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     (d) If (i) Parent or Target terminate this Agreement pursuant to Section 11.1(b), (ii) prior to the Termination Date, any Person (other than Parent or its Affiliates) makes an Acquisition Proposal for Target, whether or not publicly announced, and (iii) within nine (9) months of the date of such termination Target enters into a definitive agreement or consummates a transaction contemplated by an Acquisition Proposal, then Target shall pay Parent the Termination Fee, in cash, by wire transfer of immediately available funds to an account designated by Parent, no later than two (2) Business Days after Target consummates a transaction contemplated by an Acquisition Proposal irrespective of the date upon which such transaction is consummated.

     (e) If (i) Target terminates this Agreement pursuant to Section 11.1(f), (ii) prior to the date of the Target Shareholders Meeting any Person (other than Parent or its Affiliates) makes an Acquisition Proposal for Target, whether or not publicly announced, and (iii) within nine (9) months of the date of such termination Target enters into a definitive agreement or consummates a transaction contemplated by an Acquisition Proposal, then Target shall pay Parent the Termination Fee, in cash, by wire transfer of immediately available funds to an account designated by Parent, no later than two (2) Business Days after Target consummates a transaction contemplated by an Acquisition Proposal irrespective of the date upon which such transaction is consummated.

     (f) If Target terminates this Agreement pursuant to Section 11.1(d), then Parent shall pay Target the Termination Fee, in cash, by wire transfer of immediately available funds to an account designated by Target, no later than two (2) Business Days after such termination.

     (g) If Parent terminates this Agreement pursuant to Section 11.1(e), then Target shall pay Parent the Termination Fee, in cash, by wire transfer of immediately available funds to an account designated by Parent, no later than two (2) Business Days after such termination.

     (h) If Parent terminates this Agreement pursuant to Section 11.1(i) only and for none of the other reasons specified in Section 11.1, then Parent shall pay Target the Termination Fee, in cash, by wire transfer of immediately available funds to an account designated by Target, concurrently with such termination. Target agrees (for itself and on behalf of its Subsidiaries, Affiliates, stockholders or Representatives) that if Parent pays the Termination Fee pursuant to this Section 11.3(h), the payment of such Termination Fee shall be the sole and exclusive remedy of Target, its Subsidiaries, Affiliates, stockholders or Representatives against Parent, Merger Sub or any of their respective Subsidiaries, Affiliates, partners or Representatives for Parent’s termination of this Agreement pursuant to Section 11.1(i), and in no event will Target seek to recover any other money damages or seek any other remedy based on a claim in law or equity (including specific performance). Upon payment to Target of the Termination Fee, neither Parent, Merger Sub nor any of their Subsidiaries, Affiliates, stockholders or Representatives shall have any further liability or obligation to Target or its Subsidiaries, Affiliates, stockholders or Representatives relating to or arising out of this Agreement or the Transactions.

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     (i) The parties acknowledge and agree that the agreements contained in this section are an integral part of the Transactions, and that, without these agreements, the parties would not enter into this Agreement. If a party fails to promptly pay the amount due by it pursuant to this section, interest shall accrue on such amount from the date such payment was required to be paid pursuant to the terms of this Agreement until the date of payment at the rate of six percent (6%) per annum. If, in order to obtain such payment, the other party commences a suit that results in judgment for such party for such amount, the defaulting party shall pay the other party its reasonable costs and expenses (including reasonable attorneys’ fees and expenses) incurred in connection with such suit. Each of the parties further acknowledges that the payment of the amounts by Parent and Target specified in this section is not a penalty, but in each case (except in the case of a Parent Breach or a Target Breach) are liquidated damages in a reasonable amount that will compensate Target or Parent, as the case may be, in the circumstances in which such fees are payable for the efforts and resources expended and the opportunities foregone while negotiating this Agreement and in reliance on this Agreement and on the expectation of the consummation of the Transactions, which amount would otherwise be impossible to calculate with precision. In no event shall Parent or Target, as applicable, be required to pay the Termination Fee more than once.

ARTICLE XII.
MISCELLANEOUS

     Section 12.1 Notices. All notices or communications hereunder shall be in writing (including facsimile or similar writing) addressed as follows:

     To Parent:

ALTA MESA HOLDINGS, LP
15415 Katy Fwy, Suite 800
Houston, Texas 77094
Attention: Harlan H. Chappelle, President
Telephone: (281) 530-0991
Facsimile: (281) 530-5278

     To Merger Sub:

ALTA MESA ACQUISITION SUB, LLC
c/o Alta Mesa Holdings, LP
15415 Katy Fwy, Suite 800
Houston, Texas 77094
Attention: Harlan H. Chappelle, President
Telephone: (281) 530-0991
Facsimile: (281) 530-5278

     With copies (which shall not constitute notice) to:

Haynes and Boone, LLP

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1221 McKinney Street, Suite 2100
Houston, Texas 77010
Attention: Buddy Clark
Telephone: (713) 547-2077
Facsimile: (713) 236-5577

Haynes and Boone, LLP
1221 McKinney Street, Suite 2100
Houston, Texas 77010
Attention: Bill Nelson
Telephone: (713) 547-2084
Facsimile: (713) 236-5557

     To Target:

THE MERIDIAN RESOURCE CORPORATION
1401 Enclave Parkway, Suite 300
Houston, Texas 77077
Attention: Paul Ching, Chairman & CEO
Telephone: (281) 597-7000
Facsimile: (281) 597-8880

     With a copy (which shall not constitute notice) to:

Fulbright & Jaworski L.L.P.
1301 McKinney Street, Suite 5100
Houston, Texas 77010
Attention: Roger K. Harris
Telephone: (713) 651-5151
Facsimile: (713) 651-5246

     Any such notice or communication shall be deemed given (i) when made, if made by hand delivery, and upon confirmation of receipt, if made by facsimile, (ii) one Business Day after being deposited with a next-day courier, postage prepaid, or (iii) three (3) Business Days after being sent certified or registered mail, return receipt requested, postage prepaid, in each case addressed as above (or to such other address as such party may designate in writing from time to time).

     Section 12.2 Severability. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect.

     Section 12.3 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, and assigns; provided, however, that neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation and any assignment in violation hereof shall be null and void.

54

     Section 12.4 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

     Section 12.5 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same Agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to each party.

     Section 12.6 Entire Agreement. This Agreement, all documents contemplated herein or required hereby, the Confidentiality Agreement and the Voting Agreements represent the entire Agreement of the parties with respect to the subject matter hereof and shall supersede any and all previous contracts, arrangements or understandings between the parties with respect to the subject matter hereof.

     Section 12.7 Governing Law. This Agreement shall be construed, interpreted, and governed in accordance with the laws of the state of Texas, without reference to rules relating to conflicts of law.

     Section 12.8 Submission to Jurisdiction. Each party to this Agreement submits to the exclusive jurisdiction of the federal and state courts in Harris County, in the State of Texas, in any dispute or action arising out of or relating to this Agreement and agrees that all claims in respect of such dispute or action may be heard and determined in any such court. Each party also agrees not to bring any dispute or action arising out of or relating to this Agreement in any other court. Each party agrees that a final judgment in any dispute or action so brought will be conclusive and may be enforced by dispute or action on the judgment or in any other manner provided at law (common, statutory or other) or in equity. Each party waives any defense of inconvenient forum to the maintenance of any dispute or action so brought and waives any bond, surety, or other security that might be required of any other party with respect thereto.

     Section 12.9 Attorneys’ Fees. If any action at law or equity, including an action for declaratory relief, is brought to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees and expenses from the other party, which fees and expenses shall be in addition to any other relief which may be awarded.

     Section 12.10 No Third Party Beneficiaries. Except as provided in Section 8.5, no Person other than a party to this Agreement is an intended beneficiary of this Agreement or any portion hereof.

     Section 12.11 Disclosure Schedules. The disclosures made on the Target Disclosure Schedule, with respect to any representation or warranty shall be deemed to be made with respect to any other representation or warranty requiring the same or similar disclosure to the extent that the relevance of such disclosure to other representations and warranties is reasonably evident from the face of the disclosure schedule. The inclusion of any matter on the Target Disclosure Schedule will not be deemed an admission by Target that such listed matter is material or that such listed matter has or would have a Target Material Adverse Effect.

55

     Section 12.12 Amendments and Supplements. At any time before or after approval of the matters presented in connection with the Merger by the shareholders of Target and prior to the Effective Time, this Agreement may be amended or supplemented in writing by the Parent Parties and Target with respect to any of the terms contained in this Agreement, except as otherwise provided by law; provided, however, that following approval of this Agreement by the shareholders of Target, there shall be no amendment or change to the provisions hereof unless permitted by the TBCA and/or the TBOC, as applicable, without further approval by the shareholders of Target.

     Section 12.13 Extensions, Waivers, etc. At any time prior to the Effective Time, either party may:

     (a) extend the time for the performance of any of the obligations or acts of the other party;

     (b) waive any inaccuracies in the representations and warranties of the other party, or breaches thereof, contained herein or in any document delivered pursuant hereto; or

     (c) subject to the proviso of Section 12.12 waive compliance with any of the agreements or conditions of the other party contained herein.

     Notwithstanding the foregoing, no failure or delay by Merger Sub or Target in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.

     Section 12.14 Specific Performance; Additional Remedies. Parent, Merger Sub and Target agree that money damages would not be a sufficient remedy for any Parent Breach or any Target Breach and that, in addition to the remedies set forth in Section 11.3, the non-breaching party shall be entitled to all remedies available to it at law or equity as a remedy for such breach, including specific performance and injunctive relief. In connection with any request for specific performance or other equitable relief by the non-breaching party under this Section 12.14, the breaching party waives any requirement for the security or posting of any bond in connection with such remedy. The parties further agree that (a) by seeking any particular remedy, the non-breaching party shall not in any respect waive its right to seek any other form of relief that may be available to it, and (b) nothing contained in this Section 12.14 shall require the non-breaching party to institute any proceeding for (or limit the right of the non-breaching party to institute any proceeding for) specific performance or injunctive relief under this Section 12.14 before exercising any termination right arising from a Parent Breach or a Target Breach, as applicable (and pursuing damages after such termination), nor shall the commencement of any action pursuant to this Section 12.14 or anything contained in this Section 12.14 restrict or limit the right of the non-breaching party to terminate this Agreement as a result of a Parent Breach or a Target Breach, as applicable, or pursue any other remedies under this Agreement that may be available then or thereafter.

56

     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

ALTA MESA HOLDINGS, LP
By:	Alta Mesa GP, LLC
Its:	General Partner
By:	/s/ Harlan H. Chappelle
	Name:	Harlan H. Chappelle
	Title:	President and Chief Executive Officer
ALTA MESA ACQUISITION SUB, LLC
By:	/s/ Harlan H. Chappelle
	Name:	Harlan H. Chappelle
	Title:	Manager
THE MERIDIAN RESOURCE CORPORATION
By:	/s/ Paul D. Ching
	Name:	Paul D. Ching
	Title:	Chairman, Chief Executive Officer and President

[Signature Page — Agreement and Plan of Merger]

EX-10.9

Exhibit 10.9

FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER

     This First Amendment to Agreement and Plan of Merger, dated as of April 7, 2010 (this “Amendment”), is entered into by and among ALTA MESA HOLDINGS, LP, a Texas limited partnership (“Parent”), ALTA MESA ACQUISITION SUB, LLC, a Texas limited liability company (“Merger Sub,” and, together with Parent, the “Parent Parties”), and THE MERIDIAN RESOURCE CORPORATION, a Texas corporation (“Target”). All capitalized terms used and not otherwise defined herein have the meanings ascribed to them in the Merger Agreement.

RECITALS

     WHEREAS, the Parent Parties and Target have entered into that certain Agreement and Plan of Merger, dated December 22, 2009 (the “Merger Agreement”); and

     WHEREAS, the Parent Parties and Target desire to amend the Merger Agreement to provide for a revised Merger Consideration of $0.33 per Target Common Share in cash, without interest; and

     WHEREAS, accordingly, the Parent Parties and Target desire to amend the Merger Agreement in the manner more particularly described below.

AGREEMENT

     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parent Parties and Target hereby agree as follows:

     1. Amendment to Section 4.1(a). Section 4.1(a) of the Merger Agreement is hereby amended by deleting the phrase “$0.29 per Target Common Share (the “Merger Consideration”)” and inserting the phrase “$0.33 per Target Common Share (the “Merger Consideration”)” in lieu thereof.

     2. Governing Law. This Agreement shall be construed, interpreted, and governed in accordance with the laws of the state of Texas, without reference to rules relating to conflicts of law.

     3. Counterparts. This Amendment may be executed in one or more counterparts, all of which shall be considered one and the same Amendment, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to each party.

     4. No Other Amendments. Except as set forth herein, the terms and provisions of the Merger Agreement will remain in full force and effect in accordance with their terms. On or after the date of this Amendment, each reference in the Merger Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import referring to the Merger Agreement shall mean and be a reference to the Merger Agreement as amended by this Amendment, and this Amendment shall be deemed to be a part of the Merger Agreement.

     IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the day and year first above written.

ALTA MESA HOLDINGS, LP
By:	Alta Mesa GP, LLC
	Its:	General Partner
By:	/s/ Harlan H. Chappelle
	Name:	Harlan H. Chappelle
	Title:	President and Chief Executive Officer
ALTA MESA ACQUISITION SUB, LLC
By:	/s/ Harlan H. Chappelle
	Name:	Harlan H. Chappelle
	Title:	Manager
THE MERIDIAN RESOURCE CORPORATION
By:	/s/ Paul D. Ching
	Name:	Paul D. Ching
	Title:	Chief Executive Officer and President

EX-10.10

Exhibit 10.10

AMENDED AND RESTATED PROMISSORY NOTE

$345,523.89 Houston, Texas June 30, 2010

     FOR VALUE RECEIVED, the undersigned, GALVESTON BAY RESOURCES, LP, a Texas limited partnership (“Maker”), hereby unconditionally promises to pay to the order of MICHAEL E. ELLIS, a Texas resident (“Payee”), the principal sum of THREE HUNDRED FORTY-FIVE THOUSAND, FIVE HUNDRED TWENTY-THREE AND 89/100 DOLLARS ($345,523.89) in lawful money of the United States of America, together with interest on the unpaid principal balance from day to day remaining, computed from the date hereof. Interest shall be paid at the agreed rate of ten percent (10.00%) per annum. This Note, including all principal and accrued but unpaid interest is due and payable on December 31, 2018. All past due principal and interest shall bear interest at the highest lawful rate per annum from maturity until paid. Interest has accrued on the principal amount of $345,523.89 since the execution of the 2004 Note (defined below) as reflected in the books of Payee.

     This Note is executed in assumption, renewal and extension but not discharge or novation of (a) that certain promissory note executed by Galveston Bay Resources, Inc. in favor of Payee, dated as of August 20, 2004, in the original principal amount of $345,523.89 (the “2004 Note”), (b) that certain promissory note executed by Maker in favor of Payee, dated as of October 1, 2005, in the original principal amount of $345,523.89 (the “2005 Note”), (c) that certain promissory note executed by Maker in favor of Payee, dated as of February 26, 2007, in the original principal amount of $340,249.78 (the “2007 Note”) and (d) that certain promissory note executed by Maker, dated as of May 13, 2010, in favor of Payee in the original principal amount of $345,523.89 (the “2010 Note”). Maker and Payee agree that the principal amount of the 2007 Note was incorrectly stated, and that the correct principal amount of the 2007 Note should have been $345,523.89.

     Maker’s obligations under this Note are subordinate and inferior to (a) all the “Obligations” of Maker as defined in the Sixth Amended and Restated Credit Agreement dated as of May 13, 2010 (the “First Lien Credit Agreement”), as such agreement has been and may be modified, amended or restated from time to time and no principal or interest payments may be made on this Note without the unanimous approval of the “Lenders” as defined in the First Lien Credit Agreement, (b) all “Obligations” of Maker as defined in the Subordinated Credit Agreement dated as of November 13, 2008 (the “Second Lien Credit Agreement”), as such has been and may be modified, amended and restated from time to time and no principal or interest payments may be made on this Note without the unanimous approval of the “Lenders” as defined in the Second Lien Credit Agreement, (c) all rights of Alta Mesa Investment Holdings, Inc. (“Investor”) to receive distributions under the First Amended and Restated Agreement of Limited Partnership of Alta Mesa Holdings, LP, dated as of September 1, 2006, as such agreement has been and may be modified, amended or restated from time to time and subject to the terms of that certain Source of Payment, Limited Recourse and Subordination Agreement by and among Alta Mesa Resources, LP, Petro Acquisitions, LP, Maker, Alta Mesa Holdings, GP, LLC, Galveston Bay Resources Holdings, LP, Petro Acquisition Holdings, LP, Petro Operating Company Holdings, Inc., Harlan H. Chappelle, Dale Hayes and Investor, and (d) all obligations

of Maker in connection with any Senior Unsecured Notes (as defined in the First Lien Credit Agreement) issued or guaranteed by Maker or its affiliates and no principal or interest payments may be made on this Note until such Senior Unsecured Notes have been paid in full. By acceptance of this Note, Payee agrees to be bound by the terms of such subordination and shall not accept any payments under this Note from Maker in violation thereof.

     Subject to the foregoing subordination agreements, this Note may be prepaid in whole or in part at any time without penalty. If this Note is placed in the hands of an attorney for collection or is collected by suit or through the probate or bankruptcy courts, then Maker shall additionally pay the reasonable attorney’s fees and cost of collection of the holder thereof. Maker and all endorsers and guarantors hereof, if any, and all others who may become liable on or for all or any part of the obligations evidenced hereby, severally waive presentment for payment, protest, notice of protest, and notice of non-payment hereof and to the release of any person liable hereon upon any terms deemed adequate by the holder hereof, in his sole discretion. Any such renewal or extension hereof or the release of any person liable hereon may be made without notice to any of said parties and without affecting their liability.

GALVESTON BAY RESOURCES, LP, a Texas limited partnership
By:	Alta Mesa GP, LLC, its general partner
By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

EX-10.11

Exhibit 10.11

AMENDED AND RESTATED PROMISSORY NOTE

$11,561,550.87 Houston, Texas June 30, 2010

     FOR VALUE RECEIVED, the undersigned, ALTA MESA HOLDINGS, LP, a Texas limited partnership (“Maker”), hereby unconditionally promises to pay to the order of MICHAEL E. ELLIS, a Texas resident (“Payee”), the principal sum of ELEVEN MILLION, FIVE HUNDRED SIXTY-ONE THOUSAND, FIVE HUNDRED FIFTY AND 87/100 DOLLARS ($11,561,550.87) in lawful money of the United States of America, together with interest on the unpaid principal balance from day to day remaining, computed from the date hereof. Interest shall be paid at the agreed rate of ten percent (10.00%) per annum. This Note, including all principal and accrued but unpaid interest is due and payable on December 31, 2018. All past due principal and interest shall bear interest at the highest lawful rate per annum from maturity until paid. Interest has accrued on the principal amount of $11,561,550.87 since the execution of the 2004 Note (defined below) as reflected in the books of Payee.

     This Note is executed in assumption, renewal and extension but not discharge or novation of (a) that certain promissory note executed by Alta Mesa Resources, Inc. in favor of Payee, dated as of August 20, 2004, in the original principal amount of $11,561,550.87 (the “2004 Note”), (b) that certain promissory note executed by Alta Mesa Resources, LP in favor of Payee, dated as of October 1, 2005, in the original principal amount of $11,561,550.87 (the “2005 Note”), (c) that certain promissory note executed by Alta Mesa Resources, LP in favor of Payee, dated as of February 26, 2007, in the original principal amount of $11,386,550.87 (the “2007 Note”) and (d) that certain promissory note executed by Alta Mesa Resources, LP, a Texas limited partnership, dated as of May 13, 2010, in favor of Payee in the original principal amount of $11,561,550.87 (the “2010 Note”). Maker and Payee agree that the principal amount of the 2007 Note was incorrectly stated, and that the correct principal amount of the 2007 Note should have been $11,561,550.87.

     Maker’s obligations under this Note are subordinate and inferior to (a) all “Obligations” of Maker as defined in the Sixth Amended and Restated Credit Agreement dated as of May 13, 2010 (the “First Lien Credit Agreement”), as such agreement has been and may be modified, amended or restated from time to time and no principal or interest payments may be made on this Note without the unanimous approval of the “Lenders” as defined in the First Lien Credit Agreement, (b) all “Obligations” of Maker as defined in the Subordinated Credit Agreement dated as of November 13, 2008 (the “Second Lien Credit Agreement”), as such has been and may be modified, amended and restated from time to time and no principal or interest payments may be made on this Note without the unanimous approval of the “Lenders” as defined in the Second Lien Credit Agreement, (c) all rights of Alta Mesa Investment Holdings, Inc. (“Investor”) to receive distributions under the First Amended and Restated Agreement of Limited Partnership of Maker, dated as of September 1, 2006 as such agreement has been and may be modified, amended or restated from time to time, and subject to the terms of that certain Source of Payment, Limited Recourse and Subordination Agreement by and among Alta Mesa Resources, LP, Galveston Bay Resources, LP, Petro Acquisitions, LP, Alta Mesa Holdings, GP, LLC, Galveston Bay Resources Holdings, LP, Petro Acquisition Holdings, LP, Petro Operating

Company Holdings, Inc., Harlan H. Chappelle, Dale Hayes and Investor, and (d) all obligations of Maker in connection with any Senior Unsecured Notes (as defined in the First Lien Credit Agreement) issued or guaranteed by Maker or its affiliates and no principal or interest payments may be made on this Note until such Senior Unsecured Notes have been paid in full. By acceptance of this Note, Payee agrees to be bound by the terms of such subordination and shall not accept any payments under this Note from Maker in violation thereof.

     Subject to the foregoing subordination agreements, this Note may be prepaid in whole or in part at any time without penalty. If this Note is placed in the hands of an attorney for collection or is collected by suit or through the probate or bankruptcy courts, then Maker shall additionally pay the reasonable attorney’s fees and cost of collection of the holder thereof. Maker and all endorsers and guarantors hereof, if any, and all others who may become liable on or for all or any part of the obligations evidenced hereby, severally waive presentment for payment, protest, notice of protest, and notice of non-payment hereof and to the release of any person liable hereon upon any terms deemed adequate by the holder hereof, in his sole discretion. Any such renewal or extension hereof or the release of any person liable hereon may be made without notice to any of said parties and without affecting their liability.

ALTA MESA HOLDINGS, LP, a Texas limited partnership
By:	Alta Mesa Holdings GP, LLC,
	its general partner
By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

EX-10.12

Exhibit 10.12

AMENDED AND RESTATED PROMISSORY NOTE

$178,278.21 Houston, Texas June 30, 2010

     FOR VALUE RECEIVED, the undersigned, PETRO ACQUISITIONS, LP, a Texas limited partnership (“Maker”), hereby unconditionally promises to pay to the order of MICHAEL E. ELLIS, a Texas resident (“Payee”), the principal sum of ONE HUNDRED SEVENTY-EIGHT THOUSAND, TWO HUNDRED SEVENTY-EIGHT AND 21/100 DOLLARS ($178,278.21) in lawful money of the United States of America, together with interest on the unpaid principal balance from day to day remaining, computed from the date hereof. Interest shall be paid at the agreed rate of ten percent (10.00%) per annum. This Note, including all principal and accrued but unpaid interest is due and payable on December 31, 2018. All past due principal and interest shall bear interest at the highest lawful rate per annum from maturity until paid. Interest has accrued on the principal amount of $178,278.21 since the execution of the 2004 Note (defined below) as reflected in the books of Payee.

     This Note is executed in assumption, renewal and extension but not discharge or novation of (a) that certain promissory note executed by Petro Acquisitions, Inc. in favor of Payee, dated as of August 20, 2004, in the original principal amount of $178,278.21 (the “2004 Note”), (b) that certain promissory note executed by Maker in favor of Payee, dated as of October 1, 2005, in the original principal amount of $178,278.21 (the “2005 Note”), (c) that certain promissory note executed by Maker in favor of Payee, dated as of February 26, 2007, in the original principal amount of $178,278.21 (the “2007 Note”) and (d) that certain promissory note executed by Maker, dated as of May 13, 2010, in favor of Payee in the original principal amount of $178,278.21 (the “2010 Note”).

     Maker’s obligations under this Note are subordinate and inferior to (a) all the “Obligations” of Maker as defined in the Sixth Amended and Restated Credit Agreement dated as of May 13, 2010 (the “First Lien Credit Agreement”), as such agreement has been and may be modified, amended or restated from time to time and no principal or interest payments may be made on this Note without the unanimous approval of the “Lenders” as defined in the First Lien Credit Agreement (b) all “Obligations” of Maker as defined in the Subordinated Credit Agreement dated as of November 13, 2008 (the “Second Lien Credit Agreement”), as such has been and may be modified, amended and restated from time to time and no principal or interest payments may be made on this Note without the unanimous approval of the “Lenders” as defined in the Second Lien Credit Agreement, (c) all rights of Alta Mesa Investment Holdings, Inc. (“Investor”) to receive distributions under the First Amended and Restated Agreement of Limited Partnership of Alta Mesa Holdings, LP, dated as of September 1, 2006, as such agreement has been and may be modified, amended or restated from time to time and subject to the terms of that certain Source of Payment, Limited Recourse and Subordination Agreement by and among Alta Mesa Resources, LP, Galveston Bay Resources, LP, Maker, Alta Mesa Holdings, GP, LLC, Galveston Bay Resources Holdings, LP, Petro Acquisition Holdings, LP, Petro Operating Company Holdings, Inc., Harlan H. Chappelle, Dale Hayes and Investor and (d) all obligations of Maker in connection with any Senior Unsecured Notes (as defined in the First Lien Credit Agreement) issued or guaranteed by Maker or its affiliates and no principal or

interest payments may be made on this Note until such Senior Unsecured Notes have been paid in full. By acceptance of this Note, Payee agrees to be bound by the terms of such subordination and shall not accept any payments under this Note from Maker in violation thereof.

     Subject to the foregoing subordination agreements, this Note may be prepaid in whole or in part at any time without penalty. If this Note is placed in the hands of an attorney for collection or is collected by suit or through the probate or bankruptcy courts, then Maker shall additionally pay the reasonable attorney’s fees and cost of collection of the holder thereof. Maker and all endorsers and guarantors hereof, if any, and all others who may become liable on or for all or any part of the obligations evidenced hereby, severally waive presentment for payment, protest, notice of protest, and notice of non-payment hereof and to the release of any person liable hereon upon any terms deemed adequate by the holder hereof, in his sole discretion. Any such renewal or extension hereof or the release of any person liable hereon may be made without notice to any of said parties and without affecting their liability.

PETRO ACQUISITIONS, LP, a Texas limited partnership
By:	Alta Mesa GP, LLC, its general partner
By:	/s/ Michael A. McCabe
	Michael A. McCabe
	Chief Financial Officer

EX-10.13

Exhibit 10.13

THE MERIDIAN RESOURCE &
EXPLORATION LLC
CHANGE IN CONTROL SEVERANCE PLAN
AND SUMMARY PLAN DESCRIPTION

(As Amended and Restated Effective as of May 14, 2010)

THE MERIDIAN RESOURCE & EXPLORATION LLC
CHANGE IN CONTROL SEVERANCE PLAN
AND SUMMARY PLAN DESCRIPTION

(As Amended and Restated Effective May 14, 2010)

     WHEREAS, The Meridian Resource & Exploration LLC, a limited liability company that is organized and existing under the laws of the State of Delaware (“TMRX”), recognizes that one of its most valuable assets consists of its employees and consultants; and

     WHEREAS, TMRX previously adopted The Meridian Resource & Exploration LLC Change in Control Severance Plan (the “Plan”), effective as of December 15, 2008, to provide severance benefits in the event that the employment or affiliation relationship of certain service providers is involuntarily terminated in conjunction with a Change in Control (as defined in the Plan); and

     WHEREAS, TMRX desires to amend and restate the Plan to comply with ERISA and to clarify certain provisions therein; and intending thereby to provide a continuing program of benefits without a gap or lapse in coverage;

     NOW, THEREFORE, the Plan is hereby amended and restated in its entirety, with no interruption or gap in coverage, effective as of May 14, 2010, unless otherwise specified herein:

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TABLE OF CONTENTS

			Page
ARTICLE I ESTABLISHMENT AND OBJECTIVE				1
	1.1	Establishment		1
	1.2	Objective		1
ARTICLE II DEFINITIONS AND CONSTRUCTION				1
	2.1	Capitalized Terms		1
	2.2	Number and Gender		8
	2.3	Headings		8
	2.4	Construction and Interpretation		8
ARTICLE III ELIGIBILITY				8
ARTICLE IV BENEFITS				9
	4.1	Equity Based Compensation		9
	4.2	Benefits Following Termination of Employment or Affiliation Relationship		9
	4.3	Legal Fees		10
ARTICLE V TIME OF BENEFITS PAYMENTS				11
ARTICLE VI TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE				11
	6.1	Notice of Termination		11
	6.2	Termination Date		11
	6.3	Dispute Concerning Termination		11
ARTICLE VII WITHHOLDING				12
ARTICLE VIII DEATH OF PARTICIPANT				12
ARTICLE IX AMENDMENT AND TERMINATION				12
ARTICLE X ADOPTION OF PLAN BY AFFILIATES				12
ARTICLE XI MISCELLANEOUS				13
	11.1	Plan Not an Employment Contract		13
	11.2	Alienation Prohibited		13
	11.3	Severability		13
	11.4	Binding Effect		13
	11.5	Other Amounts Due		13
	11.6	Notices		14
	11.7	Governing Law		14
ARTICLE XII CLAIMS PROCEDURES				14
	12.1	Notice of Claim		14
	12.2	Claims Review Procedure		15
	12.3	Exhaustion of Administrative Remedies		15
ARTICLE XIII PLAN ADMINISTRATION				16
	13.1	Allocation of Authority		16

ii

			Page
	13.2	Powers and Duties of the Plan Administrator		16
	13.3	Delegation by the Plan Administrator		17
APPENDIX A ERISA INFORMATION				A-1
APPENDIX B YOUR ERISA RIGHTS				B-1

iii

THE MERIDIAN RESOURCE & EXPLORATION LLC
CHANGE IN CONTROL SEVERANCE PLAN
AND SUMMARY PLAN DESCRIPTION

ARTICLE I
ESTABLISHMENT AND OBJECTIVE

     1.1 Establishment. The Meridian Resource & Exploration LLC, a Delaware limited liability company (“TMRX” or the “Company”), hereby amends and restates the “The Meridian Resource & Exploration LLC Change in Control Severance Plan” effective as of May 14, 2010 (the “Plan”).

     1.2 Objective. The Plan is designed to attract and retain certain designated Employees and Consultants of the Company and its Affiliates, and to reward such Employees and Consultants by providing replacement income and certain benefits following a Change in Control.

ARTICLE II
DEFINITIONS AND CONSTRUCTION

     2.1 Capitalized Terms. Whenever used in the Plan, the following capitalized terms in this Section 2.1 shall have the meanings set forth below:

     “Affiliate” means any entity which is a member of (i) the same controlled group of corporations within the meaning of section 414(b) of the Code with TMRC or TMRX, (ii) a trade or business (whether or not incorporated) which is under common control (within the meaning of section 414(c) of the Code) with TMRC or TMRX or (iii) an affiliated service group (within the meaning of section 414(m) of the Code) with TMRC or TMRX.

     “Annual Incentive Plan” means The Meridian Resource & Exploration LLC Annual Incentive Compensation Plan, as it may be amended from time to time,

     “Applicable Factor” means the applicable factor specified in the Participant’s Notice of Participation not in excess of 1.5, 1.0, and .6 for a Level One Participant, a Level Two Participant, and a Level Three Participant, respectively.

     “Applicable Period” the number of months specified in the Participant’s Notice of Participation, but not in excess of 18, 12, and 6 for a Level One Participant, a Level Two Participant, and a Level Three Participant, respectively.

     “Assets” means assets of any kind owned by TMRC or TMRX including, but not limited to, securities of TMRX’s parent or direct and indirect subsidiaries and Affiliates.

     “Base Compensation” means a Participant’s base salary or wages from the Company (as defined in section 3401(a) of the Code for purposes of federal income tax withholding) or net earnings from self-employment from the Company (as defined in section 1402(a) of the Code) from the Company, modified by including any portion thereof that such Participant could have received in cash in lieu of any elective deferrals made by the Participant pursuant to a

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nonqualified deferred compensation arrangement or pursuant to a qualified cash or deferred arrangement described in section 401(k) of the Code and any elective contributions under a cafeteria plan described in section 125 of the Code, and modified further by excluding any bonus, incentive compensation (including but not limited to equity-based compensation), commissions, expense reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation (other than elective deferrals by the Participant under a qualified cash or deferred arrangement described in section 401(k) of the Code or a nonqualified deferred compensation arrangement that are expressly included in “Base Compensation” under the foregoing provisions of this definition), welfare benefits as defined in ERISA, overtime pay, special performance compensation amounts and severance compensation.

     “Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to those terms in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

     “Board” means the Board of Managers of TMRX or the Sole Manager of TMRX, as applicable, or any other equivalent governing body of TMRX.

     “Cause” means (i) the willful and continued failure by the Participant to substantially perform the Participant’s duties with the Company (other than any such failure resulting from the Participant’s incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Participant by the Board (or by a delegate appointed by the Board), which demand specifically identifies the manner in which the Board believes that the Participant has not substantially performed the Participant’s duties, or (ii) the willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company or any of its Affiliates, monetarily or otherwise. For purposes of Sections (i) and (ii) of this definition, (A) no act, or failure to act, on the Participant’s part shall be deemed “willful” if done, or omitted to be done, by the Participant in good faith and with reasonable belief that the act, or failure to act, was in the best interest of the Company and (B) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the satisfaction of the Board that Cause exists.

     “Change in Control” means the occurrence of any of the following events:

     (a) the consummation of a Merger of TMRC or an Affiliate of TMRC with another Entity, unless the individuals and Entities who were the Beneficial Owners of the Voting Securities of TMRC outstanding immediately prior to such Merger own, directly or indirectly, more than 70 percent of the combined voting power of the Voting Securities of any of TMRC, the surviving Entity or the parent of the surviving Entity outstanding immediately after such Merger;

     (b) any Person, other than a Specified Owner, becomes a Beneficial Owner, directly or indirectly, of securities of TMRC representing 30 percent or more of the combined voting power of TMRC’s then outstanding Voting Securities; (c) a sale, transfer, lease or other disposition of all or substantially all of TMRC or TMRX’s Assets is consummated (an “Asset Sale”), unless:

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     (1) the individuals and Entities who were the Beneficial Owners of the Voting Securities of TMRC or TMRX immediately prior to such Asset Sale own, directly or indirectly, more than 70 percent of the combined voting power of the Voting Securities of the Entity that acquires such Assets in such Asset Sale or its parent immediately after such Asset Sale in substantially the same proportions as their ownership of TMRC or TMRX’s Voting Securities immediately prior to such Asset Sale; or

     (2) the individuals who comprise the Board immediately prior to such Asset Sale constitute a majority of the board of directors or other governing body of either the Entity that acquired such Assets in such Asset Sale or its parent (or a majority plus one member where such board or other governing body is comprised of an odd number of directors); or

     (c) the individuals who are Incumbent Directors cease for any reason to constitute a majority of the members of the Board of TMRC; or

     (d) The stockholders of TMRC or TMRX approve a plan of complete liquidation or dissolution of TMRC or TMRX.

     “Code” means the Internal Revenue Code of 1986, as amended, or any successor act.

     “Committee” means one or more individuals as may be appointed by the Board to serve as the Committee until such time as removed or replaced by the Board in its discretion; provided, however, any Employee shall be automatically removed as a Committee member upon his termination of Employment.

     “Company” means TMRX (or a successor in interest to TMRX or its successor) or an Affiliate that adopts the Plan pursuant to the provisions of Article X.

     “Consultant” means an individual who (a) performs significant and valuable services for the Company or its Affiliates, as determined by the Board, but is not an Employee, and (b) has been designated by the Board as a Consultant hereunder for purposes of participation in this Plan.

     “Disability” means the Participant’s incapacity due to physical or mental illness that has caused the Participant to be absent from full-time performance of his duties with the Company for a period of six (6) consecutive months.

     “Effective Date” means December 15, 2008, the date as of which the Plan was originally adopted.

     “Eligible Individual” means an Employee who is not the Chief Executive Officer or President and Chief Operating Officer of TMRC or TMRX, or a member of the Board of TMRC. “Eligible Individual” also means a Consultant, as so designated by the Board, who is not a member of the Board of TMRC.

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     “Employee” means any individual who is employed by an Employer and classified as an employee on its payroll records.

     “Employer” means TMRX or any of its Affiliates.

     “Employment” means the Employee is in employment service with an Employer and classified as an employee on the Employer’s payroll records. A leave of absence that has been approved by the Employer, or is required by applicable law, shall not be deemed a termination of Employment for the purposes of the Plan. The term “Employment”, as used herein with respect to a Consultant, means that the Consultant is currently serving under a consulting arrangement with the Company as determined by the Board.

     “Entity” means any corporation, partnership, association, joint-stock company, limited liability company, trust, unincorporated organization or other business entity.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, or any successor act.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor act.

     “Expiration Date” shall have the meaning specified in the definition of the “Term of the Plan”.

     “Good Reason” for termination by the Participant of his Employment means the occurrence (without the Participant’s express written consent) after any Change in Control, of any one of the following acts by the Company, or failures by the Company to act, as determined by the Committee as of the termination date, unless, in the case of any act or failure to act described in paragraph (a) below, such act or failure to act is corrected prior to the effective date of the Participant’s termination for Good Reason:

     (a) the assignment to the Participant of any duties or responsibilities which are substantially diminished as compared to the Participant’s duties and responsibilities immediately prior to a Change in Control or a material change in the Participant’s reporting responsibilities, titles or offices as an Employee or Consultant, as applicable, and as in effect immediately prior to the Change in Control;

     (b) a reduction by the Company in the sum of the amount of the Participant’s annual Base Compensation and the amount of the Participant’s target bonus opportunity under the Annual Incentive Plan as in effect immediately prior to a Change in Control;

     (c) only with respect to an Employee who is a Participant, the relocation of the Participant’s principal place of Employment location for the Company outside of a 30-mile radius from the Participant’s principal place of Employment immediately prior to the Change in Control or the Company requiring the Participant to be based anywhere other than such principal place of Employment (or permitted relocation thereof) except for required travel on the Company’s business to an extent substantially consistent with the Participant’s business travel obligations immediately prior to a Change in Control;

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     (d) only with respect to an Employee who is a Participant, a material reduction in the employee benefits plans provided to the Participant immediately prior to the Change in Control; or

     (e) any purported termination of the Participant’s Employment which is not effected pursuant to a notice of termination satisfying the requirements of Section 6.1 hereof.

     The Participant’s right to terminate his Employment for Good Reason shall not be affected by the Participant’s incapacity due to physical or mental illness. The Participant’s continued Employment shall not constitute consent to, or a waiver of any rights with respect to, any act or failure to act constituting Good Reason hereunder.

     For purposes of any determination regarding the existence of Good Reason, any claim by the Participant that Good Reason exists shall be presumed to be correct unless the Company establishes to the satisfaction of the Committee that Good Reason does not exist. The Committee’s determination regarding the existence of Good Reason shall be conclusive and binding upon all parties unless the Committee’s determination is arbitrary and capricious.

     “Highest Base Compensation” means the Participant’s annualized Base Compensation in effect immediately prior to (1) a Change in Control, (2) the first event or circumstance constituting Good Reason, or (3) the Participant’s Termination of Employment, whichever is the greatest amount.

     “Incumbent Director” means —

     (a) a member of the Board of TMRC on the Effective Date; or

     (b) an individual:

     (1) who becomes a member of the Board of TMRC after the Effective Date;

     (2) whose appointment or election by the Board of TMRC or nomination for election by TMRC’s stockholders is approved or recommended by a vote of at least two-thirds (2/3) of the then serving Incumbent Directors (as defined herein); and

     (3) whose initial assumption of service on the Board of TMRC is not in connection with an actual or threatened election contest.

     “Level One Participant” means an Eligible Individual who is classified by the Committee as a Level One Participant.

     “Level Two Participant” means an Eligible Individual who is classified by the Committee as a Level Two Participant.

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     “Level Three Participant” means an Eligible Individual who is classified by the Committee as a Level Three Participant.

     “Merger” means a merger, consolidation or similar transaction.

     “Notice of Participation” has the meaning specified in Article III.

     “Participant” means an individual who is eligible to participate in the Plan under the provisions of Article III.

     “Person” shall have the meaning ascribed to the term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof, except that the term shall not include TMRC, TMRX, the Company or any of their Affiliates, (b) a trustee or other fiduciary holding TMRC or TMRX securities under an employee benefit plan of the Company or any of its Affiliates, (c) an underwriter temporarily holding securities pursuant to an offering of those securities or (d) a corporation owned, directly or indirectly, by the stockholders of TMRC or TMRX in substantially the same proportions as their ownership of stock of the Company.

     “Plan” means The Meridian Resource & Exploration LLC Change in Control Severance Plan, as it may be amended from time to time.

     “Plan Administrator” means the administrator of the Plan for purposes of ERISA Section 3(16)(A). The Plan Administrator is TMRX (or any successor in interest to TMRX).

     “Plan Year” means the year beginning May 1 and ending April 30. The first Plan Year of the Plan was a short Plan Year from December 15, 2008 to April 30, 2009.

     “Renewal Date” shall have the meaning specified in the definition of the “Term of the Plan.”

     “Section 409A” means section 409A of the Code and the Department of Treasury rules and regulations issued thereunder.

     “Separation From Service” has the meaning ascribed to that term in Section 409A.

     “Specified Employee” means a person who is, as of the date of the person’s Separation From Service, a “specified employee” within the meaning of Section 409A.

     “Specified Owner” means any of the following:

     (a) TMRC or an Affiliate of TMRC;

     (b) an employee benefit plan (or related trust) sponsored or maintained by TMRC or TMRX or any Affiliate of TMRC or TMRX;

     (c) a Person that becomes a Beneficial Owner of TMRC’s or TMRX’s outstanding Voting Securities representing 50 percent or more of the combined voting

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power of TMRC’s or TMRX’s then outstanding Voting Securities as a result of the acquisition of securities directly from TMRC and/or its Affiliates and/or Joseph Reeves and/or Michael Mayell;

     (d) Joseph Reeves or Michael Mayell; or

     (e) a Person that becomes a Beneficial Owner of TMRC’s or TMRX’s outstanding Voting Securities representing 50 percent or more of the combined voting power of TMRC’s or TMRX’s then outstanding Voting Securities as a result of a Merger if the individuals and Entities who were the Beneficial Owners of the Voting Securities of TMRC or TMRX outstanding immediately prior to such Merger own, directly or indirectly, more than 70 percent of the combined voting power of the Voting Securities of any of TMRC or TMRX, the surviving Entity or the parent of the surviving Entity outstanding immediately after such Merger in substantially the same proportions as their ownership of the Voting Securities of TMRC or TMRX outstanding immediately prior to such Merger.

“Term of the Plan” means the period commencing on the Effective Date and ending on:

     (a) the last day of the two-year period beginning on the Effective Date if no Change in Control shall have occurred during that one-year period (such last day being the “Expiration Date”); or

     (b) if a Change in Control shall have occurred during (i) the one-year period beginning on the Effective Date or (ii) any period for which the Term of the Plan shall have been automatically extended pursuant to the second sentence of this definition, the last day of the two-year period beginning on the date on which the Change in Control occurred.

     After the expiration of the time period described in subsection (a) of this definition and in the absence of a Change in Control (as described in subsection (b) of this definition), the Term of the Plan shall be automatically extended for successive two-year periods beginning on the day immediately following the Expiration Date (the beginning date of each successive two-year period being a “Renewal Date”), unless, not later than nine months prior to the Expiration Date or applicable Renewal Date, the Company shall give notice to Participants that the Term of the Plan will not be extended.

     “Termination Date” means the date as of which a Participant incurs a Separation From Service, as determined in accordance with the provisions of Section 6.1.

     “Termination of Employment or Affiliation Relationship” means the termination of a Participant’s Employment relationship with the Company (i) by the Company without Cause after a Change in Control occurs, or (ii) by the Participant for Good Reason after a Change in Control occurs.

     For purposes of this definition, a Participant’s Employment relationship shall be deemed to have been terminated after a Change in Control, if (a) a Change in Control occurs and (b) (i) the Participant’s Employment relationship is terminated by the Company without Cause

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prior to a Change in Control and such termination was at the request or direction of a Person who has entered into an agreement with the Company, the consummation of which would constitute a Change in Control; (ii) the Participant terminates his Employment relationship for Good Reason prior to a Change in Control and the circumstance or event which constitutes Good Reason occurs at the request or direction of a Person who has entered into an agreement with the Company, the consummation of which would constitute a Change in Control; or (iii) the Participant’s Employment relationship is terminated by the Company without Cause or by the Participant for Good Reason and such termination, or the circumstance or event which constitutes Good Reason, is otherwise in connection with or in anticipation of a Change in Control. For purposes of any determination regarding the applicability of the immediately preceding sentence, any position taken by the Participant shall be presumed to be correct unless the Company establishes to the satisfaction of the Committee that such position is not correct.

     “Termination of Employment or Affiliation Relationship” does not include (i) a termination of Employment due to the Participant’s death or Disability, or (ii) a termination of Employment by the Participant without Good Reason.

     “TMRC” means The Meridian Resource Corporation, a Texas corporation, and any successor by merger or otherwise.

     “TMRX” means The Meridian Resource & Exploration LLC, a Delaware limited liability company, and any successor by merger or otherwise.

     “Voting Securities” means the outstanding securities entitled to vote generally in the election of directors or other governing body.

     2.2 Number and Gender. As used in the Plan, unless the context otherwise expressly requires to the contrary, references to the singular include the plural, and vice versa; references to the masculine include the feminine and neuter; references to “including” mean “including (without limitation)”; and references to Sections, Articles and clauses mean the sections and clauses of the Plan,

     2.3 Headings. The headings of Sections and Articles herein are included solely for convenience, and if there is any conflict between such headings and the text of the Plan, the text shall control.

     2.4 Construction and Interpretation. TMRX and the Committee shall have full power, authority, and discretion to control and manage the operation and administration of the Plan, and to construe, interpret, and apply all of its provisions.

ARTICLE III
ELIGIBILITY

     The individuals who shall be eligible to participate in the Plan shall be those Eligible Individuals who are selected by the Committee. The Committee shall notify each Eligible Individual who has been selected for participation of his eligibility to participate in the Plan by furnishing him a written notification of participation. Unless such notification (the “Notice of Participation”) is delivered to an Eligible Individual by the Committee, the Eligible Individual

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shall not be a Participant. Unless a Participant signs and returns to the Committee a copy of the Notice of Participation on or prior to the deadline specified in the Notice of Participation, he or she shall not be eligible to receive payments or benefits under the Plan. The Notice of Participation shall specify whether the Eligible Individual is classified by the Committee as a Level One Participant, a Level Two Participant or a Level Three Participant. The Notice of Participation shall also specify the Eligible Individual’s Applicable Factor and the Eligible Individual’s Applicable Period.

     Notwithstanding any other provision of the Plan, the Committee may discontinue a Participant’s eligibility to participate in the Plan by providing him written advance notice (the “Notice”), no later than 9 months prior to the Expiration Date or a Renewal Date (as defined in the definition of “Term of the Plan” in Section 2.1), that he shall no longer participate in the Plan; provided, however, that should a Change in Control occur during such 9-month advance notification period, the Notice shall be void and of no effect, and the Participant shall be eligible to participate in the Plan as if the Notice were never given.

     A Participant shall remain a Participant until (a) he is removed as a Participant under the terms of the Plan, or (b) he is paid the entire amount of the benefit under the Plan to which he is entitled. A Participant is no longer a Participant if he incurs (i) a termination of Employment due to his death or Disability, or (ii) a termination of Employment without Good Reason.

ARTICLE IV
BENEFITS

     4.1 Equity Based Compensation. Upon the occurrence of a Change in Control, all options to acquire TMRC stock, all shares of restricted TMRC stock, all other equity or phantom equity incentives and any awards the value of which is determined by reference to or based upon the value of TMRC stock, held by the Participant under any plan of the Company shall become immediately vested, exercisable and nonforfeitable and all conditions thereof (including, but not limited to, any required holding periods) shall be deemed to have been satisfied. However, in the case of such an award that is subject to Section 409A, the payment of the award shall not be made earlier than the earlier to occur of (1) the date on which occurs a Change in Control that constitutes a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation, within the meaning of Section 409A or (2) the payment date specified in the applicable award agreement or the applicable terms and conditions relating to the award.

     4.2 Benefits Following Termination of Employment or Affiliation Relationship. If a Participant incurs a Termination of Employment or Affiliation Relationship during the Term of the Plan, the Company shall provide the Participant the benefits described below.

     (a) Severance Payment. The Company will pay the Participant a cash severance benefit in an amount equal to the Applicable Factor multiplied by the Participant’s Highest Base Compensation. A Participant’s severance payment under this paragraph (a) will be paid in accordance with the provisions of Article V.

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     (b) Accident and Health Insurance Benefits. The Company shall arrange to provide the Participant and his dependents continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) for accident and health insurance benefits substantially similar to those provided to the Participant and his dependents by the Company immediately prior to the Termination Date or, if more favorable to the Participant, those provided to the Participant and his dependents by the Company immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no cost to the Participant, for the Applicable Period following the Participant’s Termination Date (or such shorter period of time as is required under COBRA),

     Except for any reimbursements under the applicable group health plan that are subject to a limitation on reimbursements during a specified period, the amount of expenses eligible for reimbursement under this Section 4.2(b), or in-kind benefits provided, during the Participant’s taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year of the Participant. Any reimbursement of an expense described in this Section 4.2(b) shall be made on or before the last day of the Participant’s taxable year following the Participants’ taxable year in which the expense was incurred. The Participant’s right to reimbursement or in-kind benefits pursuant to this Section 4.2(b) shall not be subject to liquidation or exchange for another benefit.

     (c) Life Insurance. A Participant shall be entitled to a single sum cash payment in an amount equivalent to the product of (i) the total monthly basic life insurance premium (both the portion paid by the Company and the portion paid by the Participant) applicable to the Participant’s basic life insurance coverage on his Termination Date and (ii) the Applicable Period. The single sum cash payment will be made in accordance with the provisions of Article V. If a conversion option is applicable under the Company’s group life insurance program, a Participant may, at his option, convert his basic life insurance coverage to an individual policy after his Termination Date by completing the forms required by the Company.

     4.3 Legal Fees. The Company shall pay all reasonable legal fees and expenses incurred by the Participant (i) in disputing in good faith any issue relating to the Participant’s termination of employment or affiliation, or (ii) in seeking in good faith to obtain or enforce any benefit or right provided under the Plan. Such payments shall be made within ten (10) business days after the delivery of the Participant’s written request for the payment accompanied by such evidence of fees and expenses incurred as the Company may reasonably require. In any event the Company shall pay the Participant such legal fees and expenses by the last day of the Participant’s taxable year following the taxable year in which the Participant incurred such legal fees and expenses. The legal fees or expenses that are subject to reimbursement pursuant to this Section 4.3 shall not be limited as a result of when the fees or expenses are incurred. The amount of legal fees or expenses that is eligible for reimbursement pursuant to this Section 4.3 during a given taxable year of the Participant shall not affect the amount of expenses eligible for reimbursement in any other taxable year of the Participant. The right to reimbursement pursuant to this Section 4.3 is not subject to liquidation or exchange for another benefit.

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ARTICLE V
TIME OF BENEFITS PAYMENTS

     The Company shall pay the Participant any cash benefits described in paragraphs (a), (b), and (c) of Section 4.2 in a single sum cash payment within thirty (30) days after the Participant’s Separation From Service if the Participant is not a Specified Employee or on the date that is six months following the Participant’s Separation From Service if the Participant is a Specified Employee.

ARTICLE VI
TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE

     6.1 Notice of Termination. After a Change in Control and during the Term of the Plan, any purported termination of the Participant’s Employment relationship by the Company shall be communicated by the Company by a written Notice of Termination to the Participant in accordance with Section 11.7 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in the Plan relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant’s Employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Participant and an opportunity for the Participant, together with the Participant’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Participant was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. No purported termination of the Participant’s Employment by the Company after a Change in Control and during the Term of the Plan shall be effective unless the Company complies with the procedures set forth in this Section 6.1.

     6.2 Termination Date. “Termination Date,” with respect to any purported Separation From Service after a Change in Control and during the Term of the Plan, shall mean (i) if the Participant’s Employment relationship is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Participant shall not have returned to the full-time performance of the Participant’s duties during such thirty (30) day period), and (ii) if the Participant’s Employment relationship is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Participant, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given).

     6.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Termination Date (as determined without regard to this Section 6.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Termination Date shall be extended until the earlier of (i) the date on which the Term of the Plan ends or (ii) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order

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or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that the Termination Date shall be extended by a notice of dispute given by the Participant only if such notice is given in good faith and the Participant pursues the resolution of such dispute with reasonable diligence.

ARTICLE VII
WITHHOLDING

     The Company may withhold from any benefits paid under the Plan all income, employment, and other taxes required to be withheld under applicable law.

ARTICLE VIII
DEATH OF PARTICIPANT

     If a Participant dies after his Termination Date but before the Participant receives full payment of the benefits to which he is entitled under the Plan, any unpaid benefits will be paid to the Participant’s surviving spouse, or if the Participant does not have a surviving spouse, to the Participant’s estate.

ARTICLE IX
AMENDMENT AND TERMINATION

     During the Term of the Plan, subject to Article X, the Plan may not be terminated or amended in any manner that would negatively affect a Participant’s rights under the Plan. Further, no amendment or termination of the Plan after a Participant’s Termination Date shall affect the benefits payable to such Participant under the Plan. Subject to the foregoing restrictions, TMRX may amend or terminate the Plan, at any time in its discretion, by a written instrument that is authorized by the Committee,

ARTICLE X
ADOPTION OF PLAN BY AFFILIATES

     (a) With the written approval of the Committee, any entity that is an Affiliate may adopt the Plan by appropriate action of its board of directors or noncorporate counterpart, as evidenced by a written instrument executed by an authorized officer of such entity or an executed adoption agreement (approved by the board of directors or noncorporate counterpart of the Affiliate), agreeing to be bound by all the terms, conditions and limitations of the Plan and providing all information required by the Committee.

     (b) The provisions of the Plan shall apply separately and equally to each adopting Affiliate in the same manner as is expressly provided for the Company, except that the power to appoint the Committee and the power to amend or terminate the Plan shall be exercised by TMRX.

     (c) For purposes of the Code and ERISA, the Plan as adopted by the Affiliates shall constitute a single plan rather than a separate plan of each Affiliate.

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ARTICLE XI
MISCELLANEOUS

     11.1 Plan Not an Employment Contract. The adoption and maintenance of the Plan is not a contract between the Company and the Employees and Consultants that gives any Employee or Consultant the right to be retained in Employment. Likewise, it is not intended to interfere with the rights of the Company to terminate an Employee’s or Consultant’s Employment at any time, with or without notice and with or without cause, or to interfere with an Employee’s or Consultant’s right to terminate his Employment at any time.

     11.2 Alienation Prohibited. No benefits hereunder shall be subject to anticipation or assignment by a Participant, to attachment by, interference with, or control of any creditor of a Participant, or to being taken or reached by any legal or equitable process in satisfaction of any debt or liability of a Participant prior to its actual receipt by the Participant. Any attempted conveyance, transfer, assignment, mortgage, pledge, or encumbrance of the benefits hereunder prior to payment thereof shall be void.

     11.3 Severability. Each provision of the Plan may be served. If any provision is determined to be invalid or unenforceable, that determination shall not affect the validity or enforceability of any other provision.

     11.4 Binding Effect. The Plan shall be binding upon any successor of the Company. Further, the Board shall not authorize a Change in Control that is a merger or a sale transaction unless the purchaser or the Company’s successor agrees to take such actions as are necessary to cause all Participants to be paid or provided all benefits due under the terms of the Plan as in effect immediately prior to the Change in Control.

     11.5 Other Amounts Due. Except as expressly provided otherwise herein, the payments and benefits provided for in the Plan are in addition to and not in lieu of amounts and benefits that are earned by a Participant prior to his Termination Date. The Company shall pay a Participant any compensation earned through the Termination Date but not previously paid the Participant. Further the Participant shall be entitled to any other amounts or benefits due the Participant in accordance with any contract, plan, program or policy of the Company or any of its Affiliates, to the extent not offset against the benefits provided under the Plan as described below. Amounts that the Participant is entitled to receive under any plan, program, contract or policy of the Company or any of its Affiliates at or subsequent to the Participant’s Termination Date shall be payable or otherwise provided in accordance with such plan, program, contract or policy, except as may be expressly modified herein. Notwithstanding any provision herein to the contrary, and for the avoidance of any doubt, in the event that a Participant is eligible to receive payments and benefits under both (i) this Plan and (ii) any other severance or change-of-control plan, program, contract, or agreement (including, without limitation, any employment agreement by and between such Participant and the Company or its Affiliate) that is sponsored or maintained by the Company or any of its Affiliates (“Other Source”), then any monetary benefits provided under this Plan will be reduced and offset by the monetary benefits due and payable from the Other Source, with the result being that the Participant receives, in the aggregate, an amount that is not in excess of any monetary benefits due under this Plan but nothing in excess of such amount. Further, in the event that any non-monetary benefits are due

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from an Other Source, the Company will compare such non-monetary benefits to the non-monetary benefits provided under this Plan and, where the non-monetary benefits are of the same nature or class, the Participant will be provided with the better of the two non-monetary benefits; provided, however, under no circumstances shall the Participant receive duplicate or extra non-monetary benefits as determined by the Company, with the result being that the Participant receives, in the aggregate, all non-monetary benefits due under this Plan but nothing more. If the Participant is eligible to receive benefits from any Other Source, the form and timing of payments under such Other Source will be determined as set forth in such Other Source, and the form and timing of any remaining monetary and non-monetary benefits that are due and payable under this Plan will be as described herein and taking into account any required offset.

     11.6 Notices. For the purpose of the Plan, notices and all other communications provided for in the Plan shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Participant, to the residential address listed on the Participant’s notification of participation and, if to the Company, to 1401 Enclave Parkway, Suite 300; Houston, Texas 77077; Attention: President, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt.

     11.7 Governing Law. All provisions of the Plan shall be construed in accordance with the laws of the State of Texas, except to the extent preempted by federal law and except to the extent that the conflicts of laws provisions of the State of Texas would require the application of the relevant law of another jurisdiction, in which event the relevant law of the State of Texas will nonetheless apply, with venue for litigation being in Houston, Texas.

ARTICLE XII
CLAIMS PROCEDURES

     12.1 Notice of Claim. Normally, an Eligible Individual does not need to present a formal claim for benefits payable under the Plan. However, in the event that an Eligible Individual, Participant or other person (referred to as the “Claimant”) has a claim for any benefits that he believes were not provided in accordance with the terms and provisions of the Plan or otherwise, the Claimant must file a claim with the Committee within six (6) months from the date of the affected Eligible Individual’s Termination of Employment. Any Claimant who fails to file a claim within such 6-month period will completely and irrevocably forfeit and lose any and all rights that he may have, or ever had, to receive any benefits under the Plan at any time.

     Any Claimant who applies for benefits or has an inquiry concerning the Plan or present or future rights to benefits under the Plan must submit his application or inquiry to the Committee, in writing, addressed as follows:

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Mr. Harlan H. Chappelle
Alta Mesa Holdings, L.P.
15415 Katy Freeway
Houston, TX 77094-1816

     Prior to authorizing and awarding any benefits hereunder, the Committee may require the Claimant to provide additional information, and to complete any required or requested releases, forms or other documents hereunder, including filing of all claims and requests for payment from any other source.

     12.2 Claims Review Procedure. If any claim for benefits filed by a Claimant is wholly or partially denied, the Committee will notify the Claimant of its determination in writing. Such notification will be written in a manner calculated to be understood by the average Claimant, and will contain (a) specific reasons for the denial, (b) specific reference to pertinent Plan provisions, (c) a description of any additional material or information necessary for the Claimant to perfect such claim and an explanation of why such material or information is necessary, and (d) information as to the steps to be taken if the Claimant wishes to submit a request for review. Such notification will be given within 60 days after the claim is received by the Committee (or within 120 days if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to the Claimant within the initial 60-day period). However, if any such notification is not given within such period, the claim will be considered automatically denied as of the last day of such period and the Claimant may then request a review of the claim.

     Within 60 days after the date on which a Claimant receives a written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred) the Claimant (or his duly authorized representative) may (a) file a written request (including pertinent documents) with the Committee for a review of the denied claim, and (b) submit written issues and comments to the Committee. The Committee will review the claim and notify the Claimant of its decision in writing. Such notification will be written in a manner calculated to be understood by the Claimant and will contain specific reasons for the decision, as well as specific references to pertinent Plan provisions. The decision on review will be made within 60 days after the request for review is received by the Committee, or within 120 days if special circumstances require an extension of time for processing the request, such as a decision by the Committee to hold a hearing, provided that written notice of such extension and circumstances is given to the Claimant within the initial 60-day period. If the decision on review is not made within such period, the claim will be considered denied as of the last day of such period. All final determinations concerning claims made pursuant to these claims review procedures will not be subject to further review by anyone, but will be final, conclusive and binding on the Claimant and all other persons. To the extent the Committee has been granted discretionary authority under the Plan, the Committee’s prior exercise of such authority will not obligate it to exercise its authority in a like fashion thereafter.

     12.3 Exhaustion of Administrative Remedies. Completion of the claims procedures described in Sections 12.1 and 12.2 is a condition precedent to the commencement of any legal or equitable action in connection with a claim for benefits under the Plan by a Claimant or by any other person claiming rights individually or through a Claimant; provided, however, the

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Committee may, in its discretion, waive compliance with such claims procedures as a condition precedent to filing of any such action. Any legal or equitable action in connection with, or arising out of, a claim for benefits under the Plan, including any claim denial, must be brought not later than one (1) year following a final Determination by the Plan Administrator on the claim pursuant to Section 12.2.

ARTICLE XIII
PLAN ADMINISTRATION

     13.1 Allocation of Authority. TMRX will control and manage the operation and administration of the Plan, except to the extent such duties have been delegated to other persons or entities as provided in the Plan. Any decisions made by TMRX or the Plan Administrator (or any other person or entity delegated authority by TMRX or the Plan Administrator, as applicable) to determine benefits in accordance with the Plan will be final and conclusive on all Participants, and all other persons and entities, subject only to the claims appeal provisions of the Plan.

     13.2 Powers and Duties of the Plan Administrator. The Plan Administrator will have such duties and powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following:

     (a) to have discretionary authority to (i) administer, enforce, construe, and construct the Plan, (ii) make decisions relating to all questions of eligibility to participate, and (iii) make a determination of benefits including, without limitation, reconciling any inconsistency, correcting any defect, supplying any omission, and making any findings of fact. All decisions, interpretations and other determinations described in this subsection (a) will be final and conclusive on all persons and entities subject only to the claims appeal provisions of the Plan. Benefits under the Plan will be paid only if the Plan Administrator determines, in its discretion, that the Participant is entitled to them. There will be no de novo review of any such determination by any court. Any review of such determination will be solely limited to determining whether the determination was so arbitrary and capricious as to constitute an abuse of discretion under ERISA standards;

     (b) to prepare and distribute, in such manner as the Plan Administrator determines to be appropriate, information regarding the Plan;

     (c) to receive from the Employer and Participants such information as necessary for the administration of the Plan;

     (d) to receive, review and keep on file (as it deems necessary) reports of benefit payments by the Employer and reports of disbursements for expenses;

     (e) to exercise such authority and responsibility as it deems appropriate in order to comply with the terms of the Plan relating to the records of Participants; and

     (f) to appoint persons or entities to assist in the administration of the Plan as it deems advisable; and the Plan Administrator may delegate thereto any power or duty imposed upon or granted to it under the Plan.

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     If, due to errors in drafting, any Plan provision does not accurately reflect its intended meaning, as determined by the Plan Administrator, in its sole and exclusive judgment, the provision will be considered ambiguous and will be interpreted in a fashion consistent with its intent, as determined by the Plan Administrator. The Plan may be amended retroactively to cure any such ambiguity, notwithstanding anything in the Plan to the contrary.

     13.3 Delegation by the Plan Administrator. The Plan Administrator may delegate to other persons or entities any of the administrative functions relating to the Plan, together with all powers necessary to enable its designee(s) to properly carry out such duties hereunder. The Plan Administrator may employ legal counsel, accountants and such other persons or entities as it deems advisable in its discretion. The Plan Administrator, as well as any person to whom any duty or power in connection with operation of the Plan has been delegated, may rely upon all valuations, reports, and opinions furnished by any accountant, consultant, third-party service provider, legal counsel, or other specialist. Moreover, the Plan Administrator, as well as any of its delegates, will be fully protected in respect to any action taken or omitted in reasonable reliance on such information.

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APPENDIX A

ERISA INFORMATION

(1)	Name of Plan: The Meridian Resource & Exploration LLC Change in Control Severance Plan.
(2)	Plan Sponsor:
	The Meridian Resource & Exploration LLC Attn: President 1401 Enclave Parkway, Suite 300 Houston, Texas 77077
	Plan Administrator:
	The Meridian Resource & Exploration LLC Attn: President 1401 Enclave Parkway, Suite 300 Houston, Texas 77077
(3)	Employer Identification Number for Plan Sponsor: 76-0348919
(4)	Plan Number: 510
(5)	Type of Plan: The Plan is a self-funded “employee welfare benefit plan” subject to ERISA that provides severance pay benefits. No trust is maintained in connection with the Plan and the Plan is not considered to be “funded” for ERISA purposes.
(6)	Type of Administration: The Plan is administered by the Plan Administrator with benefits provided in accordance with the terms and conditions of the Plan.
(7)	Agent for Service of Legal Process:
	The Meridian Resource & Exploration LLC Attn: President 1401 Enclave Parkway, Suite 300 Houston, Texas 77077
(8)	Sources of Contributions: The adopting employers of the Plan provide all contributions to the Plan. No employee contributions are required.

A-1

APPENDIX B

YOUR ERISA RIGHTS

     As a Participant under the Plan, you are entitled to certain rights and protections under ERISA. These rights are described below. ERISA provides that all Plan Participants shall be entitled to:

     (i) Examine, without charge, at the Plan Administrator’s office, all Plan documents, including insurance contracts and copies of documents filed by the Plan with the U.S. Department of Labor (such as detailed annual reports and Plan descriptions);

     (ii) Obtain copies of Plan documents and other Plan information upon written request to the Plan Administrator. The Plan Sponsor, as Plan Administrator, may impose a reasonable charge for the copies.

     (iii) Receive a summary of the Plan’s summary annual financial report, if applicable. The Plan Administrator is required to furnish each Participant with a copy of the summary annual report if it is required to prepare one.

     In addition to creating rights for Plan Participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan Participants and beneficiaries. No one, including your employer, or any other person, may fire you or otherwise discriminate against you to prevent you from obtaining a benefit or exercising your rights under ERISA. If your claim for a benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the Plan Administrator review and reconsider your claim.

     Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan Administrator and do not receive them within 30 days, you may file suit in a federal court. In such case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator.

     If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that the Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor; or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

     If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest area office of the U.S. Employee Benefits Security Administration, Department of Labor, as listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

B-1

EX-10.14

Exhibit 10.14

THE MERIDIAN RESOURCE CORPORATION
MANAGEMENT WELL BONUS PLAN

ARTICLE I.
PURPOSE

     The Board of Directors of the Company creates this Bonus Plan for managerial, professional and other key personnel of the Company intending to advance the best interests of The Meridian Resource Corporation (the “Company”) by attracting and retaining top quality managerial, professional and other key personnel through this use of incentive bonuses for selected personnel within the eligible group.

ARTICLE II.
DEFINITIONS

     2.1 “Anniversary Date” means the last day of the fiscal year of the Company.

     2.2 “Bonus” means the right awarded to a Participant and/or Participant Group to receive a bonus from the Bonus Pool, pursuant to this Plan, in the amount set out in the Notice of Bonus. A Participant’s and/or Participant Group’s Bonus will be expressed as a percentage of the Bonus Pool, as determined by the Compensation Committee. A Bonus once granted continues pursuant to this Plan. Bonuses awarded from any given Bonus Pool may not exceed one hundred percent (100%) of the given Bonus Pool.

     2.3 “Bonus Date” means the last day of each quarter of each fiscal year of the Company.

     2.4 “Bonus Pool” means a pool consisting of a percentage of the Net Profits from a Designated Well, as determined by the Company, paid by the Company to the Plan. Each Bonus Pool will be the basis for determining the Bonus to be paid to each Participant or Participant Group. Each Bonus Pool will carry a name, which will distinguish it from any other Bonus Pool and will include the fiscal year of its designation. Each Bonus Pool will be separate from all other Bonus Pools. Each Bonus Pool shall only contain one Designated Well. Each Bonus Pool will continue until such time as the Compensation Committee, in its sole discretion, determines no further Net Profits will be generated by the Designated Well for that Bonus Pool or until there are no remaining Participants or Participant Groups in that Bonus Pool, or as otherwise determined herein. Any Bonus Pool shall be subject to the terms, conditions, and provisions of any agreement theretofore or thereafter entered into by the Company, which in any way affects monies or common stock of the Company.

     2.5 “Chargeable Expenditures” means the total sum. of the following expenses, incurred by the Company and its Internal Working Interest Partners, associated, directly or indirectly, with a Designated Well:

(i) the severance, production, excise, ad valorem, windfall profits and other taxes on or measured by production attributable to said Designated Well; plus

(ii) the cost of operating and maintaining a Designated Well (normal lease operating expenses), exclusive of drilling well overhead rates as provided for in any applicable joint operating agreement, and exclusive of any costs and expenses associated with establishment or enhancement of production including but not limited to the costs of drilling, workovers (other than normal lease operating expenses associated therewith), re-drills, deepening, sidetracking, plugging back, purchasing and setting surface equipment, and/or the construction of pipeline or plant facilities; plus

(iii) the fees or other consideration paid by the Company to any third party, other than an affiliate of the Company, for services in connection with marketing production of oil and/or gas (and/or components and by products extracted therefrom) from or attributable to such Designated Well.

Chargeable Expenditures does not include any of the following:

(i) any and all lease burdens including, but not limited to, landowner royalties, overriding royalties, net profits interest payments, production payments, financing arrangements and other similar interests which may burden any Designated Well as a result of agreements between the Company and any third parties;

(ii) capital expenditures associated with wells, production and marketing facilities, including, but not limited to, the costs of drilling, workovers (other than normal lease operating expenses associated therewith), re-drills, deepening, sidetracking, plugging back, purchasing and setting surface equipment, and/or the construction of pipeline or plant facilities; and

(iii) the acquisition and maintenance of mineral interest or the geologic, geophysical and engineering evaluation relative to any Designated Well.

     2.6 “Company” means The Meridian Resource Corporation.

     2.7 “Compensation Committee” means the Committee established by the Board of Directors of the Company to administer this Plan.

     2.8 “Designated Well” means a well (whether or not operated by the Company) designated by the Compensation Committee, in its sole discretion, to be included in this Plan. The Company may drill wells (whether or not operated by the Company) that will not become a Designated Well.

     2.9 “Employee” means any employee of the Company, who is employed in a managerial, professional or other key capacity with the Company who, in the sole discretion of the Compensation Committee, is in a position to materially contribute to the continued growth, development and financial success of the Company.

     2.10 “Internal Working Interest Partners” means any and all parties designated as such by the Company and who hold a cost sharing ownership interest, either actual or beneficial, on a cash basis by virtue of an agreement between the Company and any such parties in and to any Designated Well.

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     2.11 “Net Profits” means the proceeds received by the Company from the sale of the oil, gas and minerals (including components and by products extracted therefrom) that are produced, saved and sold from a Designated Well, free and clear of all costs and expenses of exploration, development, operation, production, marketing, processing, treating and transportation to the sales point, LESS Chargeable Expenditures. If Chargeable Expenditures in any calendar month exceed the proceeds in the same month for a particular well resulting in a net loss, such net loss shall be carried forward and applied against the Net Profits of the succeeding month, or months, for that particular well. The Net Profits shall be subject to the terms, conditions and provisions of any joint operating agreement or similar agreement at any time heretofore or hereafter entered into by the Company with any third, parties covering any Designated Well including, but not limited to, provisions requiring forfeiture of interest for nonparticipation and recoupment of multiple recovery costs. In the event any such provisions of any third party agreement come into effect the Net Profit payments shall be suspended until such costs are recovered or such cause for suspension is removed. The Net Profits shall also be subject to the terms, conditions and provisions of any. farmout or other agreements under which the Company acquires or may acquire its mineral interest in a Designated Well. In the event the interest of the oil, gas and minerals owned by the Company is or becomes reduced, the Net Profits shall be proportionately reduced to the proportion thereof, which the working interest owned by the Company in said Designated Well bears to the entire working interest for said Designated Well.

     2.12 “Notice of Bonus” means the notice that will be issued to each Participant, substantially in the form attached hereto as Exhibit “A”.

     2.13 “Participant” means an Employee, who has been awarded a Bonus in a Bonus Pool either directly or as a part of a Participant Group.

     2.14 “Participant Group” means a group of Participants, which has been awarded as a group, a Bonus in a Bonus Pool.

     2.15 “Plan” means this The Meridian Resource Corporation Managerial Well Bonus Plan, as amended from time to time.

ARTICLE III.
ADMINISTRATION

     3.1 Composition and Indemnity of the Compensation Committee. The Compensation Committee shall be composed of those persons, not less than two, as are appointed by the Board of Directors of the Company, to serve at its pleasure. The Compensation Committee shall administer and construe this Plan. No member of the Compensation Committee shall be liable for any act or any determination made in good faith. The Company shall, to the fullest extent permitted by law, indemnify and hold each member of the Compensation Committee harmless from any and all claims, causes of action, damages and expenses (including reasonable attorneys’ fees and expenses) incurred by the member in connection with or otherwise relating to his service in that capacity.

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     3.2 Administration of Plan. Construction by the Compensation Committee of any provision of this Plan shall be final, conclusive and non-appealable. The Compensation Committee shall determine, in its sole discretion subject to the provisions of the Plan:

(a)	the Employees, who shall participate from time to time in the Plan;
(b)	the Participant Groups, which shall participate from time to time in the Plan;
(c)	the percentage of the Net Profits that will be paid by the Company to each Bonus Pool;
(d)	the calculation of the Net Profits;
(e)	which wells, of the wells the Company drills or acquires or participates in, if any, will be a Designated Well;
(f)	the Bonus to be awarded to each Participant and/or Participant Group and to each Participant in a Participant Group in a Bonus Pool. In this regard Bonuses awarded to the various Participants or Participant Groups need not be the same; and
(g)	the terms and conditions, if any, not inconsistent with the terms of this Plan, that are to be placed upon the award of a Bonus to a Participant or Participant Group or from a Bonus Pool.

     3.3 Delegation. The Compensation Committee may, in its discretion, delegate one or more of its duties to an officer or a committee composed of officers of the Company, but may not delegate its authority to construe this Plan or to make the determinations set out in Section 3.2.

     3.4 Award of Bonus. The Compensation Committee will issue to each Participant a “Notice of Bonus,” within fifteen (15) working days after the drilling spud date of each Designated Well. The Notice of Bonus shall set out the determination of the Compensation Committee, for such Bonus Pool, regarding the matters set out in Section 3.2.

ARTICLE IV.
CALCULATION OF BONUSES

     4.1 Calculation of Benefits Based Upon Bonus Pool. As soon as administratively possible after each Bonus Date, the Compensation Committee shall calculate the dollar amount of the Bonus to be paid to each Participant in each Bonus Pool.

     4.2 Calculation of Bonus Pool Based Upon Disposition of Designated Wells for a Bonus Pool. The Company shall always be entitled to, at any time, dispose of any and all interests it may hold with respect to any or all Designated Wells. The time, price, terms and conditions of such disposal will be as the Company may determine. When a Designated Well is sold or otherwise disposed of, the amount to be paid to the Bonus Pool shall be a percentage of the net proceeds received by the Company from any such sale or disposition (as determined by

4

the Company), minus a percentage of the costs incurred by the Company in such sale or disposition (as determined by the Company) and all taxes, which may be assessed against the Designated Well, because of the sale or disposition, other than income taxes payable by the Company for its share of said proceeds, if any.

     4.3 Calculation of Bonus Upon Liquidation of Company. The existence of outstanding Bonus awards will not affect in any way the right or power of the Company to make or authorize any or all adjustments or recapitalization or other changes in the Company’s capital structure or its business. Should the Company elect to liquidate or to enter into any transaction in which it is not the surviving company (a “Transaction”), unless the surviving or successor company has formally adopted this Plan and agreed to continue it, in lieu of any Bonus otherwise payable or to become payable at any time in the future under the Plan, each Bonus Pool shall be entitled to a payment of an amount equal to the aggregate present value of the estimated future Net Profits, which may be expected to be payable by the Company to each Bonus Pool. Calculation of those estimated future Net Profits shall be determined by the Company, in its sole discretion, using the Company’s latest available external engineering estimate or the internal estimate if no external estimate exits, of proven recoverable reserves, annual production rates, revenues, production costs, value’s determined (as a part of a Transaction) for any well or any other factors deemed relevant. The annual values shall then be discounted to a present value as of the date of payment at the rate of fifteen percent (15%) per annum. Payment of this estimated amount will unconditionally relieve, discharge and acquit the Company of any further obligation to pay any additional amounts to any Bonus Pool, Participant or Participant Groups under this Plan. The Compensation Committee shall then pay to each Participant or Participant Group the Bonus from each Bonus Pool, as calculated pursuant to the Plan.

     4.4 Company’s Right to Suspend, Shut-in or Abandon any Designated Well within a Bonus Pool. The Company retains the unconditional right at any time, in its sole discretion, to suspend production from, shut-in or abandon any Designated Well, which may be included in any Bonus Pool.

ARTICLE V.
PAYMENT OF BONUS

     5.1 Time and Method of Payment. Each Participant or Participant Groups having a Bonus awarded under this Plan shall be entitled to receive payment of the Bonus as soon as administratively feasible, but in no event, later than sixty (60) days following any Bonus Date. Each Participant’s Bonus shall be paid in cash and/or common stock of the Company, as determined in the sole discretion of the Compensation Committee. It is contemplated that up to seventy-two percent (72%) of any payment of a Bonus may be made in the publicly traded stock of the Company. No interest shall be paid or payable on any Bonus awarded under the Plan. The Company shall be entitled to deduct from any Bonus paid to any Participant or Participant Group under this Plan, the sums required by federal, state or local law to be withheld with respect to the payment of such Bonus. The Company shall not be required to make any payment until the appropriate withholding is provided for.

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     5.2 Length of Period Participant will Receive Benefit. A Participant’s or Participant Group’s right to receive a Bonus from a given Bonus Pool shall continue, even in the event of Participant’s death, for as long as each Bonus Pool continues, pursuant to Section 2.4, unless any Participant or Participant Groups forfeits its rights under this Plan. In the event of death of a Participant, the Company shall suspend payments until the Company has received documents, satisfactory to the Company’s counsel, evidencing to whom future payments should be made. A Participant shall not receive any Bonus, until the Participant has been employed by the Company for a period of six (6) consecutive months from said Participant’s date of employment. Further, if any Participant is not employed by the Company for a period of two (2) consecutive years, after said Participant’s date of employment, then such Participant shall automatically forfeit, immediately upon the date Participant is not employed, all of Participant’s rights to receive all Bonus payment(s).

     5.3 Forfeiture for Termination of Employment. Should a Participant’s employment with the Company be terminated for any reason, the Participant shall not have any right to participate in the Plan as to any Bonus Pool for any well whose drilling spud date is after the date of termination.

     5.4 Incapacity. If any Participant entitled to a Bonus is, in the sole opinion of the Compensation Committee, physically or mentally incapacitated, to perform Participant’s duties for the Company, the Company will continue to make payments to which the Participant is entitled to hereunder to any member of the family of the Participant, who is entitled to payment, for the use and benefit of the Participant, or the Company may make payments to any person, entity or institution providing care for the Participant who is then legally entitled to payment.

     5.5 Employment Agreement. In the event the Participant has a written employment agreement with the Company, the terms and conditions of the employment agreement regarding Participant’s right to participate in this Plan will prevail, in the event of a conflict with the provisions of this Plan.

ARTICLE VI.
LIMITATION OF RIGHTS

Nothing in this Plan shall be construed:

(a)	to give any Employee any right to be awarded a Bonus other than in the sole discretion of the Compensation Committee;
(b)	to limit in any way the right of the Company to terminate a Participant’s employment with the Company at any time;
(c)	to evidence any agreement or understanding, express or implied, that the Company will employ a Participant in any particular capacity or for any particular remuneration;
(d)	to give any Employee any right to challenge, change or overturn any decision of the Compensation Committee, as such decision may be made in the Compensation Committee’s sole discretion; or

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(e) to require or obligate the Company to conduct any drilling, completion or producing operations regarding any Designated Well.

ARTICLE VII.
ALIENATION OF BENEFITS

     No benefit provided by this Plan shall be transferable by the Participant or Participant Groups, except as provided in this Plan. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge. Any attempt to transfer, anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under this Plan shall be void. No right or benefit under this Plan shall, in any manner, be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to the right or benefit. If any Participant becomes bankrupt or attempts to transfer, anticipate, alienate, assign, pledge, sell, encumber or charge any right or benefit under this Plan, then the right or benefit shall, in the sole discretion of the Compensation Committee, cease. In that event, the Company may hold or apply the right or benefit or any part of the right or benefit for the benefit of the Participant, his or her spouse, children or other dependents or any of them in the manner and in the proportion that the Compensation Committee shall deem proper, in its sole discretion, but the Compensation Committee is not required to do so.

ARTICLE VIII.
AMENDMENT AND TERMINATION OF PLAN

     8.1 Amend or Terminate at Any Time.The Board of Directors of the Company may, in its sole discretion, amend or terminate this Plan at any time, subject to Section 8.2 hereof.

     8.2 No Retroactive Effect Upon Awarded Bonuses. Any amendment or termination of this Plan will not affect the rights of any Participant or Participant Groups to a Bonus, which has already been awarded under this Plan prior to the time of the amendment or the termination.

     8.3 Automatic Termination. If at any time the appropriate governmental unit determines that the Plan is not a bonus program, but instead a pension or welfare benefit plan within the meaning of the applicable provisions of the Employee Retirement Income Security Act of 1974 or similar statute, rule or order, this Plan shall automatically terminate as of the date the Company receives notice of that determination.

ARTICLE IX.
RELIANCE UPON GENERAL CREDIT OF THE COMPANY

     It is specifically recognized that this Plan is only a general corporate commitment and that each Participant or Participant Groups must rely upon the general credit of the Company for the fulfillment of its obligations under the Plan. Though the Company may hold a Designated Well, which has been designated for a given Bonus Pool, neither the Plan nor the Bonus Pool creates any claim, lien, encumbrance, right, title or other interest of any kind whatsoever in any Participant or Participant Group in any well, property or portion of a property containing such well or in the Net Profits derived from it. The designation of a well is only a part of the

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procedure used in calculating a Bonus due Participants or Participant Groups under the Plan and provides no legal entitlement to those specific assets. No specific assets of the Company have been set aside or pledged in any way for the performance of the Company’s duties under this Plan nor will any future assets be pledged or set aside in any manner to assure the performance of the Company under this Plan. However, the Company may, but is not required to create a rabbi trust in connection with this Plan, but only if it has received a ruling from the Internal Revenue Service that the creation of that trust does not cause this Plan to be “funded” as that term is generally used in the Employee Retirement Income Security Act. Thus, the rights of all Participants or Participant Groups and any persons claiming under any Participant or Participant Groups shall be those solely of unsecured creditors of the Company.

ARTICLE X.
GOVERNING LAW

     This Plan shall be governed by the laws of the State of Texas. All of the Parties irrevocably consents to the exclusive jurisdiction of any Texas or United States Federal Court sitting in Harris County over any action or proceeding arising out of this Plan. All Parties waive any objections to venue in Texas and any objection to any action or proceeding in Texas on the basis of forum non conveniens.

ARTICLE XI.
CONFIDENTIALITY

     Any information, data or knowledge which is related directly or indirectly to, any Designated Well, the Bonus Pool, any property or portion of any property containing any Designated Well, or any geological prospect containing a Designated Well, is information the Company considers secret, proprietary and confidential (the “Confidential Information”). By acceptance of a Bonus, each Employee agrees that for as long as the Employee is receiving a Bonus and for a period of twelve (12) months after receipt of the final Bonus, each Employee will keep all Confidential Information confidential and will not (i) disclose or permit the disclosure of any Confidential Information; and/or (ii) solicit to employ or attempt to employ or divert any Employee of the Company or any of its affiliates with knowledge of Confidential Information. The Confidential Information will not include information in the public domain or generally known by the public, other than through acts by the Employee. In the event an Employee breaches this Section 11.1 the Company, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to terminate its obligation to make any further payments of any Bonus and to an injunction or injunctions (without the posting of any bond) to prevent breaches or threatened breaches of this Plan and/or to compel specific performance of this Plan and no Employee will oppose the gravity of such relief including all costs and expenses, including attorney’s fees.

ARTICLE XII.
EFFECTIVE DATE

     This Plan shall become operative and effective on November 5, 1997.

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ARTICLE XIII.
MISCELLANEOUS

     13.1 The article headings used in this Plan are inserted for convenience only and shall be disregarded in construing this Plan.

     13.2 If any portion of this Plan is rendered invalid by a court of proper jurisdiction, the balance of this Plan shall continue in full force and effect.

     13.3 To be effective, any notice, request or other communication permitted or required to be given by either party hereunder shall be given in writing and may be effected by placing the same in the United States mail, certified with return receipt requested, postage prepaid, by delivery by courier service, by prepaid telegram or by facsimile transmission, and shall be deemed given the date and hour three (3) days following the date and hour at which the same is deposited with a clerk of the United States Postal Service, or when so delivered by courier service or personally delivered or by prepaid telegram filed with a telegraph company or on completion and confirmation of a facsimile transmission, addressed to the respective party to be notified.

     13.4 This Plan shall be binding upon the parties hereto and their respective heirs, executors and successors.

     13.5 Neither the adoption and existence of the Plan, nor any payment, contribution or other participation by the Company in the Plan, shall be considered a contract between any Participant and the Company, or consideration for, or inducement with respect to, the Participant’s continued employment by the Company.

     13.6 Each Participant represents to the Company and agrees that he: (i) was specifically advised to and fully understands his rights to discuss all aspects of this Plan with an attorney, (ii) has to the extent he desires, availed himself of these rights, (iii) has carefully read and fully understands the provisions of the Plan, and (iv) is responsible for any federal and/or state income or other tax liability that may result as a consequence of the receipt of any Bonus.

     13.7 This Plan sets forth the entire agreement between the Company and each Participant and fully supersedes all prior written and oral agreements, understandings and representations between the parties including but not limited to those concerning Participant’s rights to receive any monies from the Company from or in respect of any Designated Well or from or in respect of any Company prospect; provided, however, this Plan shall not supercede the matters set out in Section 4.3 of Exhibit A in the Employment Agreement between each Participant and the Company.

THE MERIDIAN RESOURCE CORPORATION

By:	/s/ Joseph A. Reeves, Jr.
	JOSEPH A. REEVES, JR., Chairman

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EXHIBIT “A”

NOTICE OF BONUS

Name of Bonus Pool:	(year)
Participant or Participant Group:
Designated Well:
Bonus Percentage:
Terms and Conditions:
Date of Bonus:

COMPENSATION COMMITTEE
By:
	JOSEPH A. REEVES, JR., Director
By:
	MICHAEL J. MAYELL, Director

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EX-10.15

Exhibit 10.15

AMENDMENT TO
THE MERIDIAN RESOURCE CORPORATION
MANAGEMENT WELL BONUS PLAN

     WHEREAS, Alta Mesa Acquisition Sub, LLC (the “Company”) has formally adopted and assumed sponsorship of The Meridian Resource Corporation Management Well Bonus Plan (the “Plan”), effective as of the Effective Time (as defined in the Agreement and Plan of Merger dated as of December 22, 2009, as amended by a First Amendment to Agreement and Plan of Merger dated as of April 7, 2010); and

     WHEREAS, as of the Effective Time, the Company has the right under Article VIII of the Plan to amend the Plan at any time and from time to time; and

     WHEREAS, the Company has determined that the Plan should be amended to reflect the Company’s adoption and assumption of the Plan; and

     WHEREAS, the Company has determined that the Plan should also be amended so that (1) no Employee who is not a Participant in the Plan as of the Effective Time shall be eligible to commence participation in the Plan as a Participant at any time on or after the Effective Time, and (2) no future wells may be designated as Designated Wells (as defined in the Plan) on or after the Effective Time.

     NOW, THEREFORE, the Plan is hereby amended as follows:

     1. Effective as of the Effective Time, the Plan is amended to replace all references to “The Meridian Resource Corporation” with “Alta Mesa Acquisition Sub, LLC.”

     2. Effective as of the Effective Time, Section 2.8 of the Plan (the definition of “Bonus”) is hereby amended by deleting the text of said definition in its entirety and substituting, in lieu thereof, the following:

     2.2 “Bonus” means the right awarded to a Participant and/or Participant Group to receive a bonus from the Bonus Pool, pursuant to this Plan, in the amount set out in the Notice of Bonus. A Participant’s and/or Participant Group’s Bonus will be expressed as a percentage of the Bonus Pool, as determined by the Compensation Committee. A Bonus once granted continues pursuant to this Plan. Bonuses awarded from any given Bonus Pool may not exceed one hundred percent (100%) of the given Bonus Pool. Notwithstanding anything herein to the contrary, no new Bonuses may be awarded to a Participant or Participant Group (or to any other person or entity) and no Bonus may be increased, on or after the Effective Time.

     3. Effective as of the Effective Time, Section 2.8 of the Plan (the definition of “Designated Well”) is hereby amended by deleting the text of said definition in its entirety and substituting, in lieu thereof, the following:

     2.8 “Designated Well” means a well (whether or not operated by the Company) designated by the Compensation Committee, in its sole discretion, to be included in this Plan. The Company may drill wells (whether or not operated by the Company) that will not become a Designated Well. Notwithstanding anything herein to the contrary, no additional wells may be designated by the Compensation Committee as Designated Wells under the Plan on or after the Effective Time.

     4. Effective as of the Effective Time, the Plan is hereby amended by adding the following new Section 2.8A:

     2.8A “Effective Time” means “Effective Time,” as defined in the Agreement and Plan of Merger dated as of December 22, 2009, by and between the Company, Alta Mesa Holdings, LP, and The Meridian Resource Corporation, as amended by a First Amendment to Agreement and Plan of Merger dated as of April 7, 2010.

     5. Effective as of the Effective Time, Section 2.9 of the Plan (the definition of “Employee”) is hereby amended by deleting the text of said definition in its entirety and substituting, in lieu thereof, the following:

     2.9 “Employee” means any employee of the Company, who is employed in a managerial, professional or other key capacity with the Company who, in the sole discretion of the Compensation Committee, is in a position to materially contribute to the continued growth, development and financial success of the Company. Notwithstanding anything herein to the contrary, no individual may become an Employee for purposes of the Plan on or after the Effective Time.

     6. Effective as of the Effective Time, Section 2.13 of the Plan (the definition of “Participant”) is hereby amended by deleting the text of said definition in its entirety and substituting, in lieu thereof, the following:

     2.13 “Participant” means an Employee who has been awarded a Bonus in a Bonus Pool, either directly or as a part of a Participant Group. Notwithstanding anything herein to the contrary, no Employee (or any other person or entity) who is not already a Participant in the Plan as of the Effective Time shall be eligible to become a Participant or a member of a Participant Group on or after such date and, therefore, only Employees who are Participants or members of a Participant Group as of the Effective Time shall be considered Participants.

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     7. Effective as of the Effective Time, Section 3.2 of the Plan is hereby amended by adding the following new sentence to the end of said Section:

Notwithstanding anything herein to the contrary, as of the Effective Time, the Compensation Committee may not award any new Bonuses to any Employee, Participant, Participant Group, or any other person or entity, or increase the amount of a Bonus previously awarded to any Participant or Participant Group.

     As amended hereby, the Plan is ratified and confirmed.

     IN WITNESS WHEREOF, this Amendment has been executed on this 13^th day of May, 2010, to be effective as of the Effective Time.

ALTA MESA ACQUSITION SUB, LLC
By:	Alta Mesa Holdings, LP
Its:	Sole Member
By:	Alta Mesa GP, LLC
Its:	General Partner
By:	/s/ Harlan H. Chappelle
	Name:	Harlan H. Chappelle
	Title:	President and Chief Executive Officer

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EX-10.16

Exhibit 10.16

THE MERIDIAN RESOURCE CORPORATION
GEOSCIENTIST WELL BONUS PLAN

ARTICLE I.

PURPOSE

     The Board of Directors of the Company creates this Bonus Plan for geoscience personnel of the Company intending to advance the best interests of The Meridian Resource Corporation (the “Company”) by attracting and retaining top quality managerial, professional and other key personnel through this use of incentive bonuses for selected personnel within the eligible group.

ARTICLE II.
DEFINITIONS

     2.1 “Anniversary Date” means the last day of the fiscal year of the Company.

     2.2 “Bonus” means the right awarded to a Participant and/or Participant Group to receive a bonus from the Bonus Pool, pursuant to this Plan, in the amount set out in the Notice of Bonus. A Participant’s and/or Participant Group’s Bonus will be expressed as a percentage of the Bonus Pool, as determined by the Compensation Committee. A Bonus once granted continues pursuant to this Plan. Bonuses awarded from any given Bonus Pool may not exceed one hundred percent (100%) of the given Bonus Pool.

     2.3 “Bonus Date” means the last day of each quarter of each fiscal year of the Company.

     2.4 “Bonus Pool” means a pool consisting of a percentage of the Net Profits from a Designated Well, as determined by the Company, paid by the Company to the Plan. Each Bonus Pool will be the basis for determining the Bonus to be paid to each Participant or Participant Group. Each Bonus Pool will carry a name, which will distinguish it from any other Bonus Pool and will include the fiscal year of its designation. Each Bonus Pool will be separate from all other Bonus Pools. Each Bonus Pool shall only contain one Designated Well. Each Bonus Pool will continue until such time as the Compensation Committee, in its sole discretion, determines no further Net Profits will be generated by the Designated Well for that Bonus Pool or until there are no remaining Participants or Participant Groups in that Bonus Pool, or as otherwise determined herein. Any Bonus Pool shall be subject to the terms, conditions, and provisions of any agreement theretofore or thereafter entered into by the Company, which in any way affects monies or common stock of the Company.

     2.5 “Chargeable Expenditures” means the total sum of the following expenses, incurred by the Company and its Internal Working Interest Partners, associated, directly or indirectly, with a Designated Well:

(i) the severance, production, excise, ad valorem, windfall profits and other taxes on or measured by production attributable to said Designated Well; plus

(ii)

the cost of operating and maintaining a Designated Well (normal lease operating expenses), exclusive of drilling well overhead rates as provided for in any applicable joint operating agreement, and exclusive of any costs and expenses associated with establishment or enhancement of production including but not limited to the costs of drilling, workovers (other than normal lease operating expenses associated therewith), re-drills, deepening, sidetracking, plugging back, purchasing and setting surface equipment, and/or the construction of pipeline or plant facilities; plus

(iii)

the fees or other consideration paid by the Company to any third party, other than an affiliate of the Company, for services in connection with marketing production of oil and/or gas (and/or components and by products extracted therefrom) from or attributable to such Designated Well.

     Chargeable Expenditures does not include any of the following:

(i)	any and all lease burdens including, but not limited to, landowner royalties, overriding royalties, net profits interest payments, production payments, financing arrangements and other similar interests which may burden any Designated Well as a result of agreements between the Company and any third parties;
(ii)	capital expenditures associated with wells, production and marketing facilities, including, but not limited to, the costs of drilling, workovers (other than normal lease operating expenses associated therewith), re-drills, deepening, sidetracking, plugging back, purchasing and setting surface equipment, and/or the construction of pipeline or plant facilities; and
(iii)	the acquisition and maintenance of mineral interest or the geologic, geophysical and engineering evaluation relative to any Designated Well.

     2.6 “Company” means The Meridian Resource Corporation.

     2.7 “Compensation Committee” means the Committee established by the Board of Directors of the Company to administer this Plan.

     2.8 “Designated Well” means a well (whether or not operated by the Company) designated by the Compensation Committee, in its sole discretion, to be included in this Plan. The Company may drill wells (whether or not operated by the Company) that will not become a Designated Well.

     2.9 “Employee” means any employee of the Company, who is employed in a geoscience capacity with the Company who, in the sole discretion of the Compensation Committee, is in a position to materially contribute to the continued growth, development and financial success of the Company.

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     2.10 “Internal Working Interest Partners” means any and all parties designated as such by the Company and who hold a cost sharing ownership interest, either actual or beneficial, on a cash basis by virtue of an agreement between the Company and any such parties in and to any Designated Well.

     2.11 “Net Profits” means the proceeds received by the Company from the sale of the oil, gas and minerals (including components and by products extracted therefrom) that are produced, saved and sold from a Designated Well, free and clear of all costs and expenses of exploration, development, operation, production, marketing, processing, treating and transportation to the sales point, LESS Chargeable Expenditures. If Chargeable Expenditures in any calendar month exceed the proceeds in the same month for a particular well resulting in a net loss, such net loss shall be carried forward and applied against the Net Profits of the succeeding month, or months, for that particular well. The Net Profits shall be subject to the terms, conditions and provisions of any joint operating agreement or similar agreement at any time heretofore or hereafter entered into by the Company with any third parties covering any Designated Well including, but not limited to, provisions requiring forfeiture of interest for nonparticipation and recoupment of multiple recovery costs. In the event any such provisions of any third party agreement come into effect the Net Profit payments shall be suspended until such costs are recovered or such cause for suspension is removed. The Net Profits shall also be subject to the terms, conditions and provisions of any farmout or other agreements under which the Company acquires or may acquire its mineral interest in a Designated Well. In the event the interest of the oil, gas and minerals owned by the Company is or becomes reduced, the Net Profits shall be proportionately reduced to the proportion thereof, which the working interest owned by the Company in said Designated Well bears to the entire working interest for said Designated Well.

     2.12 “Notice of Bonus” means the notice that will be issued to each Participant, substantially in the form attached hereto as Exhibit “A”.

     2.13 “Participant” means an Employee, who has been awarded a Bonus in a Bonus Pool either directly or as a part of a Participant Group.

     2.14 “Participant Group” means a group of Participants, which has been awarded as a group, a Bonus in a Bonus Pool.

     2.15 “Plan” means this The Meridian Resource Corporation Geoscientist Well Bonus Plan, as amended from time to time.

ARTICLE III.
ADMINISTRATION

     3.1 Composition and Indemnity of the Compensation Committee. The Compensation Committee shall be composed of those persons, not less than two, as are appointed by the Board of Directors of the Company, to serve at its pleasure. The Compensation Committee shall administer and construe this Plan. No member of the Compensation Committee shall be liable for any act or any determination made in good faith. The Company shall, to the fullest extent permitted by law, indemnify and hold each member of the Compensation

3

Committee harmless from any and all claims, causes of action, damages and expenses (including reasonable attorneys’ fees and expenses) incurred by the member in connection with or otherwise relating to his service in that capacity.

     3.2 Administration of Plan. Construction by the Compensation Committee of any provision of this Plan shall be final, conclusive and non-appealable. The Compensation Committee shall determine, in its sole discretion subject to the provisions of the Plan:

(a)	the Employees, who shall participate from time to time in the Plan;
(b)	the Participant Groups, which shall participate from time to time in the Plan;
(c)	the percentage of the Net Profits that will be paid by the Company to each Bonus Pool;
(d)	the calculation of the Net Profits;
(e)	which wells, of the wells the Company drills or acquires or participates in, if any, will be a Designated Well;
(f)	the Bonus to be awarded to each Participant and/or Participant Group and to each Participant in a Participant Group in a Bonus Pool. In this regard Bonuses awarded to the various Participants or Participant Groups need not be the same; and
(g)	the terms and conditions, if any, not inconsistent with the terms of this Plan, that are to be placed upon the award of a Bonus to a Participant or Participant Group or from a Bonus Pool.

     3.3 Delegation. The Compensation Committee may, in its discretion, delegate one or more of its duties to an officer or a committee composed of officers of the Company, but may not delegate its authority to construe this Plan or to make the determinations set out in Section 3.2.

     3.4 Award of Bonus. The Compensation Committee will issue to each Participant a “Notice of Bonus”, within fifteen (15) working days after the drilling spud date of each Designated Well. The Notice of Bonus shall set out the determination of the Compensation Committee, for such Bonus Pool, regarding the matters set out in Section 3.2.

ARTICLE IV.
CALCULATION OF BONUSES

     4.1 Calculation of Benefits Based Upon Bonus Pool. As soon as administratively possible after each Bonus Date, the Compensation Committee shall calculate the dollar amount of the Bonus to be paid to each Participant in each Bonus Pool.

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     4.2 Calculation of Bonus Pool Based Upon Disposition of Designated Wells for a Bonus Pool. The Company shall always be entitled to, at any time, dispose of any and all interests it may hold with respect to any or all Designated Wells. The time, price, terms and conditions of such disposal will be as the Company may determine. When a Designated Well is sold or otherwise disposed of, the amount to be paid to the Bonus Pool shall be a percentage of the net proceeds received by the Company from any such sale or disposition (as determined by the Company), minus a percentage of the costs incurred by the Company in such sale or disposition (as determined by the Company) and all taxes, which may be assessed against the Designated Well, because of the sale or disposition, other than income taxes payable by the Company for its share of said proceeds, if any.

     4.3 Calculation of Bonus Upon Liquidation of Company. The existence of outstanding Bonus awards will not affect in any way the right or power of the Company to make or authorize any or all adjustments or recapitalization or other changes in the Company’s capital structure or its business. Should the Company elect to liquidate or to enter into any transaction in which it is not the surviving company (a “Transaction”), unless the surviving or successor company has formally adopted this Plan and agreed to continue it, in lieu of any Bonus otherwise payable or to become payable at any time in the future under the Plan, each Bonus Pool shall be entitled to a payment of an amount equal to the aggregate present value of the estimated future Net Profits, which may be expected to be payable by the Company to each Bonus Pool. Calculation of those estimated future Net Profits shall be determined by the Company, in its sole discretion, using the Company’s latest available external engineering estimate or the internal estimate if no external estimate exits, of proven recoverable reserves, annual production rates, revenues, production costs, value’s determined (as a part of a Transaction) for any well or any other factors deemed relevant. The annual values shall then be discounted to a present value as of the date of payment at the rate of fifteen percent (15%) per annum. Payment of this estimated amount will unconditionally relieve, discharge and acquit the Company of any further obligation to pay any additional amounts to any Bonus Pool, Participant or Participant Groups under this Plan. The Compensation Committee shall then pay to each Participant or Participant Group the Bonus from each Bonus Pool, as calculated pursuant to the Plan.

     4.4 Company’s Right to Suspend, Shut-in or Abandon any Designated Well within a Bonus Pool. The Company retains the unconditional right at any time, in its sole discretion, to suspend production from, shut-in or abandon any Designated Well, which may be included in any Bonus Pool.

ARTICLE V.
PAYMENT OF BONUS

     5.1 Time and Method of Payment. Each Participant or Participant Groups having a Bonus awarded under this Plan shall be entitled to receive payment of the Bonus as soon as administratively feasible, but in no event, later than sixty (60) days following any Bonus Date. Each Participant’s Bonus shall be paid in cash and/or common stock of the Company, as determined in the sole discretion of the Compensation Committee. It is contemplated that up to seventy-two percent (72%) of any payment of a Bonus may be made in the publicly traded stock of the Company. No interest shall be paid or payable on any Bonus awarded under the Plan. The Company shall be entitled to deduct from any Bonus paid to any Participant or Participant

5

Group under this Plan, the sums required by federal, state or local law to be withheld with respect to the payment of such Bonus. The Company shall not be required to make any payment until the appropriate withholding is provided for.

     5.2 Length of Period Participant will Receive Benefit. A Participant’s or Participant Group’s right to receive a Bonus from a given Bonus Pool shall continue, even in the event of Participant’s death, for as long as each Bonus Pool continues, pursuant to Section 2.4, unless any Participant or Participant Groups forfeits its rights under this Plan. In the event of death of a Participant, the Company shall suspend payments until the Company has received documents, satisfactory to the Company’s counsel, evidencing to whom future payments should be made. A Participant shall not receive any Bonus, until the Participant has been employed by the Company for a period of six (6) consecutive months from said Participant’s date of employment. Further, if any Participant is not employed by the Company for a period of two (2) consecutive years, after said Participant’s date of employment, then such Participant shall automatically forfeit, immediately upon the date Participant is not employed, all of Participant’s rights to receive all Bonus payment(s).

     5.3 Forfeiture for Termination of Employment. Should a Participant’s employment with the Company be terminated for any reason, the Participant shall not have any right to participate in the Plan as to any Bonus Pool for any well whose drilling spud date is after the date of termination.

     5.4 Incapacity. If any Participant entitled to a Bonus is, in the sole opinion of the Compensation Committee, physically or mentally incapacitated, to perform Participant’s duties for the Company, the Company will continue to make payments to which the Participant is entitled to hereunder to any member of the family of the Participant, who is entitled to payment, for the use and benefit of the Participant, or the Company may make payments to any person, entity or institution providing care for the Participant who is then legally entitled to payment.

     5.5 Employment Agreement. In the event the Participant has a written employment agreement with the Company, the terms and conditions of the employment agreement regarding Participant’s right to participate in this Plan will prevail, in the event of a conflict with the provisions of this Plan.

ARTICLE VI.
LIMITATION OF RIGHTS

     Nothing in this Plan shall be construed:

(a)	to give any Employee any right to be awarded a Bonus other than in the sole discretion of the Compensation Committee;
(b)	to limit in any way the right of the Company to terminate a Participant’s employment with the Company at any time;
(c)	to evidence any agreement or understanding, express or implied, that the Company will employ a Participant in any particular capacity or for any particular remuneration;

6

(d)	to give any Employee any right to challenge, change or overturn any decision of the Compensation Committee, as such decision may be made in the Compensation Committee’s sole discretion; or
(e)	to require or obligate the Company to conduct any drilling, completion or producing operations regarding any Designated Well.

ARTICLE VII.
ALIENATION OF BENEFITS

     No benefit provided by this Plan shall be transferable by the Participant or Participant Groups, except as provided in this Plan. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge. Any attempt to transfer, anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under this Plan shall be void. No right or benefit under this Plan shall, in any manner, be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to the right or benefit. If any Participant becomes bankrupt or attempts to transfer, anticipate, alienate, assign, pledge, sell, encumber or charge any right or benefit under this Plan, then the right or benefit shall, in the sole discretion of the Compensation Committee, cease. In that event, the Company may hold or apply the right or benefit or any part of the right or benefit for the benefit of the Participant, his or her spouse, children or other dependents or any of them in the manner and in the proportion that the Compensation Committee shall deem proper, in its sole discretion, but the Compensation Committee is not required to do so.

ARTICLE VIII.
AMENDMENT AND TERMINATION OF PLAN

     8.1 Amend or Terminate at Any Time. The Board of Directors of the Company may, in its sole discretion, amend or terminate this Plan at any time, subject to Section 8.2 hereof.

     8.2 No Retroactive Effect Upon Awarded Bonuses. Any amendment or termination of this Plan will not affect the rights of any Participant or Participant Groups to a Bonus, which has already been awarded under this Plan prior to the time of the amendment or the termination.

     8.3 Automatic Termination. If at any time the appropriate governmental unit determines that the Plan is not a bonus program, but instead a pension or welfare benefit plan within the meaning of the applicable provisions of the Employee Retirement Income Security Act of 1974 or similar statute, rule or order, this Plan shall automatically terminate as of the date the Company receives notice of that determination.

ARTICLE IX.
RELIANCE UPON GENERAL CREDIT OF THE COMPANY

     It is specifically recognized that this Plan is only a general corporate commitment and that each Participant or Participant Groups must rely upon the general credit of the Company for the fulfillment of its obligations under the Plan. Though the Company may hold a Designated

7

Well, which has been designated for a given Bonus Pool, neither the Plan nor the Bonus Pool creates any claim, lien, encumbrance, right, title or other interest of any kind whatsoever in any Participant or Participant Group in any well, property or portion of a property containing such well or in the Net Profits derived from it. The designation of a well is only a part of the procedure used in calculating a Bonus due Participants or Participant Groups under the Plan and provides no legal entitlement to those specific assets. No specific assets of the Company have been set aside or pledged in any way for the performance of the Company’s duties under this Plan nor will any future assets be pledged or set aside in any manner to assure the performance of the Company under this Plan. However, the Company may, but is not required to create a rabbi trust in connection with this Plan, but only if it has received a ruling from the Internal Revenue Service that the creation of that trust does not cause this Plan to be “funded” as that term is generally used in the Employee Retirement Income Security Act. Thus, the rights of all Participants or Participant Groups and any persons claiming under any Participant or Participant Groups shall be those solely of unsecured creditors of the Company.

ARTICLE X.
GOVERNING LAW

     This Plan shall be governed by the laws of the State of Texas. All of the Parties irrevocably consents to the exclusive jurisdiction of any Texas or United States Federal Court sitting in Harris County over any action or proceeding arising out of this Plan. All Parties waive any objections to venue in Texas and any objection to any action or proceeding in Texas on the basis of forum non conveniens.

ARTICLE XI.
CONFIDENTIALITY

     Any information, data or knowledge which is related directly or indirectly to, any Designated Well, the Bonus Pool, any property or portion of any property containing any Designated Well, or any geological prospect containing a Designated Well, is information the Company considers secret, proprietary and confidential (the “Confidential Information”). By acceptance of a Bonus, each Employee agrees that for as long as the Employee is receiving a Bonus and for a period of twelve (12) months after receipt of the final Bonus, each Employee will keep all Confidential Information confidential and will not (i) disclose or permit the disclosure of any Confidential Information; and/or (ii) solicit to employ or attempt to employ or divert any Employee of the Company or any of its affiliates with knowledge of Confidential Information. The Confidential Information will not include information in the public domain or generally known by the public, other than through acts by the Employee. In the event an Employee breaches this Section 11.1 the Company, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to terminate its obligation to make any further payments of any Bonus and to an injunction or injunctions (without the posting of any bond) to prevent breaches or threatened breaches of this Plan and/or to compel specific performance of this Plan and no Employee will oppose the gravity of such relief including all costs and expenses, including attorney’s fees.

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ARTICLE XII.
EFFECTIVE DATE

     This Plan shall become operative and effective on November 5, 1997.

ARTICLE XIII.
MISCELLANEOUS

     13.1 The article headings used in this Plan are inserted for convenience only and shall be disregarded in construing this Plan.

     13.2 If any portion of this Plan is rendered invalid by a court of proper jurisdiction, the balance of this Plan shall continue in full force and effect.

     13.3 To be effective, any notice, request or other communication permitted or required to be given by either party hereunder shall be given in writing and may be effected by placing the same in the United States mail, certified with return receipt requested, postage prepaid, by delivery by courier service, by prepaid telegram or by facsimile transmission, and shall be deemed given the date and hour three (3) days following the date and hour at which the same is deposited with a clerk of the United States Postal Service, or when so delivered by courier service or personally delivered or by prepaid telegram filed with a telegraph company or on completion and confirmation of a facsimile transmission, addressed to the respective party to be notified.

     13.4 This Plan shall be binding upon the parties hereto and their respective heirs, executors and successors.

     13.5 Neither the adoption and existence of the Plan, nor any payment, contribution or other participation by the Company in the Plan, shall be considered a contract between any Participant and the Company, or consideration for, or inducement with respect to, the Participant’s continued employment by the Company.

     13.6 Each Participant represents to the Company and agrees that he: (i) was specifically advised to and fully understands his rights to discuss all aspects of this Plan with an attorney, (ii) has to the extent he desires, availed himself of these rights, (iii) has carefully read and fully understands the provisions of the Plan, and (iv) is responsible for any federal and/or state income or other tax liability that may result as a consequence of the receipt of any Bonus.

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     13.7 This Plan sets forth the entire agreement between the Company and each Participant and fully supersedes all prior written and oral agreements, understandings and representations between the parties, including, but not limited to those concerning Participant’s rights to receive any monies from the Company from or in respect of any Designated Well or from or in respect of any Company prospect; provided, however, this Plan shall not supercede the matters set out in Section 4.3 of Exhibit A in the Employment Agreement between each Participant and the Company.

THE MERIDIAN RESOURCE CORPORATION

By:	/s/ Joseph A. Reeves, Jr.
	JOSEPH A. REEVES, JR., Chairman

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EXHIBIT “A”

NOTICE OF BONUS

Name of Bonus Pool:	(year)
Participant or Participant Group:
Designated Well:
Bonus Percentage:
Terms and Conditions:
Date:

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EX-10.17

Exhibit 10.17

AMENDMENT TO
THE MERIDIAN RESOURCE CORPORATION
GEOSCIENTIST WELL BONUS PLAN

     WHEREAS, Alta Mesa Acquisition Sub, LLC (the “Company”) has adopted and assumed sponsorship of The Meridian Resource Corporation Geoscientist Well Bonus Plan (the “Plan”) effective as of the Effective Time (as defined in the Agreement and Plan of Merger dated as of December 22, 2009, as amended by a First Amendment to Agreement and Plan of Merger dated as of April 7, 2010); and

     WHEREAS, as of the Effective Time, the Company has the right under Article VIII of the Plan to amend the Plan at any time and from time to time; and

     WHEREAS, the Company has determined that the Plan should be amended to reflect the Company’s adoption and assumption of the Plan; and

     WHEREAS, the Company has determined that the Plan should also be amended so that (1) no Employee who is not a Participant in the Plan as of the Effective Time shall be eligible to commence participation in the Plan as a Participant at any time on or after the Effective Time, and (2) no future wells may be designated as Designated Wells (as defined in the Plan) on or after the Effective Time.

     NOW, THEREFORE, the Plan is hereby amended as follows:

     1. Effective as of the Effective Time, the Plan is amended to replace all references to “The Meridian Resource Corporation” with “Alta Mesa Acquisition Sub, LLC.”

     2. Effective as of the Effective Time, Section 2.8 of the Plan (the definition of “Bonus”) is hereby amended by deleting the text of said definition in its entirety and substituting, in lieu thereof, the following:

     2.2 “Bonus” means the right awarded to a Participant and/or Participant Group to receive a bonus from the Bonus Pool, pursuant to this Plan, in the amount set out in the Notice of Bonus. A Participant’s and/or Participant Group’s Bonus will be expressed as a percentage of the Bonus Pool, as determined by the Compensation Committee. A Bonus once granted continues pursuant to this Plan. Bonuses awarded from any given Bonus Pool may not exceed one hundred percent (100%) of the given Bonus Pool. Notwithstanding anything herein to the contrary, no new Bonuses may be awarded to a Participant, Participant Group (or to any other person or entity) and no Bonus may be increased, on or after the Effective Time.

     3. Effective as of the Effective Time, Section 2.8 of the Plan (the definition of “Designated Well”) is hereby amended by deleting the text of said definition in its entirety and substituting, in lieu thereof, the following:

     2.8 “Designated Well” means a well (whether or not operated by the Company) that is designated by the Compensation Committee, in its sole discretion, to be included in this Plan. The Company may drill wells (whether or not operated by the Company) that will not become a Designated Well. Notwithstanding anything herein to the contrary, no additional wells may be designated by the Compensation Committee as Designated Wells under the Plan on or after the Effective Time.

     4. Effective as of the Effective Time, the Plan is hereby amended by adding the following new Section 2.8A:

     2.8A “Effective Time” means “Effective Time,” as defined in the Agreement and Plan of Merger dated as of December 22, 2009, by and between the Company, Alta Mesa Holdings, LP, and The Meridian Resource Corporation, as amended by a First Amendment to Agreement and Plan of Merger dated as of April 7, 2010.

     5. Effective as of the Effective Time, Section 2.9 of the Plan (the definition of “Employee”) is hereby amended by deleting the text of said definition in its entirety and substituting, in lieu thereof, the following:

     2.9 “Employee” means any employee of the Company, who is employed in a geoscience capacity with the Company who, in the sole discretion of the Compensation Committee, is in a position to materially contribute to the continued growth, development and financial success of the Company. Notwithstanding anything herein to the contrary, no individual may become an Employee for purposes of the Plan on or after the Effective Time.

     6. Effective as of the Effective Time, Section 2.13 of the Plan (the definition of “Participant”) is hereby amended by deleting the text of said definition in its entirety and substituting, in lieu thereof, the following:

     2.13 “Participant” means an Employee who has been awarded a Bonus in a Bonus Pool, either directly or as a part of a Participant Group. Notwithstanding anything herein to the contrary, no Employee (or any other person or entity) who is not already a Participant in the Plan as of the Effective Time shall be eligible to become a Participant or a member of a Participant Group on or after such date and, therefore, only Employees who are Participants or members of a Participant Group as of the Effective Time shall be considered Participants.

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     7. Effective as of the Effective Time, Section 3.2 of the Plan is hereby amended by adding the following new sentence to the end of said Section:

Notwithstanding anything herein to the contrary, as of the Effective Time, the Compensation Committee may not award any new Bonuses to any Employee, Participant, Participant Group, or any other person or entity, or increase the amount of a Bonus previously awarded to any Participant or Participant Group.

     As amended hereby, the Plan is ratified and confirmed.

     IN WITNESS WHEREOF, this Amendment has been executed on this 13^th day of May, 2010, to be effective as of the Effective Time.

ALTA MESA ACQUSITION SUB, LLC
By:	Alta Mesa Holdings, LP
Its:	Sole Member
By:	Alta Mesa GP, LLC
Its:	General Partner
By:	/s/ Harlan H. Chappelle
	Name:	Harlan H. Chappelle
	Title:	President and Chief Executive Officer

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EX-10.18

Exhibit 10.18

THE MERIDIAN RESOURCE CORPORATION
TMR EMPLOYEES TRUST WELL BONUS PLAN

ARTICLE I.
PURPOSE

     The Board of Directors of the Company creates this Bonus Plan for personnel of the Company to be included in the TMR EMPLOYEES TRUST (the “Trust”) intending to advance the best interests of The Meridian Resource Corporation (the “Company”) by attracting and retaining top quality personnel through this use of incentive bonuses for selected personnel within the eligible group.

ARTICLE II.
DEFINITIONS

     2.1 “Anniversary Date” means the last day of the fiscal year of the Company.

     2.2 “Bonus” means the right awarded to the Trust to receive a bonus from the Bonus Pool, pursuant to this Plan, in the amount set out in the Notice of Bonus. The Trust’s Bonus will be expressed as a percentage of the Bonus Pool, as determined by the Compensation Committee. A Bonus once granted continues pursuant to this Plan. Bonuses awarded from any given Bonus Pool may not exceed one hundred percent (100%) of the given Bonus Pool.

     2.3 “Bonus Date” means the last day of each quarter of each fiscal year of the Company.

     2.4 “Bonus Pool” means a pool consisting of a percentage of the Net Profits from a Designated Well, as determined by the Company, paid by the Company to the Plan. Each Bonus Pool will be the basis for determining the Bonus to be paid to the Trust. Each Bonus Pool will carry a name, which will distinguish it from any other Bonus Pool and will include the fiscal year of its designation. Each Bonus Pool will be separate from all other Bonus Pools. Each Bonus Pool shall only contain one Designated Well. Each Bonus Pool will continue until such time as the Compensation Committee, in its sole discretion, determines no further Net Profits will be generated by the Designated Well for that Bonus Pool or until the Trust terminates, or as otherwise determined herein. Any Bonus Pool shall be subject to the terms, conditions, and provisions of any agreement theretofore or thereafter entered into by the Company, which in any way affects the Designated Well, monies or common stock of the Company.

     2.5 “Chargeable Expenditures” means the total sum of the following expenses, incurred by the Company and its Internal Working Interest Partners, associated, directly or indirectly, with a Designated Well:

(i)	the severance, production, excise, ad valorem, windfall profits and other taxes on or measured by production attributable to said Designated Well; plus
(ii)	the cost of operating and maintaining a Designated Well (normal lease operating expenses), exclusive of drilling well overhead rates as provided for in any applicable joint operating agreement, and exclusive of any costs and expenses

associated with establishment or enhancement of production including but not limited to the costs of drilling, workovers (other than normal lease operating expenses associated therewith), re-drills, deepening, sidetracking, plugging back, purchasing and setting surface equipment, and/or the construction of pipeline or plant facilities; plus

(iii) the fees or other consideration paid by the Company to any third party, other than an affiliate of the Company, for services in connection with marketing production of oil and/or gas (and/or components and by products extracted therefrom) from or attributable to such Designated Well.

     Chargeable Expenditures does not include any of the following:

(i)	any and all lease burdens including, but not limited to, landowner royalties, overriding royalties, net profits interest payments, production payments, financing arrangements and other similar interests which may burden any Designated Well as a result of agreements between the Company and any third parties;
(ii)	capital expenditures associated with wells, production and marketing facilities, including, but not limited to, the costs of drilling, workovers (other than normal lease operating expenses associated therewith), re-drills, deepening, sidetracking, plugging back, purchasing and setting surface equipment, and/or the construction of pipeline or plant facilities; and
(iii)	the acquisition and maintenance of mineral interest or the geologic, geophysical and engineering evaluation relative to any Designated Well.

     2.6 “Company” means The Meridian Resource Corporation.

     2.7 “Compensation Committee” means the Committee established by the Board of Directors of the Company to administer this Plan.

     2.8 “Designated Well” means a well (whether or not operated by the Company) designated by the Compensation Committee, in its sole discretion, to be included in this Plan. The Company may drill wells (whether or not operated by the Company) that will not become a Designated Well.

     2.9 “Internal Working Interest Partners” means any and all parties designated as such by the Company and who hold a cost sharing ownership interest, either actual or beneficial, on a cash basis by virtue of an agreement between the Company and any such parties in and to any Designated Well.

     2.10 “Net Profits” means the proceeds received by the Company from the sale of the oil, gas and minerals (including components and by products extracted therefrom) that are produced, saved and sold from a Designated Well, free and clear of all costs and expenses of exploration, development, operation, production, marketing, processing, treating and transportation to the sales point, LESS Chargeable Expenditures. If Chargeable Expenditures in any calendar month exceed the proceeds in the same month for a particular well resulting in a net

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loss, such net loss shall be carried forward and applied against the Net Profits of the succeeding month, or months, for that particular well. The Net Profits shall be subject to the terms, conditions and provisions of any joint operating agreement or similar agreement at any time heretofore or hereafter entered into by the Company with any third parties covering any Designated Well including, but not limited to, provisions requiring forfeiture of interest for nonparticipation and recoupment of multiple recovery costs. In the event any such provisions of any third party agreement come into effect the Net Profit payments shall be suspended until such costs are recovered or such cause for suspension is removed. The Net Profits shall also be subject to the terms, conditions and provisions of any farmout or other agreements under which the Company acquires or may acquire its mineral interest in a Designated Well. In the event the interest of the oil, gas and minerals owned by the Company is or becomes reduced, the Net Profits shall be proportionately reduced to the proportion thereof, which the working interest owned by the Company in said Designated Well bears to the entire working interest for said Designated Well.

     2.11 “Notice of Bonus” means the notice that will be issued to the Trust, substantially in the form attached hereto as Exhibit “A”.

     2.12 “Plan” means this The Meridian Resource Corporation TMR Employees Trust Well Bonus Plan, as amended from time to time.

ARTICLE III.
ADMINISTRATION

     3.1 Composition and Indemnity of the Compensation Committee. The Compensation Committee shall be composed of those persons, not less than two, as are appointed by the Board of Directors of the Company, to serve at its pleasure. The Compensation Committee shall administer and construe this Plan. No member of the Compensation Committee shall be liable for any act or any determination made in good faith. The Company shall, to the fullest extent permitted by law, indemnify and hold each member of the Compensation Committee harmless from any and all claims, causes of action, damages and expenses (including reasonable attorneys’ fees and expenses) incurred by the member in connection with or otherwise relating to his service in that capacity.

     3.2 Administration of Plan. Construction by the Compensation Committee of any provision of this Plan shall be final, conclusive and non-appealable. The Compensation Committee shall determine, in its sole discretion subject to the provisions of the Plan:

(a)	the percentage of the Net Profits that will be paid by the Company to each Bonus Pool;
(b)	the calculation of the Net Profits;
(c)	which wells, of the wells the Company drills or acquires or participates in, if any, will be a Designated Well; and
(d)	the terms and conditions, if any, not inconsistent with the terms of this Plan, that are to be placed upon the award of a Bonus to the Trust or from a Bonus Pool.

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     3.3 Delegation. The Compensation Committee may, in its discretion, delegate one or more of its duties to an officer or a committee composed of officers of the Company, but may not delegate its authority to construe this Plan or to make the determinations set out in Section 3.2.

     3.4 Award of Bonus. The Compensation Committee will issue to the Trust a “Notice of Bonus,” within fifteen (15) working days after the drilling spud date of each Designated Well. The Notice of Bonus shall set out the determination of the Compensation Committee, for such Bonus Pool, regarding the matters set out in Section 3.2.

ARTICLE IV.
CALCULATION OF BONUSES

     4.1 Calculation of Benefits Based Upon Bonus Pool. As soon as administratively possible after each Bonus Date, the Compensation Committee shall calculate the dollar amount of the Bonus to be paid to the Trust in each Bonus Pool.

     4.2 Calculation of Bonus Pool Based Upon Disposition of Designated Wells for a Bonus Pool. The Company shall always be entitled to, at any time, dispose of any and all interests it may hold with respect to any or all Designated Wells. The time, price, terms and conditions of such disposal will be as the Company may determine. When a Designated Well is sold or otherwise disposed of, the amount to be paid to the Bonus Pool shall be a percentage of the net proceeds received by the Company from any such sale or disposition (as determined by the Company), minus a percentage of the costs incurred by the Company in such sale or disposition (as determined by the Company) and all taxes, which may be assessed against the Designated Well, because of the sale or disposition, other than income taxes payable by the Company for its share of said proceeds, if any.

     4.3 Calculation of Bonus Upon Liquidation of Company. The existence of outstanding Bonus awards will not affect in any way the right or power of the Company to make or authorize any or all adjustments or recapitalization or other changes in the Company’s capital structure or its business. Should the Company elect to liquidate or to enter into any transaction in which it is not the surviving company (a “Transaction”), unless the surviving or successor company has formally adopted this Plan and agreed to continue it, in lieu of any Bonus otherwise payable or to become payable at any time in the future under the Plan, each Bonus Pool shall be entitled to a payment of an amount equal to the aggregate present value of the estimated future Net Profits, which may be expected to be payable by the Company to each Bonus Pool. Calculation of those estimated future Net Profits shall be determined by the Company, in its sole discretion, using the Company’s latest available external engineering estimate or the internal estimate if no external estimate exits, of proven recoverable reserves, annual production rates, revenues, production costs, value’s determined (as a part of a Transaction) for any well or any other factors deemed relevant. The annual values shall then be discounted to a present value as of the date of payment at the rate of fifteen percent (15%) per annum. Payment of this estimated amount will unconditionally relieve, discharge and acquit the Company of any further obligation to pay any additional amounts to any Bonus Pool, or the Trust under this Plan. The Compensation Committee shall then pay to the Trust the Bonus from each Bonus Pool, as calculated pursuant to the Plan.

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     4.4 Company’s Right to Suspend, Shut-in or Abandon any Designated Well within a Bonus Pool. The Company retains the unconditional right at any time, in its sole discretion, to suspend production from, shut-in or abandon any Designated Well, which may be included in any Bonus Pool.

ARTICLE V.
PAYMENT OF BONUS

     5.1 Time and Method of Payment. The Trust shall be entitled to receive payment of the Bonus as soon as administratively feasible, but in no event, later than sixty (60) days following any Bonus Date. Each Bonus shall be paid in cash and/or common stock of the Company, as determined in the sole discretion of the Compensation Committee. It is contemplated that up to seventy-two percent (72%) of any payment of a Bonus may be made in the publicly traded stock of the Company. No interest shall be paid or payable on any Bonus awarded under the Plan. The Company shall be entitled to deduct from any Bonus paid to the Trust, the sums required by federal, state or local law to be withheld with respect to the payment of such Bonus. The Company shall not be required to make any payment until the appropriate withholding is provided for.

     5.2 Length of Period Participant will Receive Benefit. The Trust’s right to receive a Bonus from a given Bonus Pool shall continue, for as long as each Bonus Pool continues, pursuant to Section 2.4, unless the Trust forfeits its rights under this Plan. In the event of termination or dissolution of the Trust, the Company shall suspend payments until the Company has received documents, satisfactory to the Company’s counsel, evidencing to whom future payments should be made.

ARTICLE VI.
LIMITATION OF RIGHTS

     Nothing in this Plan shall be construed:

(a)	to give any beneficiary of the Trust or the Trust any right to be awarded a Bonus other than in the sole discretion of the Compensation Committee;
(b)	to limit in any way the right of the Company to terminate the Trust or any beneficiary’s employment with the Company at any time;
(c)	to evidence any agreement or understanding, express or implied, that the Company will employ any beneficiary of the Trust in any particular capacity or for any particular remuneration;
(d)	to give the Trust or any beneficiary of the Trust any right to challenge, change or overturn any decision of the Compensation Committee, as such decision may be made in the Compensation Committee’s sole discretion; or
(e)	to require or obligate the Company to conduct any drilling, completion or producing operations regarding any Designated Well.

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ARTICLE VII.
ALIENATION OF BENEFITS

     No benefit provided by this Plan shall be transferable by the Trust, except as provided in this Plan. No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge. Any attempt to transfer, anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under this Plan shall be void. No right or benefit under this Plan shall, in any manner, be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to the right or benefit. If the Trust becomes bankrupt or attempts to transfer, anticipate, alienate, assign, pledge, sell, encumber or charge any right or benefit under this Plan, then the right or benefit shall, in the sole discretion of the Compensation Committee, cease.

ARTICLE VIII.
AMENDMENT AND TERMINATION OF PLAN

     8.1 Amend or Terminate at Any Time. The Board of Directors of the Company may, in its sole discretion, amend or terminate this Plan at any time, subject to Section 8.2 hereof.

     8.2 No Retroactive Effect Upon Awarded Bonuses. Any amendment or termination of this Plan will not affect the rights of the Trust to a Bonus, which has already been awarded under this Plan prior to the time of the amendment or the termination.

     8.3 Automatic Termination. If at any time the appropriate governmental unit determines that the Plan is not a bonus program, but instead a pension or welfare benefit plan within the meaning of the applicable provisions of the Employee Retirement Income Security Act of 1974 or similar statute, rule or order, this Plan shall automatically terminate as of the date the Company receives notice of that determination.

ARTICLE IX.
RELIANCE UPON GENERAL CREDIT OF THE COMPANY

     It is specifically recognized that this Plan is only a general corporate commitment and that the Trust must rely upon the general credit of the Company for the fulfillment of its obligations under the Plan. Though the Company may hold a Designated Well, which has been designated for a given Bonus Pool, neither the Plan nor the Bonus Pool creates any claim, lien, encumbrance, right, title or other interest of any kind whatsoever in the Trust in any well, property or portion of a property containing such well or in the Net Profits derived from it. The designation of a well is only a part of the procedure used in calculating a Bonus due the Trust under the Plan and provides no legal entitlement to those specific assets. No specific assets of the Company have been set aside or pledged in any way for the performance of the Company’s duties under this Plan nor will any future assets be pledged or set aside in any manner to assure the performance of the Company under this Plan. However, the Company may, but is not required to create a rabbi trust in connection with this Plan, but only if it has received a ruling from the Internal Revenue Service that the creation of that trust does not cause this Plan to be “funded” as that term is generally used in the Employee Retirement Income Security Act. Thus,

6

the rights of the Trust and any persons claiming under the Trust shall be those solely of unsecured creditors of the Company.

ARTICLE X.
GOVERNING LAW

     This Plan shall be governed by the laws of the State of Texas. All of the Parties irrevocably consents to the exclusive jurisdiction of any Texas or United States Federal Court sitting in Harris County over any action or proceeding arising out of this Plan. All Parties waive any objections to venue in Texas and any objection to any action or proceeding in Texas on the basis of forum non conveniens.

ARTICLE XI.
CONFIDENTIALITY

     11.1 Any information, data or knowledge which is related directly or indirectly to, any Designated Well, the Bonus Pool, any property or portion of any property containing any Designated Well, or any geological prospect containing a Designated Well, is information the Company considers secret, proprietary and confidential (the “Confidential Information”). By acceptance of a Bonus, the Trust agrees and any beneficiary of the Trust that for as long as the Trust is receiving a Bonus and for a period of twelve (12) months after receipt of the final Bonus, the Trust and any beneficiary of the Trust will keep all Confidential Information confidential and will not (i) disclose or permit the disclosure of any Confidential Information; and/or (ii) solicit to employ or attempt to employ or divert any employee of the Company or any of its affiliates with knowledge of Confidential Information. The Confidential Information will not include information in the public domain or generally known by the public. In the event the Trust and any beneficiary of the Trust breaches this Section 11.1 the Company, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to terminate its obligation to make any further payments of any Bonus and to an injunction or injunctions (without the posting of any bond) to prevent breaches or threatened breaches of this Plan and/or to compel specific performance of this Plan and the Trust will not oppose the gravity of such relief including all costs and expenses, including attorney’s fees.

ARTICLE XII.
EFFECTIVE DATE

     This Plan shall become operative and effective on November 5, 1997.

ARTICLE XIII.
MISCELLANEOUS

     13.1 The article headings used in this Plan are inserted for convenience only and shall be disregarded in construing this Plan.

     13.2 If any portion of this Plan is rendered invalid by a court of proper jurisdiction, the balance of this Plan shall continue in full force and effect.

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     13.3 To be effective, any notice, request or other communication permitted or required to be given by either party hereunder shall be given in writing and may be effected by placing the same in the United States mail, certified with return receipt requested, postage prepaid, by delivery by courier service, by prepaid telegram or by facsimile transmission, and shall be deemed given the date and hour three (3) days following the date and hour at which the same is deposited with a clerk of the United States Postal Service, or when so delivered by courier service or personally delivered or by prepaid telegram filed with a telegraph company or on completion and confirmation of a facsimile transmission, addressed to the respective party to be notified.

     13.4 This Plan shall be binding upon the parties hereto and their respective heirs, executors and successors.

     13.5 Neither the adoption and existence of the Plan, nor any payment, contribution or other participation by the Company in the Plan, shall be considered a contract between the Trust or any Trust beneficiary and the Company, or consideration for, or inducement with respect to, any Trust beneficiary’s continued employment by the Company.

     13.6 The Trust represents to the Company and agrees that it: (i) was specifically advised to and fully understands its rights to discuss all aspects of this Plan with an attorney, (ii) has to the extent it desires, availed itself of these rights, (iii) has carefully read and fully understands the provisions of the Plan, and (iv) is responsible for any federal and/or state income or other tax liability that may result as a consequence of the receipt of any Bonus.

     13.7 This Plan sets forth the entire agreement between the Company and the Trust and fully supersedes all prior written and oral agreements, understandings and representations between the parties including but not limited to those concerning the Trust rights to receive any monies from the Company from or in respect of any Designated Well or from or in respect of any Company prospect.

THE MERIDIAN RESOURCE CORPORATION

By:	/s/ Joseph A. Reeves, Jr.
	JOSEPH A. REEVES, JR., Chairman

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EXHIBIT “A”

NOTICE OF BONUS

Name of Bonus Pool:	(year)
Designated Well:
Bonus Percentage:
Date of bonus:

COMPENSATION COMMITTEE
By:
	JOSEPH A. REEVES, JR., Director
By:
	MICHAEL J. MAYELL, Director

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EX-10.19

Exhibit 10.19

AMENDMENT TO
THE MERIDIAN RESOURCE CORPORATION
TMR EMPLOYEES TRUST WELL BONUS PLAN

     WHEREAS, Alta Mesa Acquisition Sub, LLC (the “Company”) has adopted and assumed sponsorship of The Meridian Resource Corporation TMR Employees Trust Well Bonus Plan (the “Plan”), effective as of the Effective Time (as defined in the Agreement and Plan of Merger dated as of December 22, 2009, as amended by a First Amendment to Agreement and Plan of Merger dated as of April 7, 2010); and

     WHEREAS, as of the Effective Time, the Company has the right under Article VIII of the Plan to amend the Plan at any time and from time to time; and

     WHEREAS, the Company has determined that the Plan should be amended to reflect the Company’s adoption and assumption of the Plan; and

     WHEREAS, the Company has determined that the Plan should also be amended so that (1) any Bonus awarded to the TMR Employees Trust (the “Trust”) may not be increased and no new Bonus may be awarded under the Plan to the Trust (or to any other person or entity) on or after the Effective Time, and (2) no future wells may be designated as Designated Wells (as defined in the Plan) on or after the Effective Time;

     NOW, THEREFORE, the Plan is hereby amended as follows:

     1. Effective as of the Effective Time, the Plan is amended to replace all references to “The Meridian Resource Corporation” with “Alta Mesa Acquisition Sub, LLC.”

     2. Effective as of the Effective Time, Section 2.8 of the Plan (the definition of “Bonus”) is hereby amended by deleting the text of said definition in its entirety and substituting, in lieu thereof, the following:

     2.2 “Bonus” means the right awarded to the Trust to receive a bonus from the Bonus Pool, pursuant to this Plan, in the amount set out in the Notice of Bonus. The Trust’s Bonus will be expressed as a percentage of the Bonus Pool, as determined by the Compensation Committee. A Bonus once granted continues pursuant to this Plan. Bonuses awarded from any given Bonus Pool may not exceed one hundred percent (100%) of the given Bonus Pool. Notwithstanding anything herein to the contrary, the Bonus awarded to the Trust may not be increased and no new Bonus may be awarded to the Trust (or to any other person or entity) on or after the Effective Time.

     3. Effective as of the Effective Time, Section 2.8 of the Plan (the definition of “Designated Well”) is hereby amended by deleting the text of said definition in its entirety and substituting, in lieu thereof, the following:

     2.8 “Designated Well” means a well (whether or not operated by the Company) that is designated by the Compensation Committee, in its sole discretion, to be included in this Plan. The Company may drill wells (whether or not operated by the Company) that will not become a Designated Well. Notwithstanding anything herein to the contrary, no additional wells may be designated by the Compensation Committee as Designated Wells under the Plan on or after the Effective Time.

     4. Effective as of the Effective Time, the Plan is hereby amended by adding the following new Section 2.8A:

     2.8A “Effective Time” means “Effective Time,” as defined in the Agreement and Plan of Merger dated as of December 22, 2009, by and between the Company, Alta Mesa Holdings, LP, and The Meridian Resource Corporation, as amended by a First Amendment to Agreement and Plan of Merger dated as of April 7, 2010.

     5. Effective as of the Effective Time, Section 3.2 of the Plan is hereby amended by adding the following new sentence to the end of said Section:

     Notwithstanding anything herein to the contrary, as of the Effective Time, the Compensation Committee may not award any new Bonuses to the Trust (or to any other person or entity), or increase the amount of a Bonus previously awarded under the Plan.

     As amended hereby, the Plan is ratified and confirmed.

     IN WITNESS WHEREOF, this Amendment has been executed on this 13^th day of May, 2010, to be effective as of the Effective Time.

ALTA MESA ACQUSITION SUB, LLC
By:	Alta Mesa Holdings, LP
Its:	Sole Member
By:	Alta Mesa GP, LLC
Its:	General Partner
By:	/s/ Harlan H. Chappelle
	Name:	Harlan H. Chappelle
	Title:	President and Chief Executive Officer

2

EX-12.1

EXHIBIT 12.1

Alta Mesa Holdings, LP
Ratio of Earnings to Fixed Charges

	2010		2009			2008		2007			2006
			(dollars in thousands)
Earnings:
Net income (loss) before tax	$	14,231	$	(50,037	)	$	36,880	$	(27,476	)	$	9,853
Fixed charges:
Interest (1)		23,981		11,949			9,212		9,010			9,741
Earnings before fixed charges		38,212		(38,088	)		46,092		(18,466	)		19,594
Fixed charges:
Interest (1)		23,981		11,949			9,212		9,010			9,741
Total fixed charges	$	23,981	$	11,949		$	9,212	$	9,010		$	9,741
Ratio of earnings to fixed charges		1.59	NA				5.00	NA				2.01

(1) Interest expense includes interest on debt, amortization of discount on debt, and an estimate of the interest expense portion of rent expense.

EX-21.1

Exhibit 21.1

ALTA MESA HOLDINGS, LP
Subsidiaries

Subsidiary	Jurisdiction of Formation
1. Alta Mesa Acquisition Sub, LLC	Texas
2. Alta Mesa Drilling, LLC	Texas
3. Alta Mesa Energy LLC	Texas
4. Alta Mesa Finance Services Corp.	Delaware
5. Alta Mesa GP, LLC	Texas
6. Alta Mesa Services, LP	Texas
7. Aransas Resources, L.P.	Texas
8. ARI Development, LLC	Delaware
9. Brayton Management GP II, LLC	Texas
10. Brayton Management GP, LLC	Texas
11. Brayton Resources II, L.P.	Texas
12. Brayton Resources, L.P.	Texas
13. Buckeye Production Company, LP	Texas
14. Cairn Energy USA, LLC	Delaware
15. FBB Anadarko, LLC	Delaware
16. Galveston Bay Resources, LP	Texas
17. LEADS Resources, L.L.C.	Texas
18. Louisiana Exploration & Acquisition Partnership, LLC	Delaware
19. Louisiana Exploration & Acquisitions, LP	Texas
20. Louisiana Onshore Properties LLC	Delaware
21. Navasota Resources, Ltd., LLP	Texas
22. New Exploration Technologies Company, L.L.C.	Texas
23. Nueces Resources, LP	Texas
24. Oklahoma Energy Acquisitions, LP	Texas
25. Orion Operating Company, LP	Texas
26. Petro Acquisitions, LP	Texas
27. Petro Operating Company, LP	Texas
28. Sundance Acquisition, LLC	Texas
29. TE TMR, LLC	Texas
30. Texas Energy Acquisitions, LP	Texas
31. The Meridian Production, LLC	Texas
32. The Meridian Resource & Exploration LLC	Delaware
33. The Meridian Resource, LLC	Delaware
34. TMR Drilling, LLC	Texas
35. TMR Equipment, LLC	Texas
36. Virginia Oil and Gas, LLC	Delaware

EX-23.2

Exhibit 23.2

CONSENT OF UHY LLP

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption “Experts” in the Registration Statement on Form S-4 of Alta Mesa Holdings, LP and Subsidiaries, and to the inclusion of our report dated March 31, 2011, with respect to the consolidated financial statements of Alta Mesa Holdings, LP and Subsidiaries as of December 31, 2010 and 2009 and for each of the three fiscal years in the period ended December 31, 2010.

/s/ UHY LLP

Houston, Texas
April 27, 2011

EX-23.3

Exhibit 23.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     We consent to the use of our report dated April 15, 2010, with respect to the consolidated financial statements of The Meridian Resource Corporation as of December 31, 2009 and 2008, and for each of the three fiscal years in the period ended December 31, 2009, included herein and to the reference to our firm under the heading “EXPERTS” in the Registration Statement on Form S-4 and related prospectus. Our report related to the consolidated financial statements contains an explanatory paragraph regarding the company’s ability to continue as a going concern.

/s/ BDO USA, LLP (formerly known as BDO Seidman, LLP)

Houston, Texas
April 27, 2011

EX-23.4

Exhibit 23.4

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

We hereby consent to the references to our firm, in the context in which they appear, to the references to our audit letter as of December 31, 2010, and to the inclusion of our report as an exhibit in the Registration Statement on Form S-4 of Alta Mesa Holdings, LP and Alta Mesa Finance Services Corp. and the related prospectus that is a part thereof. We further consent to the reference to this firm under the heading “EXPERTS” in the Registration Statement and related prospectus.

NETHERLAND, SEWELL & ASSOCIATES, INC.
By:	/s/ Danny D. Simmons
	Danny D. Simmons, P.E.
	President and Chief Operating Officer

Houston, Texas
April 15, 2011

EX-23.5

Exhibit 23.5

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

     We hereby consent to the use of the name T.J. Smith & Company, Inc., to references to T.J. Smith & Company, Inc. as independent petroleum engineers, to the inclusion of information contained in our report as of December 31, 2010, and to the inclusion of our report as an exhibit in the Registration Statement on Form S-4 of Alta Mesa Holdings, LP and Alta Mesa Finance Services Corp. and the related prospectus that is a part thereof. We further consent to the reference to this firm under the heading “EXPERTS” in the Registration Statement and related prospectus.

Yours very truly,

T. J. Smith & Company, Inc.

/s/ T. J. Smith T. J. Smith

President

Houston, Texas
April 14, 2011

EX-23.6

Exhibit 23.6

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

     We hereby consent to the use of the name W.D. Von Gonten & Co., to references to W.D. Von Gonten & Co. as independent petroleum engineers, to the inclusion of information contained in our report as of December 31, 2010, and to the inclusion of our report as an exhibit in the Registration Statement on Form S-4 of Alta Mesa Holdings, LP and Alta Mesa Finance Services Corp. and the related prospectus that is a part thereof. We further consent to the reference to this firm under the heading “EXPERTS” in the Registration Statement and related prospectus.

Yours very truly,

W.D. VON GONTEN & CO.

/s/ William D. Von Gonten, Jr.
William D. Von Gonten, Jr., P.E.
TX#73244
President

Houston, Texas
April 14, 2011

EX-25.1

Exhibit 25.1

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________

FORM T-1

STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

_____________________________

CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)

WELLS FARGO BANK, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)

A National Banking Association	94-1347393
(Jurisdiction of incorporation or	(I.R.S. Employer
organization if not a U.S. national bank)	Identification No.)
101 North Phillips Avenue
Sioux Falls, South Dakota	57104
(Address of principal executive offices)	(Zip code)

Wells Fargo & Company
Law Department, Trust Section
MAC N9305-175
Sixth Street and Marquette Avenue, 17^thFloor
Minneapolis, Minnesota 55479
(612) 667-4608
(Name, address and telephone number of agent for service)

ALTA MESA HOLDINGS, LP
ALTA MESA FINANCE SERVICES CORP.
SEE TABLE OF ADDITIONAL REGISTRANTS ON FOLLOWING PAGE
(Exact name of registrant as specified in its charter)

____________

Texas	1311	20-3565150
Delaware	1311	27-3555673
(State or other jurisdiction of	(Primary standard industrial	(I.R.S. Employer
incorporation or organization)	classification code number)	Identification No.)

15415 Katy Freeway, Suite 800
Houston, Texas 77094
(281) 530-0991
(Address, including zip code, and telephone number, including area code, of registrants’ principal executive offices)

     9.625% Senior Notes due 2018     

(Title of the indenture securities)

TABLE OF ADDITIONAL REGISTRANT GUARANTORS

	State or Other	Primary Standard
	Jurisdiction of	Industrial		I.R.S. Employer
	Incorporation or	Classification Code		Identification
Name	Organization	Number		Number
Alta Mesa Acquisition Sub, LLC	Texas		1311	27-1628512
Alta Mesa Drilling, LLC	Texas		1311	74-3236219
Alta Mesa Energy LLC	Texas		1311	45-1674374
Alta Mesa GP, LLC	Texas		1311	Disregarded
Alta Mesa Services, LP	Texas		1311	37-1517295
Aransas Resources, L.P.	Texas		1311	76-0524808
ARI Development, LLC	Delaware		1311	52-2135980
Buckeye Production Company, LP	Texas		1311	76-0524810
Brayton Management GP, LLC	Texas		1311	Disregarded
Brayton Management GP II, LLC	Texas		1311	Disregarded
Cairn Energy USA, LLC	Delaware		1311	23-2169839
FBB Anadarko, LLC	Delaware		1311	73-1119231
Galveston Bay Resources, LP	Texas		1311	76-0299036
Louisiana Exploration & Acquisition Partnership, LLC	Delaware		1311	Disregarded
Louisiana Exploration & Acquisitions, LP	Texas		1311	76-0524809
Louisiana Onshore Properties LLC	Delaware		1311	76-0548803
Navasota Resources, Ltd., LLP	Texas		1311	76-0524813
New Exploration Technologies Company, L.L.C.	Texas		1311	76-0488152
Nueces Resources, LP	Texas		1311	76-0524807
Oklahoma Energy Acquisitions, LP	Texas		1311	20-3583762
Petro Acquisitions, LP	Texas		1311	20-3565453
Petro Operating Company, LP	Texas		1311	20-3565354
Sundance Acquisition, LLC	Texas		1311	76-0338589
TE TMR, LLC	Texas		1311	76-0513342
Texas Energy Acquisitions, LP	Texas		1311	76-0524811
The Meridian Production, LLC	Texas		1311	76-0395200
The Meridian Resource & Exploration LLC	Delaware		1311	76-0348919
The Meridian Resource, LLC	Delaware		1311	76-0424671
TMR Drilling, LLC	Texas		1311	20-8676327
TMR Equipment, LLC	Texas		1311	20-8676198
Virginia Oil and Gas, LLC	Delaware		1311	26-3508385

     The address of the principal executive offices of all of the registrant guarantors is 15415 Katy Freeway, Suite 800, Houston, Texas 77094 and the telephone number is (281) 530-0991.

Item 1. General Information. Furnish the following information as to the trustee:

(a)	Name and address of each examining or supervising authority to which it is subject.
	Comptroller of the Currency Treasury Department Washington, D.C.
	Federal Deposit Insurance Corporation Washington, D.C.
	Federal Reserve Bank of San Francisco San Francisco, California 94120
(b)	Whether it is authorized to exercise corporate trust powers.
	The trustee is authorized to exercise corporate trust powers.

Item 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation.

None with respect to the trustee.

No responses are included for Items 3-14 of this Form T-1 because the obligor is not in default as provided under Item 13.

Item 15. Foreign Trustee. Not applicable.

Item 16. List of Exhibits. List below all exhibits filed as a part of this Statement of Eligibility.

Exhibit 1.	A copy of the Articles of Association of the trustee now in effect.*
Exhibit 2.	A copy of the Comptroller of the Currency Certificate of Corporate Existence and Fiduciary Powers for Wells Fargo Bank, National Association, dated February 4, 2004.**
Exhibit 3.	See Exhibit 2
Exhibit 4.	Copy of By-laws of the trustee as now in effect.***
Exhibit 5.	Not applicable.
Exhibit 6.	The consent of the trustee required by Section 321(b) of the Act.
Exhibit 7.	A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority.
Exhibit 8.	Not applicable.
Exhibit 9.	Not applicable.

*	Incorporated by reference to the exhibit of the same number to the trustee’s Form T-1 filed as exhibit 25 to the Form S-4 dated December 30, 2005 of Hornbeck Offshore Services LLC file number 333-130784-06.
**	Incorporated by reference to the exhibit of the same number to the trustee’s Form T-1 filed as exhibit 25 to the Form T-3 dated March 3, 2004 of Trans-Lux Corporation file number 022-28721.
***	Incorporated by reference to the exhibit of the same number to the trustee’s Form T-1 filed as exhibit 25 to the Form S-4 dated May 26, 2005 of Penn National Gaming Inc. file number 333-125274.

SIGNATURE

Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wells Fargo Bank, National Association, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Dallas and State of Texas on the 27^th day of April, 2011.

WELLS FARGO BANK, NATIONAL ASSOCIATION
 

/s/ Patrick T. Giordano  

Patrick T. Giordano 

Vice President 

EXHIBIT 6

April 27, 2011

Securities and Exchange Commission
Washington, D.C. 20549

Gentlemen:

In accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, the undersigned hereby consents that reports of examination of the undersigned made by Federal, State, Territorial, or District authorities authorized to make such examination may be furnished by such authorities to the Securities and Exchange Commission upon its request thereof.

Very truly yours,


WELLS FARGO BANK, NATIONAL ASSOCIATION
 

/s/ Patrick T. Giordano  

Patrick T. Giordano 

Vice President 

EXHIBIT 7
Consolidated Report of Condition of

Wells Fargo Bank National Association
of 101 North Phillips Avenue, Sioux Falls, SD 57104
And Foreign and Domestic Subsidiaries,
at the close of business December 31, 2010, filed in accordance with 12 U.S.C. §161 for National Banks.

		Dollar Amounts
		In Millions
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin		$	17,518
Interest-bearing balances			57,228
Securities:
Held-to-maturity securities			0
Available-for-sale securities			150,439
Federal funds sold and securities purchased under agreements to resell:
Federal funds sold in domestic offices			1,656
Securities purchased under agreements to resell			16,821
Loans and lease financing receivables:
Loans and leases held for sale			38,095
Loans and leases, net of unearned income	691,483
LESS: Allowance for loan and lease losses	19,637
Loans and leases, net of unearned income and allowance			671,846
Trading Assets			30,824
Premises and fixed assets (including capitalized leases)			8,129
Other real estate owned			5,713
Investments in unconsolidated subsidiaries and associated companies			659
Direct and indirect investments in real estate ventures			111
Intangible assets
Goodwill			20,931
Other intangible assets			26,452
Other assets			55,856
Total assets		$	1,102,278
LIABILITIES Deposits:
In domestic offices		$	747,742
Noninterest-bearing	165,559
Interest-bearing	582,183
In foreign offices, Edge and Agreement subsidiaries, and IBFs			99,235
Noninterest-bearing	2,029
Interest-bearing	97,206
Federal funds purchased and securities sold under agreements to repurchase:
Federal funds purchased in domestic offices			2,930
Securities sold under agreements to repurchase			16,102

	Dollar Amounts
	In Millions
Trading liabilities		15,647
Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases)		40,254
Subordinated notes and debentures		19,252
Other liabilities		37,554
Total liabilities	$	978,716
EQUITY CAPITAL
Perpetual preferred stock and related surplus		0
Common stock		519
Surplus (exclude all surplus related to preferred stock)		98,971
Retained earnings		17,489
Accumulated other comprehensive income		5,280
Other equity capital components		0
Total bank equity capital		122,259
Noncontrolling (minority) interests in consolidated subsidiaries		1,303
Total equity capital		123,562
Total liabilities, and equity capital	$	1,102,278

I, Howard I. Atkins, EVP & CFO of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief.

Howard I. Atkins

EVP & CFO

We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct.

John Stumpf
Dave Hoyt
Michael Loughlin Directors

EX-99.1

Exhibit 99.1

LETTER OF TRANSMITTAL

ALTA MESA HOLDINGS, LP
AND
ALTA MESA FINANCE SERVICES CORP.

OFFER TO EXCHANGE
ANY AND ALL OUTSTANDING
9 5/8% SENIOR NOTES DUE 2018, SERIES A
THAT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
(CUSIP NOS. U02051 AA5 & 021332 AA9)
FOR
9 5/8% SENIOR NOTES DUE 2018, SERIES B
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS
DATED                     , 2011

THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON         , 2011 (THE “EXPIRATION DATE”), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE ISSUERS.

     The Exchange Agent for the Exchange Offer is Wells Fargo Bank, N.A., and its contact information is as follows:

	By Regular Mail or Overnight
By Registered & Certified Mail:	Courier:	In Person by Hand Only:
Wells Fargo Bank, N.A.	Wells Fargo Bank, N.A.	Wells Fargo Bank, N.A.
Corporate Trust Operations	Corporate Trust Operations	12th Floor—Northstar East Building
MAC N9303—121	MAC N9303—121	Corporate Trust Operations
PO Box 1517	Sixth & Marquette Avenue	608 Second Avenue South
Minneapolis, MN 55480	Minneapolis, MN 55479	Minneapolis, MN 55402

By Facsimile (for Eligible Institutions only):
(612) 667-6282

For Information or Confirmation by
Telephone:
(800) 344-5128

     If you wish to exchange 9 5/8% Senior Notes due 2018, Series A (“old notes”) for an equal aggregate principal amount of 9 5/8% Senior Notes due 2018, Series B (“new notes") pursuant to the exchange offer, you must validly tender (and not withdraw) old notes to the Exchange Agent prior to the Expiration Date.

     We refer you to the Prospectus, dated                     , 2011 (the “Prospectus"), of Alta Mesa Holdings, LP (the “Company") and Alta Mesa Finance Services Corp. (the “Co-Issuer", and together with the Company, the

“Issuers"), and this Letter of Transmittal (the “Letter of Transmittal"), which together describe the Issuers’ offer (the “Exchange Offer") to exchange their new notes that have been registered under the Securities Act of 1933, as amended (the “Securities Act"), for a like principal amount of their issued and outstanding old notes. Capitalized terms used but not defined herein have the respective meaning given to them in the Prospectus.

     The Issuers reserve the right, at any time or from time to time, to extend the Exchange Offer at their discretion, in which event the term “Expiration Date” shall mean the latest date to which the Exchange Offer is extended. The Issuers shall notify the Exchange Agent and each registered holder of the old notes of any extension by oral or written notice prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date.

     This Letter of Transmittal is to be used by holders of the old notes. Tender of old notes is to be made according to the Automated Tender Offer Program (“ATOP”) of The Depository Trust Company (“DTC”) pursuant to the procedures set forth in the Prospectus under the caption “Exchange Offer—Procedures for Tendering.” DTC participants that are accepting the Exchange Offer must transmit their acceptance to DTC, which will verify the acceptance and execute a book-entry delivery to the Exchange Agent’s DTC account. DTC will then send a computer generated message known as an “agent’s message” to the Exchange Agent for its acceptance. For you to validly tender your old notes in the Exchange Offer the Exchange Agent must receive, prior to the Expiration Date, an agent’s message under the ATOP procedures that confirms that:

• DTC has received your instructions to tender your old notes; and

• you agree to be bound by the terms of this Letter of Transmittal.

     BY USING THE ATOP PROCEDURES TO TENDER OLD NOTES, YOU WILL NOT BE REQUIRED TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT. HOWEVER, YOU WILL BE BOUND BY ITS TERMS, AND YOU WILL BE DEEMED TO HAVE MADE THE ACKNOWLEDGMENTS AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS, JUST AS IF YOU HAD SIGNED IT.

     PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.

     Ladies and Gentlemen:

     1. By tendering old notes in the Exchange Offer, you acknowledge receipt of the Prospectus and this Letter of Transmittal.

     2. By tendering old notes in the Exchange Offer, you represent and warrant that you have full authority to tender the old notes described above and will, upon request, execute and deliver any additional documents deemed by the Issuers to be necessary or desirable to complete the tender of old notes.

     3. You understand that the tender of the old notes pursuant to all of the procedures set forth in the Prospectus will constitute an agreement between you and the Issuers as to the terms and conditions set forth in the Prospectus.

     4. By tendering old notes in the Exchange Offer, you acknowledge that the Exchange Offer is being made in reliance upon interpretations contained in no-action letters issued to third parties by the staff of the Securities and Exchange Commission (the “SEC”), including Exxon Capital Holdings Corp., SEC No-Action Letter (available April 13, 1989), Morgan Stanley & Co., Inc., SEC No-Action Letter (available June 5, 1991) and Shearman & Sterling, SEC No-Action Letter (available July 2, 1993), that the new notes issued in exchange for the old notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof without compliance with the registration and prospectus delivery provisions of the Securities Act (other than a broker-dealer who purchased old notes exchanged for such new notes directly from the Issuers to resell pursuant to

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Rule 144A or any other available exemption under the Securities Act and any such holder that is an “affiliate” of the Issuers within the meaning of Rule 405 under the Securities Act), provided that such new notes are acquired in the ordinary course of such holders’ business and such holders are not participating in, and have no arrangement with any other person to participate in, the distribution of such new notes.

     5. By tendering old notes in the Exchange Offer, you hereby represent and warrant that:

(a) the new notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of you, whether or not you are the holder;

(b) you have no arrangement or understanding with any person to participate in the distribution of old notes or new notes within the meaning of the Securities Act;

(c) you are not an “affiliate,” as such term is defined under Rule 405 promulgated under the Securities Act, of the Issuers; and

(d) if you are a broker-dealer, that you will receive the new notes for your own account in exchange for old notes that were acquired as a result of market-making activities or other trading activities and that you acknowledge that you will deliver a prospectus (or, to the extent permitted by law, make available a prospectus) in connection with any resale of such new notes.

     You may, if you are unable to make all of the representations and warranties contained in Item 5 above and as otherwise permitted in the Registration Rights Agreements (as defined below), elect to have your old notes registered in the shelf registration statement described in the Registration Rights Agreement, dated as of October 13, 2010 (the “Registration Rights Agreement"), by and among the Issuers, the several guarantors named therein, and Wells Fargo Securities, LLC, as representative of the Initial Purchasers (as defined therein). Such election may be made by notifying the Issuers in writing at 15415 Katy Freeway, Suite 800, Houston, Texas 77094, Attention: Corporate Secretary. By making such election, you agree, as a holder of old notes participating in a shelf registration, to indemnify and hold harmless the Issuers, each of the directors of the Issuers, each of the officers of the Issuers who sign such shelf registration statement, each person who controls the Issuers within the meaning of either the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act"), and each other holder of old notes, from and against any and all losses, claims, damages or liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any shelf registration statement or prospectus, or in any supplement thereto or amendment thereof, or caused by the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; but only with respect to information relating to you furnished in writing by or on behalf of you expressly for use in a shelf registration statement, a prospectus or any amendments or supplements thereto. Any such indemnification shall be governed by the terms and subject to the conditions set forth in the Registration Rights Agreement, including, without limitation, the provisions regarding notice, retention of counsel, contribution and payment of expenses set forth therein. The above summary of the indemnification provision of the Registration Rights Agreement is not intended to be exhaustive and is qualified in its entirety by the Registration Rights Agreement.

     6. If you are a broker-dealer that will receive new notes for your own account in exchange for old notes that were acquired as a result of market-making activities or other trading activities, you acknowledge by tendering old notes in the Exchange Offer, that you will deliver a prospectus in connection with any resale of such new notes; however, by so acknowledging and by delivering a prospectus, you will not be deemed to admit that you are an “underwriter” within the meaning of the Securities Act.

     7. If you are a broker-dealer and old notes held for your own account were not acquired as a result of market-making or other trading activities, such old notes cannot be exchanged pursuant to the Exchange Offer.

-3-

     8. Any of your obligations hereunder shall be binding upon your successors, assigns, executors, administrators, trustees in bankruptcy and legal and personal representatives.

-4-

INSTRUCTIONS

FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER

1.	Book-Entry Confirmations.
	Any confirmation of a book-entry transfer to the Exchange Agent’s account at DTC of old notes tendered by book-entry transfer (a “Book-Entry Confirmation"), as well as Agent’s Message and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at one of its addresses set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
2.	Partial Tenders.
	Tenders of old notes will be accepted only in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. The entire principal amount of old notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise communicated to the Exchange Agent. If the entire principal amount of all old notes is not tendered, then old notes for the principal amount of old notes not tendered and new notes issued in exchange for any old notes accepted will be delivered to the holder via the facilities of DTC promptly after the old notes are accepted for exchange.
3.	Validity of Tenders.
	All questions as to the validity, form, eligibility (including time of receipt), acceptance, and withdrawal of tendered old notes will be determined by the Issuers, in their sole discretion, which determination will be final and binding. The Issuers reserve the absolute right to reject any or all tenders not in proper form or the acceptance for exchange of which may, in the opinion of counsel for the Issuers, be unlawful. The Issuers also reserve the absolute right to waive any of the conditions of the Exchange Offer or any defect or irregularity in the tender of any old notes. The Issuers’ interpretation of the terms and conditions of the Exchange Offer (including the instructions on the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within such time as the Issuers shall determine. Although the Issuers intend to notify holders of defects or irregularities with respect to tenders of old notes, neither the Issuers, the Exchange Agent, nor any other person shall be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give such notification. Tenders of old notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any old notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, promptly following the Expiration Date.
4.	Waiver of Conditions.
	The Issuers reserve the absolute right to waive, in whole or part, up to the expiration of the Exchange Offer, any of the conditions to the Exchange Offer set forth in the Prospectus or in this Letter of Transmittal.
5.	No Conditional Tender.
	No alternative, conditional, irregular or contingent tender of old notes will be accepted.
6.	Request for Assistance or Additional Copies.
	Requests for assistance or for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent using the contact information set forth on the cover page of this Letter of

-5-

Transmittal. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer.

7.	Withdrawal.
	Tenders may be withdrawn only pursuant to the limited withdrawal rights set forth in the Prospectus under the caption “Exchange Offer—Withdrawal of Tenders.”
8.	No Guarantee of Late Delivery.
	There is no procedure for guarantee of late delivery in the Exchange Offer.

     IMPORTANT: BY USING THE ATOP PROCEDURES TO TENDER OLD NOTES, YOU WILL NOT BE REQUIRED TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT. HOWEVER, YOU WILL BE BOUND BY ITS TERMS, AND YOU WILL BE DEEMED TO HAVE MADE THE ACKNOWLEDGMENTS AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS, JUST AS IF YOU HAD SIGNED IT.

-6-

EX-99.2

Exhibit 99.2

WORLDWIDE PETROLEUM CONSULTANTS
ENGINEERING • GEOLOGY • GEOPHYSICS • PETROPHYSICS Chairman & CEO
C. H. (Scott) Rees III
President & COO
Danny D. Simmons
Executive VP
G. Lance Binder
Executive Committee
P. Scott Frost - Dallas
J. Carter Henson, Jr. - Houston
Dan Paul Smith - Dallas
Joseph J. Spellman - Dallas
Thomas J. Tella II - Dallas

March 28, 2011

Mr. Harlan H. Chappelle
Alta Mesa Holdings, L.P.
15415 Katy Freeway, Suite 800
Houston, Texas 77094

Dear Mr. Chappelle:

In accordance with your request, we have audited the estimates prepared by Alta Mesa Holdings, L.P. (Alta Mesa), as of December 31, 2010, of the proved reserves and future revenue to the Alta Mesa interest in certain oil and gas properties located in Florida, Louisiana, Oklahoma, and Texas. It is our understanding that the proved reserves estimates shown herein constitute all of the proved reserves owned by Alta Mesa. We have examined the estimates with respect to reserves quantities, reserves categorization, future producing rates, future net revenue, and the present value of such future net revenue, using the definitions set forth in U.S. Securities and Exchange Commission (SEC) Regulation S-X Rule 4-10(a). The estimates of reserves and future revenue have been prepared in accordance with the definitions and guidelines of the SEC and, with the exception of the exclusion of future income taxes, conform to the FASB Accounting Standards Codification Topic 932, Extractive Activities—Oil and Gas. We completed our audit on March 28, 2011. This report has been prepared for Alta Mesa’s use in filing with the SEC; in our opinion the assumptions, data, methods, and procedures used in the preparation of this report are appropriate for such purpose.

The following table sets forth Alta Mesa’s estimates of the net reserves and future net revenue, as of December 31, 2010, for the audited properties:

	Net Reserves						Future Net Revenue (M$)
	Oil		NGL		Gas				Present Worth
Category	(MBBL)		(MBBL)		(MMCF)		Total		at 10%
Proved Developed Producing		4,080.386		561.8		91,809.0		431,181.344		327,235.375
Proved Developed Non-Producing		3,786.467		739.0		67,416.7		331,195.688		178,454.312
Proved Undeveloped		4,321.076		433.7		82,227.5		424,970.656		199,491.797
Total Proved		12,187.929		1,734.6		241,453.2		1,187,347.750		705,181.562

Totals may not add because of rounding.

The oil reserves shown include crude oil and condensate. Oil and natural gas liquids (NGL) volumes are expressed in thousands of barrels (MBBL); a barrel is equivalent to 42 United States gallons. Gas volumes are expressed in millions of cubic feet (MMCF) at standard temperature and pressure bases.

When compared on a field-by-field basis, some of the estimates of Alta Mesa are greater and some are less than the estimates of Netherland, Sewell & Associates, Inc. (NSAI). However, in our opinion the estimates of Alta Mesa’s total proved reserves and future revenue shown herein are, in the aggregate, reasonable and have been prepared in accordance with the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers (SPE Standards). Additionally, these estimates are within the recommended 10 percent tolerance threshold set forth in the SPE Standards. We are satisfied with the methods and procedures used by Alta Mesa in preparing the December 31, 2010, estimates of reserves and future revenue, and we saw nothing of an unusual nature that would cause us to take exception with the estimates, in the aggregate, as prepared by Alta Mesa.

4500 Thanksgiving Tower • 1601 Elm Street • Dallas, Texas 75201-4754 • PH: 214-969-5401 • Fax: 214-969-5411	nsai@nsai-petro.com
1221 Lamar Street, Suite 1200 • Houston, Texas 77010-3072 • Ph: 713-654-4950 • Fax: 713-654-4951	netherlandsewell.com

The estimates shown herein are for proved reserves. Alta Mesa’s estimates do not include probable or possible reserves that may exist for these properties, nor do they include any value for undeveloped acreage beyond those tracts for which undeveloped reserves have been estimated. Reserves categorization conveys the relative degree of certainty; reserves subcategorization is based on development and production status. The estimates of reserves and future revenue included herein have not been adjusted for risk.

Prices used by Alta Mesa are based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period January through December 2010. For oil and NGL volumes, the average West Texas Intermediate posted price of $75.96 per barrel is adjusted by lease for quality, transportation fees, and regional price differentials. For gas volumes, the average Henry Hub spot price of $4.376 per MMBTU is adjusted by lease for energy content, transportation fees, and regional price differentials. All prices are held constant throughout the lives of the properties. The average adjusted product prices weighted by production over the remaining lives of the properties are $77.60 per barrel of oil, $53.81 per barrel of NGL, and $4.231 per MCF of gas.

Lease and well operating costs used by Alta Mesa are based on historical operating expense records. These costs include the per-well overhead expenses allowed under joint operating agreements along with estimates of costs to be incurred at and below the district and field levels. Headquarters general and administrative overhead expenses of Alta Mesa are included to the extent that they are covered under joint operating agreements for the operated properties. Lease and well operating costs are held constant throughout the lives of the properties. Alta Mesa’s estimates of capital costs are included as required for workovers, new development wells, production equipment, and abandonment. The future capital costs are held constant to the date of expenditure.

The reserves shown in this report are estimates only and should not be construed as exact quantities. Proved reserves are those quantities of oil and gas which, by analysis of engineering and geoscience data, can be estimated with reasonable certainty to be economically producible. Estimates of reserves may increase or decrease as a result of market conditions, future operations, changes in regulations, or actual reservoir performance. In addition to the primary economic assumptions discussed herein, estimates of Alta Mesa and NSAI are based on certain assumptions including, but not limited to, that the properties will be developed consistent with current development plans, that the properties will be operated in a prudent manner, that no governmental regulations or controls will be put in place that would impact the ability of Alta Mesa to recover the reserves, and that projections of future production will prove consistent with actual performance. If the reserves are recovered, the revenues therefrom and the costs related thereto could be more or less than the estimated amounts. Because of governmental policies and uncertainties of supply and demand, the sales rates, prices received for the reserves, and costs incurred in recovering such reserves may vary from assumptions made while preparing these estimates.

It should be understood that our audit does not constitute a complete reserves study of the audited oil and gas properties. Our audit consisted primarily of substantive testing, wherein we conducted a detailed review of major properties making up approximately 85 percent of the present worth for the total proved reserves. In the conduct of our audit, we have not independently verified the accuracy and completeness of information and data furnished by Alta Mesa with respect to ownership interests, oil and gas production, well test data, historical costs of operation and development, product prices, or any agreements relating to current and future operations of the properties and sales of production. However, if in the course of our examination something came to our attention that brought into question the validity or sufficiency of any such information or data, we did not rely on such information or data until we had satisfactorily resolved our questions relating thereto or had independently verified such information or data. Our audit did not include a review of Alta Mesa’s overall reserves management processes and practices.

We used standard engineering and geoscience methods, or a combination of methods, including performance analysis, volumetric analysis, analogy, and reservoir modeling, that we considered to be appropriate and necessary to establish the conclusions set forth herein. As in all aspects of oil and gas evaluation, there are

uncertainties inherent in the interpretation of engineering and geoscience data; therefore, our conclusions necessarily represent only informed professional judgment.

Supporting data documenting this audit, along with data provided by Alta Mesa, are on file in our office. The technical persons responsible for conducting this audit meet the requirements regarding qualifications, independence, objectivity, and confidentiality set forth in the SPE Standards. We are independent petroleum engineers, geologists, geophysicists, and petrophysicists; we do not own an interest in these properties nor are we employed on a contingent basis.

		Sincerely,
		NETHERLAND, SEWELL & ASSOCIATES, INC. Texas Registered Engineering Firm F-002699
		By:	/s/ C.H. (Scott) Rees III
			C.H. (Scott) Rees III, P.E.
			Chairman and Chief Executive Officer
By:	/s/ J. Carter Henson, Jr.	By:	/s/ Mike K. Norton
	J. Carter Henson, Jr., P.E. 73964		Mike K. Norton, P.G. 441
	Senior Vice President		Senior Vice President
Date Signed: March 28, 2011		Date Signed: March 28, 2011

WKB:MSS

Please be advised that the digital document you are viewing is provided by Netherland, Sewell & Associates, Inc. (NSAI) as a convenience to our clients. The digital document is intended to be substantively the same as the original signed document maintained by NSAI. The digital document is subject to the parameters, limitations, and conditions stated in the original document. In the event of any differences between the digital document and the original document, the original document shall control and supersede the digital document.

EX-99.3

Exhibit 99.3

February 15, 2011

Alta Mesa Holdings, LP
15415 Katy Freeway, Suite 800
Houston, Texas 77094

Attention: Mr. Michael E. Ellis

Re: Reserves and Future Net Revenues of Alta Mesa Holdings, LP as of December 31, 2010 Using SEC Parameters

Gentlemen:

     As requested for the purpose of annual reporting of reserves under SEC parameters, we have estimated the Proved Reserves and projected the future net revenues for the interests owned by Alta Mesa Holdings, LP (AMH) in certain oil and gas properties located in Florida, Louisiana, Oklahoma and Texas representing approximately 97 percent of the value of all of the AMH properties. Proved Reserves are sub-categorized as Proved Developed Producing (PDP), Proved Developed Nonproducing (PDNP) and Proved Undeveloped (PUD). The results of our estimates as of December 31, 2010 using SEC pricing parameters without future changes which are discussed later herein are shown below:

	Net Reserves							Future Net Revenue
									Discounted
	Gas		Oil		NGL				@ 10%
Category	(MMcf)		(MBbls)		(MBbls)		Total ($M)		($M)
PDP		91,398.2		3,926.4		561.8		419,859.4		319,068.8
PDNP		66,780.9		3,672.5		739.0		324,890.6		174,905.8
PUD		82,022.5		4,093.4		433.7		416,770.3		195,895.1
Total Proved		240,201.7		11,692.3		1,734.6		1,161,520.2		689,869.8

     Proved Reserves included herein conform to the definition as set forth in the Securities and Exchange Commission Regulation S-X Part 210.4-10 (a) as revised and adopted effective January 1, 2010. The future net revenues are those revenues attributable to AMH’s interests in the underlying properties less appropriate royalties, net profits interests, severance and ad-valorem taxes, operating costs and future capital expenditures. The discounted future net revenue is based on a discount rate of 10 percent per annum. The forecasts assume that no changes in the current economic conditions, sales demand or costs will occur in the future. Estimates of future net revenues and discounted future net

Alta Mesa Holdings, LP	February 15, 2011
Attention: Mr. Michael E. Ellis	Page 2

revenues are not intended and should not be interpreted to represent fair market values for the estimated reserves. The definition of Proved Reserves is included in the Appendix.

     The reserves and economics are predicated on regulatory agency classifications, rules, policies, laws, taxes and royalties currently in effect except as noted herein. The possible effects of changes in legislation or other Federal or State restrictive actions which could affect the reserves and economics have not been considered. However, we are not aware of any legislative changes or restrictive regulatory actions that may impact the recovery of reserves.

     In general, PDP reserves were estimated for each producing property based on extrapolation of the historical producing trend, material balance calculations, analogy to comparable properties, or volumetric analysis of the producing reservoir. Other methods were used in some cases where, in our opinion, characteristics of the data indicated that such other methods were more appropriate. Performance methods were preferred unless the data demonstrated that their use as the basis for the reserve estimate was inappropriate. PDNP and PUD reserves were estimated primarily by volumetric analysis or analogy with future producing rates and decline trends based upon analogy to offset production experienced in each field. Reserve estimates made utilizing volumetric calculations and analogies are less certain than reserve estimates based on well performance obtained over a period of time during which a substantial portion of the wells ultimate recovery were produced. Capital cost requirements for PDNP and PUD reserves were provided by AMH as were the estimated start dates when not controlled by production from a previous completion. We consider the assumptions, data, methods and procedures used in this report appropriate for the purpose hereof, and we have used all such methods and procedures that we consider necessary and appropriate to prepare the estimates of reserves and future net revenues herein.

     AMH has assured us of their intent and ability to proceed with the development activities included in this report within the next five years, and that they are not aware of any legal, regulatory, political or economic obstacles that would significantly alter their plans. Furthermore, AMH has demonstrated that they have the proper company staffing, financial backing and prior development success to ensure this five year development plan will be fully executed.

     Base product prices were determined based on the 12 month average price calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12 month period prior to December 31, 2010. The oil price of $79.43 per barrel is based on the West Texas Intermediate (WTI), Cushing, Oklahoma spot prices. The natural gas price of $4.376 per MMBtu is based on the Henry Hub gas daily prices. Price differentials, transportation, deductions and Btu content were applied as appropriate to adjust these base prices of oil and gas to the specific field market situation. NGL prices were based on the historical relationship between the actual prices received at each respective field and the corresponding WTI benchmark prices.

     Forecasted operating costs were based on the average of the actual monthly costs for 2010 as provided by AMH. Operating and capital costs were held constant throughout the life of the projections.

     Where appropriate surface and well equipment salvage values and well plugging and field abandonment costs as provided by AMH have been considered in the revenue projections and are included herein as “Other” costs. Where abandonment costs and salvage are not attributable to specific wells, they are allocated to the reserve categories on the basis of net present value and applied at the end of the life of the respective properties.

Alta Mesa Holdings, LP	February 15, 2011
Attention: Mr. Michael E. Ellis	Page 3

     We have not made any field examinations of the properties nor have we considered potential environmental liabilities which may exist as such analyses were not within the scope of our review. No consideration of state or federal income tax consequences to the owners has been made, nor have indirect costs such as general and administrative overhead been included. We have not reviewed information concerning gas production imbalances, if any, and have made no attempt to evaluate or account for any present or potential future imbalances. Gas volumes shown in summary projections are aggregates of the individual property projections at the official temperature and pressure bases of the areas in which the gas reserves are located, and therefore, may not be stated at a uniform pressure base.

     In conducting these analyses production histories, accounting and cost data, and other financial, operating, engineering, geological and geophysical data supplied by AMH were reviewed. To a lesser extent, nonconfidential data existing in the T. J. Smith & Company, Inc. files and data obtained from commercial services and public sources were also used. We relied upon AMH’s representation of the ownership interests; no independent verifications of these interests were made by T. J. Smith & Company, Inc.

     Recovery of reserves, including Proved Reserves, is not without risk, and it should be recognized that any reserve estimate or forecast of production is inherently uncertain and is a function of engineering and geological interpretation and judgment. Such estimates should, therefore, be utilized with the understanding that subsequent production information, technical data, governmental policies, and market conditions different from those present at the time of the evaluation may justify revisions which could increase or decrease the original estimates of reserves or the forecasted production. Actual future prices may vary significantly from the prices utilized herein, and those reserve estimates that are based upon the estimated economic limit may differ significantly from the estimated quantities presented in this report.

     Neither T. J. Smith & Company, Inc. nor any of its employees has any interest in AMH, in related entities, or in the subject properties. We are independent with respect to AMH as provided in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserve Information promulgated by the Society of Petroleum Engineers. Neither the employment to make this review nor the compensation is contingent on our estimates of reserves and future income for the subject properties.

Yours very truly,

T. J. Smith & Company, Inc.

/s/ T. J. Smith, P.E.

TJS/kl

Attachments

EX-99.4

Exhibit 99.4

February 22, 2011

Mr. Hal Chappelle
President and Chief Executive Officer
Alta Mesa Holdings, LP
15415 Katy Freeway, Suite 800

Houston, TX 77094

Re: Alta Mesa Holdings, LP
Brayton, Eagle Ford, & Marcellus Properties
Estimate of Reserves and Revenues
“As of” December 31, 2010

Dear Mr. Chappelle:

At your request, W. D. Von Gonten & Co. has estimated the future reserves and projected net revenues for certain property interests owned by Alta Mesa Holdings, LP (Alta Mesa). These properties include the former Brayton property set, the Eagle Ford property set operated by Murphy Exploration & Production Company (Murphy), and the Appalachian property set operated by Diversified Resources, Inc. (Diversified Resources), “as of” December 31, 2010. This report was prepared utilizing year-end constant pricing and costs and conforms to the guidelines of the Securities and Exchange Commission (SEC). The subject properties are located in Jackson, Karnes, Victoria, and Wharton Counties, Texas and Calcasieu Parish, Louisiana and Harrison and Upshur Counties, West Virginia.

Our conclusions, as of December 31, 2010, are as follows:

	Proved - Net to Alta Mesa Holdings, LP
	Proved Developed									Proved			Total
SEC Case	Producing			Non-Producing			Behind Pipe			Undeveloped			Proved
Reserve Estimates
Oil/Cond.,Mbbl		153.9			113.9			0.0			227.7			495.6
Gas, MMcf		410.8			102.5			533.3			204.9			1,251.5
Gas Equivalent, MMcfe		1,334.5			786.0			533.3			1,571.2			4,225.0
Revenues
Oil, $ (87.3) %		11,905,016			8,820,741			0			17,631,535			38,357,297
Gas, $ (12.7) %		2,148,766			433,279			2,128,206			866,070			5,576,320
Total, $		14,053,781			9,254,020			2,128,206			18,497,604			43,933,621
Expenditures
Ad Valorem Tax, $		374,408			264,473			39,372			528,648			1,206,901
Severance Tax, $		706,209			438,250			159,615			876,006			2,180,080
Direct Operating Expense, $		1,491,073			450,560			438,845			845,760			3,226,238
Variable, $		57,506			26,938			0			52,336			136,779
Total, $		2,629,196			1,180,221			637,832			2,302,750			6,749,999
Investments
Abandonment, $		102,658			25,200			0			46,800			174,658
Other, $		0			3,077,500			156,427			7,947,619			11,181,547
Total, $		102,658			3,102,700			156,427			7,994,419			11,356,205
Estimated Future Net Revenues(FNR)
Undiscounted FNR, $		11,321,930			4,971,100			1,333,946			8,200,437			25,827,408
FNR Disc. @ 10%, $		8,166,680			2,652,660			895,884			3,596,708			15,311,931
Allocation Percentage by Classification
FNR Disc. @ 10%		53.3	%		17.3	%		5.9	%		23.5	%		100.0	%

* Due to computer rounding, numbers in the above table may not sum exactly.

Report Preparation

Purpose of Report — The purpose of this report, prepared on February 22, 2011, is to provide Alta Mesa with an estimate of future reserves and revenues attributable to certain interests owned by Alta Mesa in the three property sets.

Scope of Work — W. D. Von Gonten & Co. was engaged by Alta Mesa to update the production histories, revise any appropriate reserve projections, and estimate the remaining reserves and future production forecasts associated with the properties included in this report.

Reporting Requirements — Securities and Exchange Commission (SEC) Regulation S-X 210, Rule 4-10 and Regulation S-K 229, Item 1200 (as revised in December 2008, effective 1-1-10), and Financial Accounting Standards Board (FASB) Statement No. 69 require oil and gas reserve information to be reported by publicly held companies as supplemental financial data. These regulations and standards provide for estimates of Proved reserves and revenues discounted at 10% and based on unescalated prices and costs. Revenues based on alternate product price scenarios may be reported in addition to the current pricing case. Reporting probable and possible reserves is optional. Probable and Possible reserves must be reported separately from Proved reserves.

The Society of Petroleum Engineers (SPE) requires Proved reserves to be economically recoverable with prices and costs in effect on the “as of” date of the report. In conjunction with the World Petroleum Council (WPC), American Association of Petroleum Geologists (AAPG), and the Society of Petroleum Evaluation Engineers (SPEE), the SPE has issued Petroleum Resources Management System (2007 ed.), which sets forth the definitions and requirements associated with the classification of both reserves and resources. In addition, the SPE has issued Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserve Information, which sets requirements for the qualifications and independence of reserve estimators and auditors.

The estimated Proved reserves herein have been prepared in conformance with all SEC, SPE, WPC, AAPG and SPEE definitions and requirements.

Projections — The attached reserve and revenue projections are on a calendar year basis with the first time period being January 1, 2011 through December 31, 2011.

Property Discussion

Brayton Property Set — The Brayton property set consist of 15 wells found in the Calcasieu Parish, Louisiana and Jackson, Victoria, and Wharton Counties, Texas. There is oil and gas production from the Frio, Hackberry, Miocene and Yegua reservoirs. The current gross production rates as of December 31, 2010 are approximately 70 barrels of oil and 2,000 Mcf of gas per day.

Eagle Ford Property Set — Alta Mesa currently owns interests in four horizontal Eagle Ford shale wells in Karnes County, Texas. Murphy Exploration & Production Company (Murphy) operates the wells. As of December 31, 2010, the current gross production rates from the four wells are approximately 1,600 barrels of oil and 1,370 Mcf of gas per day. There are two wells in the Schendel lease that have been drilled but are currently awaiting completion. They are scheduled to come on production in the first quarter of 2011. In addition, there are six Proved Undeveloped (PUD) locations scheduled to be drilled through early 2012.

Appalachia Property Set — Alta Mesa currently owns interests in six vertical Marcellus shale wells in Harrison and Upshur Counties, West Virginia. The wells are operated by Diversified Resources. The current total gross production rate from the six wells is approximately 465 Mcf of gas per day as of December 31, 2010.

Alta Mesa Holdings, LP — February 22, 2011 — Page 2

Reserve Estimates

Producing Properties — Reserve estimates for the producing properties were based on decline curve analysis, volumetric calculations and/or analogy to nearby production. These estimates were further supported by Blasingame Type Curve Analysis and Dynamic Material Balance calculations where applicable.

Non-Producing Properties — The non-producing, behind pipe, and undeveloped reserves were necessarily estimated using volumetric calculations, and/or analogy to nearby production.

Reserves and schedules of production included in this report are only estimates. The amount of available data, reservoir and geological complexity, reservoir drive mechanism, and mechanical aspects can have a material effect on the accuracy of these reserve estimates. Due to inherent uncertainties in future production rates, commodity prices, and geologic conditions, it should be realized that the reserve estimates, the reserves actually recovered, the revenue derived therefrom and the actual cost incurred could be more or less than the estimated amounts.

We consider the assumptions, data, methods, and procedures used in this report appropriate hereof, and we have used all such methods and procedures that we consider necessary and appropriate to prepare the estimates of reserves and future net revenues herein.

Product Prices

The estimated revenues shown herein were based on product prices supplied by Alta Mesa. These prices are meant to represent SEC pricing at the end of 2010. SEC pricing is determined by averaging the first day of each month’s closing price for the previous calendar year using published benchmark oil and gas prices. This method renders a price of $79.43 per barrel of oil and $4.376 per MMBtu of gas.

Pricing differentials were applied to all properties on an individual property basis in order to reflect prices actually received at the wellhead. Pricing differentials are normally utilized to account for transportation charges, geographical differentials, quality adjustments, and any marketing bonus or deduction. The differentials utilized herein were determined from lease operating data provided by Alta Mesa covering a period of January 2010 through October 2010.

All pricing has been held constant throughout the life of the properties.

Operating and Capital Cost

Monthly operating expenses for the wells not operated by Murphy were derived from the average of the ten-month historical cost from January 1, 2010 — October 31, 2010, which were extracted from the profit and loss statements. Operating expenses associated with the Murphy-operated Eagle Ford wells were derived from our general knowledge of the area.

Capital costs necessary to perform workover and/or remedial operations were supplied by Alta Mesa for all properties.

Operating and capital costs were held flat for the life of the properties.

Other Considerations

Abandonment Costs — Cost estimates regarding future plugging and abandonment procedures associated with these properties were supplied by Alta Mesa for the purposes of this report. As we have not inspected the properties personally, W.D. Von Gonten & Co. expresses no warranties as to the accuracy or reasonableness of this assumption. A third party study would be necessary in order to accurately estimate all future abandonment liabilities.

Alta Mesa Holdings, LP — February 22, 2011 — Page 3

Additional Costs — Costs were not deducted for general and administrative expenses, depletion, depreciation and/or amortization (a non-cash item), or federal income tax.

Data Sources — Data furnished by Alta Mesa included basic well information, operating costs, ownership, pricing differentials, and production information on certain leases. The remaining production histories were taken from public sources, such as Dwight’s Energy data archives.

Context — We specifically advise that any particular reserve estimate for a specific property not be used out of context with the overall report. The revenues and present worth of future net revenues are not represented to be market value either for individual properties or on a total property basis.

While the oil and gas industry may be subject to regulatory changes from time to time that could affect an industry participant’s ability to recover its oil and gas reserves, we are not aware of any such governmental actions which would restrict the recovery of the December 31, 2010 estimated oil and gas volumes. The reserves in this report can be produced under current regulatory guidelines. Actual future commodity prices may differ substantially from the utilized December 31, 2010 pricing scenario which may or may not extend or limit the estimated reserve and revenue quantities presented in this report.

We have not inspected the properties included in this report, nor have we conducted independent well tests. W.D. Von Gonten & Co. and our employees have no direct ownership in any of the properties included in this report. Our fees are based on hourly expenses and are not related to the reserve and revenue estimates produced in this report.

Thank you for the opportunity to assist Alta Mesa Holdings, LP with this project.

	Respectfully submitted,
	William D. Von Gonten, Jr., P.E. TX # 73244
	Taylor D. Matthes
	Jason P. Warren

Alta Mesa Holdings, LP — February 22, 2011 — Page 4