10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

T Annual Report Pursuant To Section 13 or 15(d) of The Securities Exchange Act of 1934

For The Fiscal Year Ended December 31, 2008

OR

£ Transition Report Pursuant To Section 13 Or 15(d) of The Securities Exchange Act of 1934

Commission File Number: 000-51801

ROSETTA RESOURCES INC.

(Exact name of registrant as specified in its charter)

Delaware	43-2083519
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
717 Texas, Suite 2800, Houston, TX	77002
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code: (713) 335-4000

Securities Registered Pursuant to Section 12(b) of the Act:

	The Nasdaq Stock Market LLC
Common Stock, $.001 Par Value	(Nasdaq Global Select Market)
(Title of Class)	(Name of Exchange on which registered)

Securities Registered Pursuant to Section 12 (g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  

Yes £ No S

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  

Yes S No £

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No £ 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

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. 

Large accelerated filer S	Accelerated filer £
Non-Accelerated filer £	Smaller Reporting Company £
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

The aggregate market value of the voting and non-voting common equity held by Non-affiliates of the registrant as of June 30, 2008 was approximately $1.5 billion based on the closing price of $28.50 per share on the Nasdaq Global Select Market.

The number of shares of the registrant’s Common Stock, $.001 par value per share outstanding as of February 20, 2009 was 52,131,612.

Documents Incorporated By Reference

Information required by Part III will either be included in Rosetta Resources Inc.’s definitive proxy statement relating to its 2009 annual meeting of stockholders filed with the Securities and Exchange Commission or filed as an amendment to this Form 10-K no later than 120 days after the end of the Company’s fiscal year, to the extent required by the Securities Exchange Act of 1934, as amended.

	Table of Contents
Part I –		Page
	Item 1. Business	4
	Item 1A. Risk Factors	13
	Item 1B. Unresolved Staff Comments	21
	Item 2. Properties	21
	Item 3. Legal Proceedings	21
	Item 4. Submission of Matters to a Vote of Security Holders	22
Part II –
	Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
	Item 6. Selected Financial Data	24
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk	40
	Item 8. Financial Statements and Supplementary Data	42
	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	71
	Item 9A. Controls and Procedures	71
	Item 9B. Other Information	71
Part III –
	Item 10. Directors, Executive Officers and Corporate Governance	72
	Item 11. Executive Compensation	72
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	72
	Item 13. Certain Relationships and Related Transactions, and Director Independence	72
	Item 14. Principal Accountant Fees and Services	72
Part IV –
	Item 15. Exhibits and Financial Statement Schedules	73

3

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements of our management regarding factors that we believe may affect our performance in the future. Such statements typically are identified by terms expressing our future expectations or projections of revenues, earnings, earnings per share, cash flow, market share, capital expenditures, affects of operating initiatives, gross profit margin, debt levels, interest costs, tax benefits and other financial items. All forward-looking statements, although made in good faith, are based on assumptions about future events and are therefore inherently uncertain, and actual results may differ materially from those expected or projected. Important factors that may cause our actual results to differ materially from expectations or projections include those described under the heading “Forward-Looking Statements” in Item 7 of this Form 10-K. Forward-looking statements speak only as of the date of this report, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur.

For a glossary of oil and natural gas terms, see page 77.

Part I

Item 1. Business

General

We are an independent oil and gas company engaged in the acquisition, exploration, development and production of oil and gas properties in North America.  Our operations are concentrated in the core areas of the Sacramento Basin of California, the Rockies, and South Texas.  In addition, we have non-core positions in the State Waters of Texas and the Gulf of Mexico.  We are a Delaware corporation based in Houston, Texas.

Rosetta Resources Inc. (together with our consolidated subsidiaries, the “Company” or “Rosetta”) was formed in June 2005 to acquire Calpine Natural Gas L.P., its partners and the domestic oil and natural gas business formerly owned by Calpine Corporation and its affiliates (“Calpine”).  We (“Successor”) acquired Calpine Natural Gas L.P. and its partners (“Predecessor”) and Rosetta Resources California, LLC, Rosetta Resources Rockies, LLC, Rosetta Resources Offshore, LLC and Rosetta Resources Texas LP and its partners, in July 2005 (hereinafter, the “Acquisition”).  We have subsequently acquired numerous other oil and natural gas properties.  We have grown our existing property base by developing and exploring our acreage, purchasing new undeveloped leases, acquiring oil and gas producing properties and drilling prospects from third parties.  We operate in one business segment.  See Item 8. Financial Statements and Supplementary Data, Note 15 - Operating Segments.

 Pursuant to the Acquisition, we entered into several operative contracts with Calpine.  Currently, Calpine markets our oil and gas under a marketing services agreement (“Marketing Agreement”), whose term runs through June 30, 2009.  We do not intend to extend or renew the Marketing Agreement upon expiration.  We also sell a significant portion of our gas to Calpine pursuant to certain gas purchase and sales contracts, all of which were part of a purchase and sale agreement and all interrelated agreements, concurrently executed on or about July 7, 2005 (collectively, the “Purchase Agreement”), except the gas sales agreement for the dedicated California production which was amended and restated in connection with the parties’ settlement agreement dated October 22, 2008 (“Settlement Agreement”). The Settlement Agreement, original gas purchase and sales contracts, the amended and restated gas purchase and sales contract for the dedicated California production, and the Marketing Agreement with Calpine are discussed further under Part I. Item 3. Legal Proceedings, “Calpine Settlement” and “Marketing and Customers.”

Our Strategy

Our strategy is to increase stockholder value by executing a business model that delivers sustainable growth from unconventional onshore domestic basins.  We believe this strategy is appropriate for and consistent with our longer-term view of the industry.  However, we recognize that there may be cycles, such as the current economic downturn, that could impact our ability to execute this strategy fully on a short-term basis.  Our strategy is multi-pronged and emphasizes (i) identifying and growing inventory in existing core properties, (ii) establishing new resource based core areas, (iii) ongoing efficient exploitation and exploration activities, (iv) completing acquisitions and selective divestitures, (v) maintaining technical expertise, (vi) focusing on cost control and (vii) maintaining financial flexibility.  We seek to implement our strategy while working to protect stockholders interests by focusing on sustainability, spending our various resources wisely, monitoring emerging trends, minimizing liabilities through governmental compliance, respecting the dignity of human life, and protecting the environment.  Below is a discussion of the key elements of our strategy:

Developing and Extending Existing Core Properties. We have designated California, the Rockies and South Texas as core areas and intend to build our asset base in these areas through additional leasing and acquisitions where applicable.  As importantly, we intend to further develop the upside potential of these core properties by conducting thorough resource assessments of our existing assets, working over existing wells, drilling in-fill locations, drilling step-out wells to expand known field outlines, testing and implementing downspacing potential, recompleting and testing behind pipe pays and lowering field line pressures through compression and optimization for additional reserve recovery.

4

Establishing New Resource Based Core Areas.  We intend to extend our presence into new core areas within North America that are characterized by significant presence of resource potential that can be exploited utilizing our technological expertise.

Ongoing Efficient Exploitation and Exploration Activities.   We intend to generate growth in existing and new core areas with exploitation and exploration inventory by efficiently applying technological and operational advantages through repeatable programs.

Completing Acquisitions and Selective Divestitures. We continually review opportunities to optimize our portfolio to create stockholder value.  We actively evaluate possible acquisitions of producing properties, undeveloped acreage and drilling prospects in our existing core areas, as well as areas where we believe we can establish new core areas with resource potential.  We focus on opportunities with identified inventory where we believe our reservoir management and operational expertise will enhance the value and performance of the acquired properties through repeatable drilling programs.  Periodically, we also evaluate possible divestitures of non-core properties that we believe have limited future potential or that do not fit our risk profile.

Maintaining Technological Expertise. We intend to maintain and further develop the technological expertise that helped us achieve a drilling success rate of 89% for the year ended December 31, 2008 and helped us maximize field recoveries. We use advanced geological and geophysical technologies, detailed petrophysical analyses, state-of-the-art reservoir engineering and sophisticated completion and stimulation techniques to grow our reserves, production, and inventory.

Focusing on Cost Control. We manage all elements of our cost structure including drilling and operating costs as well as overhead costs. We will strive to minimize our drilling and operating costs by concentrating our activities within existing and new resource-based core areas where we can achieve efficiencies through economies of scale.

Maintaining Financial Flexibility. We may optimize unused borrowing capacity under our revolving line of credit by refinancing our bank debt in the capital markets if conditions are favorable. As of December 31, 2008, we had drawn $225.0 million and had $175.0 million available for borrowing under our revolving line of credit. Additionally, we expect internally generated cash flow to provide additional financial flexibility, allowing us to pursue our business strategy. We intend to continue to actively manage our exposure to commodity price risk in the marketing of our oil and natural gas production. As part of this strategy and in connection with our credit facility, we entered into natural gas fixed-price swaps for a portion of our expected production through 2010.  As of December 31, 2008, 37% and 4% of our natural gas production was hedged using swaps and costless collars, respectively, with settlement in 2009, and 9% of our natural gas production was hedged with swaps for settlement in 2010.  We also entered into a series of interest rate swap agreements to hedge the change in variable interest rates associated with our debt under our credit facility through June 2009.  We may enter into other agreements, including fixed price, forward price, physical purchase and sales, futures, financial swaps, option and put option contracts.

Calpine Settlement

On December 20, 2005, Calpine Corporation and certain of its subsidiaries filed for protection under the federal bankruptcy laws in the United States Bankruptcy Court of the Southern District of New York (the “Bankruptcy Court”).  Two years later, on December 19, 2007, the Bankruptcy Court confirmed a plan of reorganization for Calpine, which emerged from bankruptcy on January 31, 2008.  During that period, on June 29, 2007, Calpine commenced an adversary proceeding against the Company in the Bankruptcy Court (the “Lawsuit”).  Over the next fourteen months, the Company vigorously disputed Calpine’s contentions in the Lawsuit, including any and all allegations that it underpaid for Calpine’s oil and gas business.

On  October 22, 2008, Calpine and the Company announced that they had entered into a comprehensive settlement agreement (the “Settlement Agreement”) which, among other things, would (i) resolve all claims in the Lawsuit, (ii) result in Calpine conveying clean legal title on all remaining oil and gas assets to Rosetta (except those properties subject to the preferential rights of third parties who have indicated a desire to exercise their rights), (iii) settle all pending claims the Company filed in the Calpine bankruptcy, (iv) modify and extend a gas purchase agreement by which Calpine purchases the Company’s dedicated production from the Sacramento Valley, California, and (v) formalize the assumption by Calpine of the July 7, 2005 purchase and sale agreement (together with all interrelated agreements, the “Purchase Agreement”) by which Calpine’s oil and gas business was conveyed to the Company thus resulting in the parties honoring their obligations under the Purchase Agreement on a going-forward basis.  The Settlement Agreement became effective when the Bankruptcy Court entered its order on November 13, 2008, authorizing the execution of the Settlement Agreement and the performance of the obligations set forth therein. No objections or appeals to this order were filed or taken with the Bankruptcy Court before or after the hearing on November 13, 2008, and it became final on or about November 23, 2008.

The parties completed this settlement pursuant to the terms of the Settlement Agreement on December 1, 2008. The cash component of the settlement consisted of $12.4 million payable in cash to Calpine to resolve all outstanding legal disputes regarding various matters, including Calpine’s fraudulent conveyance lawsuit. In addition, the Company paid $84.6 million under the Purchase Agreement to close the original acquisition transaction of the producing properties that were the subject of the lawsuit. This $84.6 million consisted of $67.6 million, which the Company withheld from the purchase price at the closing on July 7, 2005, related to non-consent properties (excluding the properties subject to preferential rights) that were not conveyed to the Company at closing on July 7, 2005, as well as $17.0 million for various disputed post-closing adjustments under the terms of the Purchase Agreement, as amended by the Bankruptcy Court order to remove the properties that had been subject to the Petersen  Production Company (“Petersen”) preferential rights as if these properties had not been part of the Purchase Agreement.

5

As a result of the conclusion of this settlement, the Company recorded a pre-tax charge of $12.4 million in the fourth quarter of 2008, which is included in Other Income (Expense) in the Consolidated Statement of Operations.  See Item 8.  Financial Statements and Supplementary Data, Note 11 – Commitments and Contingencies.

See Item 3. Legal Proceedings for further information regarding the final settlement with Calpine.

Arbitration between the Company and the successor to Pogo Producing Company

On October 27, 2008, the Company, Calpine and XTO Energy, Inc. (“XTO”), as the successor to Pogo Producing Company (“Pogo”), agreed to a Title Indemnity Agreement in which Calpine agreed to indemnify XTO for certain title disputes, and the Company, Calpine and XTO agreed to dismissal of the arbitration proceeding against the Company and release of Pogo’s proofs of claim. The Company’s proofs of claim were resolved under its Settlement Agreement with Calpine.  XTO has dismissed with prejudice the arbitration against the Company.

Our Strengths

We believe our key strengths are as follows:

High Quality Asset Base. We own a geographically diversified asset base in key onshore hydrocarbon basins.  Approximately 95% of our reserves are natural gas and almost all of our assets are located in the core areas of the Sacramento Basin of California, the Rockies, and South Texas.  In addition, we have non-core positions in the State Waters of Texas and the Gulf of Mexico. We believe this geographic and production profile diversity will enhance the stability of our cash flows while providing us with a large number of development and exploration opportunities.  We also believe our current asset base provides a strong platform for additional acquisitions.

Resource Assessment Capability and Inventory Generation. We have established multi-disciplinary teams that are skilled at conducting comprehensive resource assessments on a field and regional basis.  This work is the underpinning for indentifying and cataloging an inventory of low to moderate risk opportunities providing us with multiple years of drilling.  At year end 2008, we had approximately 1,160 identified projects in inventory, up about 150% compared to year end 2007.  This inventory, which includes proved undeveloped reserves, represents resources of about 575 Bcfe on a net unrisked basis and about 300 Bcfe on a net risked basis.  We expect we will continue to add to our diversified portfolio of non-proved resource inventory over time.   

Operational Control. We operate approximately 76% of our estimated proved reserves, which allows us to more effectively manage expenses and control the timing of capital allocation of our development and exploration activities.

Experienced Management Team, New Leadership.  Our executive management team has an average of 28 years of experience in the energy industry with specific experience in the areas where our core properties are located.  In November 2007, Randy L. Limbacher became our President and Chief Executive Officer (“CEO”).  Mr. Limbacher has more than 28 years of experience in the energy industry, most recently serving as President, Exploration and Production -  Americas for ConocoPhillips.  Since coming to Rosetta, Mr. Limbacher has continued to hire experienced personnel with proven track records of success in the unconventional resource business.

Proven Technical and Land Personnel with Access to Technological Resources. Our technical staff includes 48 geologists, geophysicists, landmen, engineers and technicians with an average of over 15 years of relevant technical experience. Our staff has experience in analyzing complex structural and stratigraphic plays using 3-D geophysical expertise, producing and optimizing low pressure natural gas reservoirs, detecting low contrast, low permeability pay opportunities, drilling, completing and fracing of deep tight natural gas reservoirs, operating in complex basins and managing coalbed methane operations. These core competencies helped us to achieve a drilling success rate of 89% for the year ended December 31, 2008 and helped maximize recovery from our reservoirs. Our definition of drilling success is a well that is producing or capable of production, including natural gas wells awaiting pipeline connections to commence deliveries and oil wells awaiting connection to production facilities.   

Our Operating Areas

We own core producing and non-producing oil and natural gas properties in proven or prospective basins in California, the Rockies, South Texas, and various other geographical areas in the United States.  We also have non-core positions in the State Waters of Texas and the Gulf of Mexico.  In each area, we are pursuing geological objectives and projects that are consistent with our core strategy. For the year ended December 31, 2008, we have drilled 184 gross and 152 net wells, with a success rate of 89%. The following is a summary of our major operating areas.

6

California

Historically, the Sacramento Basin is one of California’s most prolific gas producing areas, containing a majority of the state’s largest gas fields.  It is located near the Northern California natural gas markets and has an established natural gas gathering and pipeline infrastructure.  We are one of the largest producers and leaseholders in the basin.

As of December 31, 2008, we owned approximately 69,000 net acres in the Rio Vista Field and Sacramento Basin areas.  We believe our acreage in the basin holds significant low-risk, low-cost reserves, and numerous workover and recompletion opportunities.  Additional reserve potential exists in gathering system optimization projects, fracture stimulation opportunities in lower permeability, low contrast pays, and deeper gas bearing sands.

For the year ended December 31, 2008, our average net daily production from the Rio Vista Field and surrounding fields in the Sacramento Basin was 43.6 MMcfe/d.  In 2008, we drilled 14 gross wells of which 13 were successful.   

Rio Vista Field. The Rio Vista Gas Unit and a significant portion of the deep rights below the Rio Vista Gas Unit, which together constitute the greater Rio Vista Field, is the largest onshore natural gas field in California and one of the 15 largest natural gas fields in the United States. The field has produced a cumulative 3.6 Tcfe of natural gas reserves to date since its discovery in 1936. We currently produce from or have behind-pipe reserves in multiple zones at depths ranging from 2,000 feet to 11,000 feet in the field. The Rio Vista Field trap is a faulted, downthrown rollover anticline, elongated to the northwest. The current productive area is approximately ten miles long and nine miles wide. For the year ended December 31, 2008, the average net daily production in the Rio Vista Field was approximately 39 MMcfe/d. We drilled 12 wells in the Rio Vista field in 2008; 11 of these were successful.  Three wells drilled in the southern portion of the field were successful in extending areas in two reservoirs, the Lower Capay and the Martinez.  

At December 31, 2008, we had one rig actively drilling in the field.  There is one workover rig currently working on Rosetta wells in the Rio Vista area.   We plan to conduct approximately 36 workovers, recompletions or reactivation operations on field wells during 2009.  Moreover, a majority of 2009 time and effort will be devoted to resource assessments within the Rio Vista Gas Field.  The evolution of the studies will generate the future drilling and recompletion inventory for 2010 and beyond.

Sacramento Valley Extension.  We drilled two wells in the Sacramento Valley Extension area in 2008, both were successful.  In 2009 we will continue to maintain operations through base optimization, selective recompletions, and asset rationalization.

Rockies

As of December 31, 2008, we owned approximately 173,000 net acres in the Rockies.  Our production is concentrated in three basins: the DJ Basin, San Juan Basin and Greater Green River Basin.  Our average net daily production for the year ended December 31, 2008 was 12.5 MMcfe/d.  In 2008, we drilled 90 gross wells of which 84 were successful.  

DJ Basin, Colorado.As of December 31, 2008, we had a majority working interest in 111,290 net acres with 154 square miles of 3D seismic data.  In 2008, we drilled 76 locations, of which 70 were successful, and identified 500 additional drillable, 3D seismic supported locations on these lands.  In addition, one salt water disposal well was drilled in 2008 and put into operation in the first quarter of 2009.  For the year ended December 31, 2008, our average net daily production from the DJ Basin was 7.6 MMcfe/d.  Successful delineation wells were drilled with newly acquired 3D seismic in Duke North, Duke, and Duke South that will add to the production already established in the Republican River, Vernon, SW Wray, and Sandy Bluffs areas.

San Juan Basin, New Mexico. The San Juan Basin is the second most prolific gas basin in North America with significant contribution coming from the Fruitland Coal Bed Methane (“CBM”) trend. There is CBM production from depths of 1,600 feet surrounding our leasehold. As of December 31, 2008, we had a 100% working interest position in approximately 12,000 net acres.  In May 2008, we purchased a 50% working interest position in approximately 12,000 gross acres from North American Petroleum Corporation USA, a subsidiary of Petroflow Energy Ltd.  In 2008, we drilled 14 CBM wells, all of which were successful.  For the year ended December 31, 2008, our average net daily production from the San Juan Basin was 4.3 MMcfe/d.  We have identified 17 potential drillable locations on our acreage.

Pinedale, Wyoming.  On December 11, 2008, we purchased a 90% working interest in 1,280 acres of the Pinedale field from Pinedale Energy LLC, a subsidiary of Constellation Energy Group, Inc.  We purchased 28 productive natural gas wells and 1 salt water disposal well.  We will study the field in 2009 for recompletion and downspacing potential.  At year end, our average net daily production from Pinedale was 7.4 MMcfe/d.

Alberta Basin, Montana.  The Alberta Basin play is a westward analog of the industry’s Bakken and Three Forks of the Williston Basin of Montana and North Dakota.  On December 24, 2008, Rosetta received approval from the Bureau of Indian Affairs to option approximately 200,000 net acres located on the Blackfeet Indian Reservation in Western Montana.  Our plans for 2009 include detailed technical assessment, land consolidation, and drilling test wells.

7

South Texas

As of December 31, 2008, we owned approximately 128,000 net acres in South Texas.  Our production in South Texas comes primarily from the Lobo, Olmos, and Perdido sand trends, and averaged 54.5 MMcfe/d for the year ending December 31, 2008.  In 2008 we drilled 69 gross wells of which 57 were successful.  Additionally, we have acquired significant lease positions in two emerging resource play areas:  the Dinn Sand trend and the Eagle Ford Shale trend.

Lobo Trend.  We are a significant producer in the South Texas Lobo Trend, with 320 square miles of 3-D seismic and 255 operated producing wells.  Our working interests range from 50% - 100%, but most of our acreage is 100% owned and operated.  In 2008, we added additional acres adjacent to our existing acreage, adding additional drilling inventory.  For the year ended December 31, 2008, our average net daily production from the Lobo trend was 46.1 MMcfe/d.   We have identified approximately 170 potential drilling locations on our acreage.  In 2008, we drilled 58 gross wells of which 48 were successful.

Discovered in 1973, the Lobo trend of South Texas is a complex, highly faulted sand that has produced over 8 Tcf of natural gas. The Lobo trend produces from tight sands with low permeabilities and high pressures at depths from 7,500 to 10,000 feet.

Olmos Trend.  On December 23, 2008, we closed on the acquisition of a 70% non-operated working interest in  231 gross producing Olmos wells in the Olmos trend of South Texas.  Production from these wells was approximately 5 MMcfe/d net at year end 2008.

Dinn Sand Trend.  In 2008, we acquired a significant acreage position with approximately 100% operated working interest adjacent to our existing Perdido development trend.   This leasehold acquisition has potential in the intermediate depth Dinn Sand trend.  The Dinn Sand has been sparsely developed with vertical wells, and has potential for additional horizontal and vertical well development over most of the leasehold.  Additionally, much of the leasehold has potential for extending the Perdido sand trend horizontal development from our adjacent non-operated 50% working interest acreage to this operated 100% working interest leasehold.

Eagle Ford Shale Trend.  In 2008, we acquired several sizable acreage tracts with potential in the emerging shale gas play in the newly discovered Eagle Ford Shale trend.  Along with acreage acquired in previous years, and the deep rights acquired with the Olmos production acquisition, we now have approximately 25,000 net acres in the Eagle Ford Shale trend.  Most of this acreage also has potential in the Austin Chalk and Edwards formations.

Perdido Sand Trend. We own a 50% non-operated working interest in the South Texas,  Perdido Sand trend. The Perdido Sands are comprised of tight natural gas sands and are in isolated fault blocks that are stratigraphically trapped below the Upper Wilcox structures at approximately 8,000 to 9,500 feet.  We plan to continue to coordinate with the operator to improve horizontal and vertical drilling techniques to lower cost and increase performance.  For the year ended December 31, 2008, our average net daily production was 8.3 MMcfe/d from 37 producing wells (24 horizontal and 13 vertical). We participated in the drilling of seven gross wells in 2008, all of which were successful. We have identified approximately 60 potential drilling locations on our acreage.

Other Onshore

Live Oak County Prospect. Through the interpretation of 3-D seismic data, we identified and participated in the drilling of a 16,500 foot test well in Live Oak County, Texas in the fourth quarter of 2007 and tested the well in December 2007.  The well was completed with first production commencing in the second quarter of 2008.  We have identified further opportunities within an Area of Mutual Interest (“AMI”) agreement covering approximately 22,000 gross acres.

In the Other Onshore region, we currently have approximately 41,000 net acres under lease with an average non-operated working interest of 47%.  

Texas State Waters

Sabine Lake.  We own a 50% operated working interest through a joint venture in Sabine Lake, within Texas State Waters of Jefferson County and Louisiana State Waters of Cameron Parish.  During 2008, we drilled 4 gross wells, of which 3 were successful.  Net production averaged 11.8 MMcfe/d during 2008.  The field suffered some damage during Hurricane Ike in September 2008.  Temporary repairs allowed bringing the wells back on line by October 2008, with permanent repairs to facilities and production equipment completed by year end.  We currently hold interest in approximately 6,000 net acres with 70 square miles of 3-D seismic data.

Gulf of Mexico

Federal Waters.  We own working interests in 12 offshore blocks ranging from 20% to 100% working interest with approximately 29,000 net acres.  For the year ended December 31, 2008, our average net daily production from these blocks was 12 MMcfe/d.

8

Crude Oil and Natural Gas Operations

Production by Operating Area

The following table presents certain information with respect to our production data for the period presented:

	For the Year Ended December 31, 2008
	Natural Gas (Bcf)		Oil (MBbls)		Equivalents (Bcfe)
California		15.8		31.4		15.9
Rockies		4.5		6.1		4.6
South Texas		19.1		132.8		19.9
Other Onshore		3.6		128.9		4.4
Texas State Waters		3.5		143.5		4.4
Gulf of Mexico		3.8		103.7		4.4
		50.3		546.4		53.6

Proved Reserves

There are a number of uncertainties inherent in estimating quantities of proved reserves, including many factors beyond our control, such as commodity pricing. Therefore, the reserve information in this report represents only estimates. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that can not be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different engineers may vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revising the original estimate. Accordingly, initial reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. The meaningfulness of such estimates depends primarily on the accuracy of the assumptions upon which they were based. Except to the extent that we acquire additional properties containing proved reserves or conduct successful exploration and development activities, or both, our proved reserves will decline as reserves are produced.

As of December 31, 2008, we had 398.2 Bcfe of proved oil and natural gas reserves, including 376.5 Bcf of natural gas and 3,603 MBbls of oil and condensate.  Using prices as of December 31, 2008, the estimated standardized measure of discounted future net cash flows was $839 million.  The following table sets forth, by operating area, a summary of our estimated net proved reserve information as of December 31, 2008:

	Estimated Proved Reserves at December 31, 2008 (1)
	Developed (Bcfe)		Undeveloped (Bcfe)		Total (Bcfe)		Percent of Total Reserves
California		89.0		21.9		110.9		28	%
Rockies		73.0		5.2		78.2		20	%
South Texas		117.7		42.0		159.7		40	%
Other Onshore		21.8		-		21.8		6	%
Texas State Waters		9.9		-		9.9		2	%
Gulf of Mexico		16.0		1.7		17.7		4	%
Total		327.4		70.8		398.2		100	%

___________________________________

(1) These estimates are based upon a reserve report prepared by Netherland Sewell & Associates, Inc. (hereafter “Netherland Sewell”), independent petroleum engineers, using internally developed reserve estimates and criteria in compliance with the Securities and Exchange Commission (“SEC”) guidelines.  See Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations “Critical Accounting Policies and Estimates” and Item 8. Financial Statements and Supplementary Data “Supplemental Oil and Gas Disclosures.”

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2008 Capital Expenditures

The following table summarizes information regarding development and exploration capital expenditures for the years ended December 31, 2008, 2007 and 2006:

	Year Ended December 31,
	2008		2007		2006
	(In thousands)
Capital Expenditures by Operating Area:
California	$	42,429	$	58,493	$	39,691
Rockies		25,015		23,904		15,299
South Texas		94,567		105,301		77,882
Other Onshore		12,927		29,796		13,578
Texas State Waters		8,541		27,000		13,028
Gulf of Mexico		422		28,523		17,958
Leasehold		17,883		8,838		16,383
Acquisitions		115,074		38,656		35,105
Delay rentals		1,451		1,409		728
Geological and geophysical/seismic		4,571		4,422		3,748
Total capital expenditures (1)	$	322,880	$	326,342	$	233,400

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(1) Capital expenditures for the year ended December 31, 2008 exclude capitalized internal costs directly identified with acquisition, exploration and development activities of $7.1 million, capitalized interest of $1.4 million and corporate other capital costs of $3.0 million. Capital expenditures for the year ended December 31, 2007 exclude capitalized internal costs directly identified with acquisition, exploration and development activities of $5.5 million, capitalized interest of $2.4 million and corporate other capital costs of $1.8 million. Capital expenditures for the year ended December 31, 2006 exclude capitalized internal costs of $3.4 million, capitalized interest of $2.1 million and corporate other capital costs of $1.7 million.  Corporate other capital costs consist of costs related to IT software/hardware, office furniture and fixtures and license transfer fees.  

Productive Wells and Acreage

The following table sets forth our interest in undeveloped acreage, developed acreage and productive wells in which we own a working interest as of December 31, 2008.  “Gross” represents the total number of acres or wells in which we own a working interest.  “Net” represents our proportionate working interest resulting from our ownership in the gross acres or wells. Productive wells are wells in which we have a working interest and that are capable of producing oil or natural gas.

	Undeveloped Acres				Developed Acres				Productive Wells (1)
	Gross		Net		Gross		Net		Gross		Net
California		31,829		23,587		53,786		44,829		163		150
Rockies		167,227		143,709		37,105		28,667		249		216
South Texas		54,240		45,399		140,635		82,208		523		401
Other Onshore		33,065		21,317		55,128		19,881		304		51
Texas State Waters		5,706		2,709		9,978		3,259		8		2
Gulf of Mexico		7,500		5,000		41,994		24,386		7		5
		299,567		241,721		338,626		203,230		1,254		825

 ___________________________________

(1) Offshore productive wells are based on intervals rather than well bores.

The following table shows our interest in undeveloped acreage as of December 31, 2008 which is subject to expiration in 2009, 2010, 2011, and thereafter.

2009		2010		2011		Thereafter
Gross	Net	Gross	Net	Gross	Net	Gross	Net
36,617	31,249	63,476	53,145	89,151	70,184	110,323	87,143

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Drilling Activity

The following table sets forth the number of gross exploratory and gross development wells drilled in which we participated during the last three fiscal years. The number of wells drilled refers to the number of wells commenced at any time during the respective fiscal year. Productive wells are either producing wells or wells capable of commercial production.

	Gross Wells
	Exploratory						Development
	Productive		Dry		Total		Productive		Dry		Total
2008		3.0		1.0		4.0		160.0		20.0		180.0
2007		11.0		7.0		18.0		149.0		28.0		177.0
2006		68.0		15.0		83.0		51.0		8.0		59.0

The following table sets forth, for each of the last three fiscal years, the number of net exploratory and net development wells drilled by us based on our proportionate working interest in such wells.

	Net Wells
	Exploratory						Development
	Productive		Dry		Total		Productive		Dry		Total
2008		1.9		1.0		2.9		132.7		15.9		148.6
2007		7.5		5.1		12.6		130.2		26.5		156.7
2006		58.5		10.0		68.5		45.0		6.2		51.2

Marketing and Customers

Our amended and restated natural gas purchase and sales contract with Calpine Energy Services (“CES”) dated as of October 22, 2008, for the dedicated California production was approved by the Bankruptcy Court and executed by the parties pursuant to the terms of the Settlement Agreement. The term of this amended and restated contract with CES runs through December 2019.  The ten year right of first refusal provision, which was formerly part of this agreement, has been eliminated. Pursuant to the terms of this amended and restated contract with CES, we are obligated to sell all of the then-existing and future production from our California leases in production as of May 1, 2005 based on market prices.   For the month of December 2008, this dedicated California production comprised approximately 29% of our current overall daily equivalent production.

Under the terms of this amended and restated contract with CES and our other spot natural gas purchase and sale agreements with Calpine, cash payment for all natural gas volumes that are contractually sold to CES on the previous day are deposited into our collateral bank account. If the funds are not deposited one business day in arrears in accordance with our contracts, we are not obligated to continue to sell our production to CES and these sales may cease immediately. We would then be in a position to market this natural gas production to other parties. CES has 60 days to pay amounts owed to us, at which time, provided CES has fully cured such payment default, we are obligated under the contract to resume natural gas sales to CES. We believe that Calpine’s bankruptcy and their emergence from bankruptcy have not had a significant effect on our ability to sell our natural gas at market prices.

We may market our natural gas production in California, which is not subject to this amended and restated contract with CES, to parties other than Calpine.  All of our other production (other than our dedicated California production being sold pursuant to this amended and restated contract with CES at market pricing) is sold to various purchasers, including CES, on a competitive basis.  Additionally, Calpine Producer Services, L.P., an affiliate of Calpine Corporation, is under contract through June 30, 2009 to provide us with administrative services in connection with our marketing efforts for all of our oil and gas production in accordance with the contract terms.  We do not intend to extend or renew this marketing contract upon expiration, rather we intend to market all of our oil and gas production ourselves at the conclusion of this contract and our expanding our internal capabilities in this regard.

Major Customers

For the year ended December 31, 2008, we had one major customer, CES, which accounted for, on an aggregate basis,  approximately 61% of our consolidated annual revenue.

Competition

The oil and natural gas industry is highly competitive, and we compete with a substantial number of other companies that have greater resources than we do. Many of these companies explore for, produce and market oil and natural gas, carry on refining operations and market the resultant products on a worldwide basis. The primary areas in which we encounter substantial competition are in locating and acquiring desirable leasehold acreage for our drilling and development operations, locating and acquiring attractive producing oil and natural gas properties, and obtaining purchasers and transporters of the oil and natural gas we produce. There is also competition between producers of oil and natural gas and other industries producing alternative energy and fuel. Furthermore, competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the federal, state and local government.  It is not possible to predict the nature of any such legislation or regulation that may ultimately be adopted or its effects upon our future operations. Such legislation and regulations may, however, substantially increase the costs of exploring for, developing or producing natural gas and oil and may prevent or delay the commencement or continuation of a given operation. The effect of these risks cannot be accurately predicted.

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Seasonal Nature of Business

Generally, but not always, the demand for natural gas decreases during the summer months and increases during the winter months. Seasonal anomalies such as mild winters or abnormally hot summers sometimes lessen this fluctuation. In addition, certain natural gas users utilize natural gas storage facilities and purchase some of their anticipated winter requirements during the summer. This can also lessen seasonal demand fluctuations. Seasonal weather conditions and lease stipulations can limit our drilling and producing activities and other oil and natural gas operations in certain areas. These seasonal anomalies can increase competition for equipment, supplies and personnel during the spring and summer months, which could lead to shortages and increase costs or delay our operations.

Government Regulation

 The oil and gas industry is subject to extensive laws that are subject to amendment or expansion.  These laws have a significant impact on oil and gas exploration, production and marketing activities, and increase the cost of doing business, and consequently, affect profitability. Some of the legislation and regulation affecting the oil and gas industry carry significant penalties for failure to comply. While there can be no assurance that the Company will not incur fines or penalties, we believe we are currently in material compliance with the applicable federal, state and local laws.  Because enactment of new laws affecting the oil and gas business is common and because existing laws are often amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws.  We do not expect that any of these laws would affect us in a materially different manner than any other similarly sized oil and gas company operating in the United States.  The following are significant types of legislation affecting our business.

Exploration and Production Regulation

Oil and natural gas production is regulated under a wide range of federal, state and local statutes, rules, orders and regulations, including laws related to location of wells, drilling and casing of wells, well production limitations; spill prevention plans; surface use and restoration; platform, facility and equipment removal; the calculation and disbursement of royalties; the plugging and abandonment of wells; bonding; permits for drilling operations; and production, severance and ad valorem taxes. Oil and gas companies can encounter delays in drilling from the permitting process and requirements.  Our operations are subject to regulations governing operation restrictions and conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum rates of production from oil and natural gas wells, and prevention of flaring or venting of natural gas. The conservation laws have the effect of limiting the amount of oil and gas we can produce from our wells and limit the number of wells or the locations at which we can drill.

Environmental and Occupation Regulations

We are subject to stringent federal, state and local statutes, rules and regulations concerning occupational safety and health and protection of wildlife habitat and the natural environment.  We have made and will continue to make expenditures in our efforts to comply with these requirements.  At December 31, 2008, these estimated future expenditures for environmental control facilities were not material.  In this regard, we believe that we currently hold all up-to-date permits, registrations and other authorizations to the extent they are required of our operations under the current regulatory scheme.  We maintain insurance at industry customary levels to limit our financial exposure in the event of a substantial environmental claim resulting from sudden, unanticipated and accidental discharges of certain prohibited substances into the environment.  Such insurance might not cover the complete amount of such a claim and would not cover fines or penalties for a violation of an environmental law.

Insurance Matters

As is common in the oil and natural gas industry, we do not insure fully against all risks associated with our business either because such insurance is unavailable or because premium costs are considered prohibitive. A loss not fully covered by insurance could have a materially adverse effect on our financial position, results of operations or cash flows. In analyzing our operations and insurance needs, and in recognition that we have a large number of individual well locations with varied geographical distribution, we compared premium costs to the likelihood of material loss of production. Based on this analysis, we have elected, at this time, not to carry loss of production or business interruption insurance for our operations. We carry limited property insurance for loss or damage caused by earthquakes, and our energy package insurance, including property insurance, is limited to $15 million in the aggregate for any single named windstorm with a $1 million retention.

Filings of Reserve Estimates with Other Agencies

We annually file estimates of our oil and gas reserves with the United States Department of Energy (“DOE”) for those properties which we operate.  During 2008, we filed estimates of our oil and gas reserves as of December 31, 2007 with the DOE, which differ by five percent or less from the reserve data presented in the Annual Report on Form 10-K for the year ended December 31, 2007.    For information concerning proved natural gas and crude oil reserves, refer to Item 8. Financial Statements and Supplementary Data,Supplemental Oil and Gas Disclosures.

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Employees

As of February 20, 2009, we have 186 full time employees. We also contract for the services of consultants involved in land, regulatory, accounting, financial, legal and other disciplines as needed.  As of February 20, 2009, we have contracted approximately 45 independent consultants.  None of our employees are represented by labor unions or covered by any collective bargaining agreement. We believe that our relations with our employees are satisfactory.

Available Information

Through our website, http://www.rosettaresources.com, you can access, free of charge,our filings with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, our Code of Business Conduct and Ethics, Nominating and Corporate Governance Committee Charter, Audit Committee Charter, and Compensation Committee Charter.  You may also read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website that contains reports, proxy and information statements and other information that is filed electronically with the SEC. The website can be accessed at http://www.sec.gov.

Item 1A. Risk Factors

Broad industry or economic factors may adversely affect the timing of and extent to which the Company can effectively implement its strategy shift to an onshore unconventional resource player.

Our strategy shift is an important element of positioning the Company for more predictable, sustainable future performance.  In conjunction with pursuing this shift, the Company recognizes that several factors could impact our ability to execute the shift, including: (i) a sustained downturn of commodity prices, (ii) a lack of inventory potential within existing assets, (iii) an inability to attract and retain the personnel necessary to implement an unconventional resource business model, and (iv) a lack of access to credit.  The Company has processes in place to track and monitor these trends on an ongoing basis.  At this time, the Company believes the rationale and the goals for the strategy shift are intact; however, current market conditions could impact the pace of the planned shift.

Recent changes in the financial and credit markets may impact economic growth and oil and gas prices may continue to be adversely affected by general economic conditions.

Based on a number of economic indicators, it appears that growth in global economic activity has slowed substantially.  At the present time, the rate at which the global economy will slow has become increasingly uncertain.  A continued slowing of global economic growth, and access to credit markets, and, in particular, in the United States or China, will likely continue to reduce demand for oil and natural gas.   A reduction in the demand for and the resulting lower prices of oil and natural gas could adversely affect our results of operations.

The current deterioration in the credit markets, combined with a decline in commodity prices, may impact our capital expenditure level and also our counterparty risk.

While we seek to fund our capital expenditures primarily from cash flows from operating activities, we have in the past also drawn on unused capacity under our existing revolving credit facility for capital expenditures.  While we have not received any indication from our lenders that our ability to draw on our existing revolving credit facility has been restricted, it is possible that our borrowing base, which is based on our oil and gas reserves and is subject to review and adjustment on a semi-annual basis, with the next review scheduled to begin on March 2, 2009, and other interim adjustments, may be reduced when it is reviewed.  In the event that our borrowing base is reduced, outstanding borrowings in excess of the revised base will be due immediately.  As we do not have a substantial amount of unpledged property, we may not have the financial resources to make the mandatory prepayments.  A reduction in our ability to borrow under our existing revolving credit facility, combined with a reduction in cash flow from operating activities resulting from a decline in commodity prices, may require us to reduce our capital expenditures further, which may in turn adversely affect our ability to carry out our business plan and execute our programs.  Furthermore, if we lack the resources to dedicate sufficient capital expenditures to our existing oil and gas leases, we may be unable to produce adequate quantities of oil and gas to retain these leases and they may expire due to a lack of production.  The loss of a sufficient number of leases could have a material adverse effect on our results of operations.

Additionally, while we believe that our existing production is adequately hedged with credit worthy counterparties, continued deterioration in the credit markets may impact the credit ratings of our current and potential counterparties and affect their ability to fulfill their existing obligations to us and their willingness to enter into future transactions with us.

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Oil and natural gas prices are volatile, and a decline in oil and natural gas prices would significantly affect our financial results and impede our growth.  Additionally, our results are subject to commodity price fluctuations related to seasonal and market conditions and reservoir and production risks.

Our revenue, profitability and cash flow depend substantially upon the prices and demand for oil and natural gas. The markets for these commodities are volatile and even relatively modest drops in prices can significantly affect our financial results and impede our growth. Prices for oil and natural gas fluctuate widely in response to relatively minor changes in the supply and demand for oil and natural gas, market uncertainty and a variety of additional factors beyond our control, such as:

– Domestic and foreign supply of oil and gas;

– Price and quantity of foreign imports;

– Actions of the Organization of Petroleum Exporting Countries and state-controlled oil companies relating to oil price and production controls;

– Consumer demand;

– Conservation of resources;

– Regional price differentials and quality differentials of oil and natural gas;

– Domestic and foreign governmental regulations, actions and taxes;

– Political conditions in or affecting other oil producing and natural gas producing countries, including the current conflicts in the Middle East and conditions in South America and Russia;

– Weather conditions and natural disasters;

– Technological advances affecting oil and natural gas consumption;

– Overall U.S. and global economic conditions;

– Price and availability of alternative fuels;

– Seasonal variations in oil and natural gas prices;

– Variations in levels of production; and

– The completion of exploration and production projects.

Further, oil and natural gas prices do not necessarily fluctuate in direct relationship to each other. Because the majority of our estimated proved reserves are natural gas reserves, our financial results are more sensitive to movements in natural gas prices. Lower oil and natural gas prices may not only decrease our revenues on a per unit basis but also may reduce the amount of oil and natural gas that we can produce economically. Thus a continued weakness in commodity prices may result in our having to make substantial downward adjustments to our estimated proved reserves and could have a material adverse effect on our financial position, results of operations and cash flows.

Development and exploration drilling activities do not ensure reserve replacement and thus our ability to produce revenue.

Development and exploration drilling and strategic acquisitions are the main methods of replacing reserves. However, development and exploration drilling operations may not result in any increases in reserves for various reasons. Development and exploration drilling operations may be curtailed, delayed or cancelled as a result of:

– Lack of acceptable prospective acreage;

– Inadequate capital resources;

– Weather conditions and natural disasters;

– Title problems;

– Compliance with governmental regulations;

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– Mechanical difficulties; and

– Unavailability or high cost of equipment, drilling rigs, supplies or services.

Counterparty credit default could have an adverse effect on us.

Our revenues are generated under contracts with various counterparties. Results of operations would be adversely affected as a result of non-performance by any of these counterparties of their contractual obligations under the various contracts. A counterparty’s default or non-performance could be caused by factors beyond our control such as a counterparty experiencing credit default. A default could occur as a result of circumstances relating directly to the counterparty, or due to circumstances caused by other market participants having a direct or indirect relationship with the counterparty. Defaults by counterparties may occur from time to time, and this could negatively impact our financial position, results of operations and cash flows.  Recent deterioration in overall economic conditions and tightening of credit markets may increase the risk that contractual counterparties may fail to perform. Further deterioration in economic conditions in 2009 could result in an even greater risk of non-performance by market participants including our counterparties which could further impact our financial position.

We sell a significant amount of our production to one customer.

In connection with the Acquisition and now the Settlement Agreement, we have entered into an amended and restated natural gas purchase and sale contract with CES whose term runs through December 2019. Under this amended and restated contract with CES, we are obligated to sell all of the then-existing and future production from our California leases in production as of May 1, 2005 based on market prices. For the month of December 2008, this dedicated California production comprised approximately 29% of our current overall production based on an equivalent unit basis. Additionally, under separate monthly spot agreements, we may sell some of our natural gas production to Calpine, which could increase our credit exposure to Calpine. Under the terms of our amended and restated contract with CES and spot agreements with CES, all natural gas volumes that are contractually sold to CES are collateralized by CES making margin payments one business day in arrears to our collateral account equal to the previous day’s natural gas sales. In the event of a default by CES, we could be exposed to the loss of up to four days of natural gas sales revenue under these contracts, which at prices and volumes in effect as of December 31, 2008 would be approximately $2.5 million. 

Unless we replace our oil and natural gas reserves, our reserves and production will decline.

Our future oil and natural gas production depends on our success in finding or acquiring additional reserves. If we fail to replace reserves through drilling or acquisitions, our level of production and cash flows will be affected adversely. In general, production from oil and natural gas properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Our total proved reserves decline as reserves are produced. Our ability to make the necessary capital investment to maintain or expand our asset base of oil and natural gas reserves would be impaired to the extent cash flow from operations is reduced and external sources of capital become limited or unavailable. We may not be successful in exploring for, developing or acquiring additional reserves.

We will require additional capital to fund our future activities. If we fail to obtain additional capital, we may not be able to implement fully our business plan, which could lead to a decline in reserves.

Future projects and acquisitions will depend on our ability to obtain financing beyond our cash flow from operations. We may finance our business plan and operations primarily with internally generated cash flow, bank borrowings, entering into exploratory arrangements with other parties and publicly or privately raised equity.  In the future, we will require substantial capital to fund our business plan and operations. Sufficient capital may not be available on acceptable terms or at all. If we cannot obtain additional capital resources, we may curtail our drilling, development and other activities or be forced to sell some of our assets on unfavorable terms.

The terms of our credit facilities contain a number of restrictive and financial covenants.  If we are unable to comply with these covenants, our lenders could accelerate the repayment of our indebtedness.

The terms of our credit facilities subject us to a number of covenants that impose restrictions on us, including our ability to incur indebtedness and liens, make loans and investments, make capital expenditures, sell assets, engage in mergers, consolidations and acquisitions, enter into transactions with affiliates, enter into sale and leaseback transactions, change our lines of business and pay dividends on our common stock. We will also be required by the terms of our credit facilities to comply with financial covenant ratios.  A more detailed description of our credit facilities is included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources and the footnotes to the Consolidated Financial Statements.

A breach of any of the covenants imposed on us by the terms of our indebtedness, including the financial covenants under our credit facilities, could result in a default under such indebtedness. In the event of a default, the lenders for our revolving credit facility could terminate their commitments to us, and they and the lenders of our second lien term loan could accelerate the repayment of all of our indebtedness. In such case, we may not have sufficient funds to pay the total amount of accelerated obligations, and our lenders under the credit facilities could proceed against the collateral securing the facilities, which is substantially all of our assets. Any acceleration in the repayment of our indebtedness or related foreclosure could adversely affect our business.

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Properties we acquire may not produce as expected, and we may be unable to determine reserve potential, identify liabilities associated with the properties or obtain protection from sellers against such liabilities.

We continually review opportunities to acquire producing properties, undeveloped acreage and drilling prospects; however, such reviews are not capable of identifying all potential conditions. Generally, it is not feasible to review in depth every individual property involved in each acquisition. Ordinarily, we will focus our review efforts on higher value properties or properties with known adverse conditions and will sample the remainder.

However, even a detailed review of records and properties may not necessarily reveal existing or potential problems or permit a buyer to become sufficiently familiar with the properties to assess fully their condition, any deficiencies, and development potential. Inspections may not always be performed on every well, and environmental problems, such as ground water contamination are not necessarily observable even when an inspection is undertaken.

Our exploration and development activities may not be commercially successful.

Exploration activities involve numerous risks, including the risk that no commercially productive oil or natural gas reservoirs will be discovered. In addition, the future cost and timing of drilling, completing and producing wells is often uncertain. Furthermore, drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors, including:

– Unexpected drilling conditions; pressure or irregularities in formations; equipment failures or accidents;

– Adverse weather conditions, including hurricanes, which are common in the Gulf of Mexico during certain times of the year; compliance with governmental regulations; unavailability or high cost of drilling rigs, equipment or labor;

– Reductions in oil and natural gas prices; and

– Limitations in the market for oil and natural gas.

Our decisions to purchase, explore, develop and exploit prospects or properties depend in part on data obtained through geophysical and geological analyses, production data and engineering studies, the results of which are often uncertain. Even when used and properly interpreted, 3-D seismic data and visualization techniques only assist geoscientists in identifying subsurface structures and hydrocarbon indicators. They do not allow the interpreter to know conclusively if hydrocarbons are present or producible economically. In addition, the use of 3-D seismic and other advanced technologies requires greater pre-drilling expenditures than traditional drilling strategies. Because of these factors, we could incur losses as a result of exploratory drilling expenditures. Poor results from exploration activities could have a material adverse effect on our future financial position, results of operations and cash flows.

Numerous uncertainties are inherent in our estimates of oil and natural gas reserves and our estimated reserve quantities and present value calculations may not be accurate. Any material inaccuracies in these reserve estimates or underlying assumptions will affect materially the estimated quantities and present value of our reserves.

Estimates of proved oil and natural gas reserves and the future net cash flows attributable to those reserves are prepared by independent petroleum engineers and geologists.  There are numerous uncertainties inherent in estimating quantities of proved oil and natural gas reserves and cash flows attributable to such reserves, including factors beyond our engineers' control. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of an estimate of quantities of reserves, or of cash flows attributable to such reserves, is a function of the available data, assumptions regarding future oil and natural gas prices, expenditures for future development and exploration activities, engineering and geological interpretation and judgment. Additionally, reserves and future cash flows may be subject to material downward or upward revisions, based upon production history, development and exploration activities and prices of oil and natural gas. As an example, independent petroleum engineers Netherland Sewell’s reserve report for year end 2008 includes the downward revision of 64 Bcfe of proved reserves and 8 Bcfe due to year-end commodity prices, or approximately 17% of previously estimated reserves.  Actual future production, revenue, taxes, development expenditures, operating expenses, underlying information, quantities of recoverable reserves and the value of cash flows from such reserves may vary significantly from the assumptions and underlying information set forth herein. In addition, different reserve engineers may make different estimates of reserves and cash flows based on the same available data. The present value of future net revenues from our proved reserves referred to in this Report is not necessarily the actual current market value of our estimated oil and natural gas reserves. In accordance with SEC requirements, we base the estimated discounted future net cash flows from our proved reserves on fixed prices and costs as of the date of the estimate.  Our reserves as of December 31, 2008 were based on West Texas Intermediate oil prices of $41.00 per Bbl and Henry Hub gas prices of $5.71 per MMbtu compared to $92.50 and $6.80, respectively, at December 31, 2007.  Actual future prices and costs fluctuate over time and may differ materially from those used in the present value estimate. In addition, discounted future net cash flows are estimated assuming royalties to the MMS, royalty owners and other state and federal regulatory agencies with respect to our affected properties, and will be paid or suspended during the life of the properties based upon oil and natural gas prices as of the date of the estimate. Since actual future prices fluctuate over time, royalties may be required to be paid for various portions of the life of the properties and suspended for other portions of the life of the properties.

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The timing of both the production and expenses from the development and production of oil and natural gas properties will affect both the timing of actual future net cash flows from our proved reserves and their present value. In addition, the 10% discount factor that we use to calculate the net present value of future net cash flows for reporting purposes in accordance with the SEC’s rules may not necessarily be the most appropriate discount factor. The effective interest rate at various times and the risks associated with our business or the oil and natural gas industry, in general, will affect the appropriateness of the 10% discount factor in arriving at an accurate net present value of future net cash flows.

We are subject to the full cost ceiling limitation which has resulted in a write-down of our estimated net reserves and may result in a write-down in the future if commodity prices continue to decline.

Under the full cost method, we are subject to quarterly calculations of a “ceiling” or limitation on the amount of our oil and gas properties that can be capitalized on our balance sheet. If the net capitalized costs of our oil and gas properties exceed the cost ceiling, we are subject to a ceiling test write-down of our estimated net reserves to the extent of such excess. If required, it would reduce earnings and impact stockholders’ equity in the period of occurrence and result in lower amortization expense in future periods. The discounted present value of our proved reserves is a major component of the ceiling calculation and represents the component that requires the most subjective judgments.  The ceiling calculation dictates that prices and costs in effect as of the last day of the quarter are held constant.  However, we may not be subject to a write-down if prices increase subsequent to the end of a quarter in which a write-down might otherwise be required. The risk that we will be required to write down the carrying value of oil and natural gas properties increases when natural gas and crude oil prices are depressed or volatile.  In addition, a write-down of proved oil and natural gas properties may occur if we experience substantial downward adjustments to our estimated proved reserves.  Expense recorded in one period may not be reversed in a subsequent period even though higher natural gas and crude oil prices may have increased the ceiling applicable in the subsequent period.

For the year ended December 31, 2008, we recognized a non-cash, pre-tax ceiling test impairment of $205.7 million and $238.7 million in the third and fourth quarters of 2008, respectively.  Due to the volatility of commodity prices, should natural gas prices continue to decline in the future, it is possible that an additional write-down could occur.  

In addition, write-downs of proved oil and natural gas properties may occur if we experience substantial downward adjustments to our estimated proved reserves.  For example, we recognized a downward revision to our proved reserves in the third and fourth quarters of 2008.   As we are continuing to evaluate and test our asset base, it is possible that we may recognize additional revisions to our proved reserves in the future.

See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Policies and Estimates for further information.

Government laws and regulations can change.

Our activities are subject to federal, state and local laws and regulations. Extensive laws, regulations and rules relate to activities and operations in the oil and gas industry.   Some of the laws, regulations and rules contain provisions for significant fines and penalties for non-compliance.  Changes in laws and regulations could affect our costs of operations and our profitability.  Changes in laws and regulations could also affect production levels, royalty obligations, price levels, environmental requirements, and other matters affecting our business.  We are unable to predict changes to existing laws and regulations or additions to laws and regulations.  Such changes could significantly impact our business, results of operations, cash flows, financial position and future growth.

Our business requires a sufficient level of staff with technical expertise, specialized knowledge and training and a high degree of management experience.

Our success is largely dependent upon our ability to attract and retain personnel with the skills and experience required for our business. An inability to sufficiently staff our operations or the loss of the services of one or more members of our senior management or of numerous employees with critical skills could have a negative effect on our business, financial position, results of operations, cash flows and future growth.

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The ultimate outcome of any legal proceedings relating to our activities cannot be predicted. Any adverse determination could have a material adverse effect on our financial position, results of operations and cash flows.

Operation of our properties has generated various litigation matters arising out of the normal course of business.  The ultimate outcome of claims and litigation relating to our activities cannot presently be determined, nor can the liability that may potentially result from a negative outcome be reasonably estimated at this time for every case. The liability we may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued with respect to such matters and, as a result, these matters may potentially be material to our financial position, results of operations and cash flows.

Market conditions or transportation impediments may hinder our access to oil and natural gas markets or delay our production.

Market conditions, the unavailability of satisfactory oil and natural gas processing and transportation or the remote location of certain of our drilling operations may hinder our access to oil and natural gas markets or delay our production. The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to pipelines or trucking and terminal facilities. In the Gulf of Mexico operations, the availability of a ready market depends on the proximity of and our ability to tie into existing production platforms owned or operated by others and the ability to negotiate commercially satisfactory arrangements with the owners or operators.  Under interruptible or short term transportation agreements, the transportation of our gas may be interrupted due to capacity constraints on the applicable system, for maintenance or repair of the system or for other reasons specified by the particular agreements.  We may be required to shut in natural gas wells or delay initial production for lack of a market or because of inadequacy or unavailability of natural gas pipelines or gathering system capacity. When that occurs, we are unable to realize revenue from those wells until the production can be tied to a gathering system. This can result in considerable delays from the initial discovery of a reservoir to the actual production of the oil and natural gas and realization of revenues.

Competition in the oil and natural gas industry is intense, and many of our competitors have resources that are greater than ours.

We operate in a highly competitive environment for acquiring prospects and productive properties, marketing oil and natural gas and securing equipment and trained personnel. Many of our competitors, major and large independent oil and natural gas companies, possess and employ financial, technical and personnel resources substantially greater than our resources. Those companies may be able to develop and acquire more prospects and productive properties than our financial or personnel resources permit. Our ability to acquire additional prospects and discover reserves in the future will depend on our ability to evaluate and select suitable properties and consummate transactions in a highly competitive environment. Also, there is substantial competition for capital available for investment in the oil and natural gas industry. Larger competitors may be better able to withstand sustained periods of unsuccessful drilling and absorb the burden of changes in laws and regulations more easily than we can, which would adversely affect our competitive position. We may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital.

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

Our industry is cyclical and, from time to time, there is a shortage of drilling rigs, equipment, supplies or qualified personnel. During these periods, the costs and delivery times of rigs, equipment and supplies are substantially greater. In addition, the demand for, and wage rates of, qualified drilling rig crews rise as the number of active rigs in service increases. If oil and gas prices increase in the future, increasing levels of exploration and production could result in response to these stronger prices, and as a result, the demand for oilfield services could rise, and the costs of these services could increase, while the quality of these services may suffer. If the unavailability or high cost of drilling rigs, equipment, supplies or qualified personnel were particularly severe in Texas and California, we could be materially and adversely affected because our operations and properties are concentrated in those areas.

Operating hazards, natural disasters or other interruptions of our operations could result in potential liabilities, which may not be fully covered by our insurance.

The oil and natural gas business involves certain operating hazards such as:

– Well blowouts;

– Cratering;

– Explosions;

– Uncontrollable flows of oil, natural gas, or well fluids;

– Fires;

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– Hurricanes, tropical storms, earthquakes, mud slides, and flooding;

– Pollution; and

– Releases of toxic gas.

The occurrence of one of the above may result in injury, loss of life, property damage, suspension of operations, environmental damage and remediation and/or governmental investigations and penalties.

In addition, our operations in California are especially susceptible to damage from natural disasters such as earthquakes and fires and involve increased risks of personal injury, property damage and marketing interruptions. Any of these operating hazards could cause serious injuries, fatalities or property damage, which could expose us to liabilities. The payment of any of these liabilities could reduce, or even eliminate, the funds available for exploration, development, and acquisition, or could result in a loss of our properties. Our insurance policies provide limited coverage for losses or liabilities relating to pollution, with broader coverage for sudden and accidental occurrences. Our insurance might be inadequate to cover our liabilities. For example, we are not fully insured against earthquake risk in California because of high premium costs. Insurance covering earthquakes or other risks may not be available at premium levels that justify its purchase in the future, if at all. In addition, we are subject to energy package insurance coverage limitations related to any single named windstorm. The insurance market in general and the energy insurance market in particular have been difficult markets over the past several years. Insurance costs could increase over the next few years and we may decrease coverage and retain more risk to mitigate future cost increases. If we incur substantial liability and the damages are not covered by insurance or are in excess of policy limits, or if we incur a liability at a time when we are not able to obtain liability insurance, then our business, financial position, results of operations and cash flows could be materially adversely affected.  Because of the expense of the associated premiums and the perception of risk, we do not have any insurance coverage for any loss of production as may be associated with these operating hazards.

Environmental matters and costs can be significant.

The oil and natural gas business is subject to various federal, state, and local laws and regulations relating to discharge of materials into, and protection of, the environment.  Such laws and regulations may impose liability on us for pollution clean-up, remediation, restoration and other liabilities arising from or related to our operations. Any noncompliance with these laws and regulations could subject us to material administrative, civil or criminal penalties or other liabilities. Additionally, our compliance with these laws may, from time to time, result in increased costs to our operations or decreased production.  We also may be liable for environmental damages caused by the previous owners or operators of properties we have purchased or are currently operating. The cost of future compliance is uncertain and is subject to various factors, including future changes to laws and regulations.  We have no assurance that future changes in or additions to the environmental laws and regulations will not have a significant impact on our business, results of operations, cash flows, financial condition and future growth.

Our acquisition strategy could fail or present unanticipated problems for our business in the future, which could adversely affect our ability to make acquisitions or realize anticipated benefits of those acquisitions.

Our growth strategy includes acquiring oil and natural gas businesses and properties if favorable economics and strategic objectives can be served. We may not be able to identify suitable acquisition opportunities or finance and complete any particular acquisition successfully.

Furthermore, acquisitions involve a number of risks and challenges, including:

– Division of management’s attention;

– Ability or impediments to conducting thorough due diligence activities;

– The need to integrate acquired operations;

– Potential loss of key employees of the acquired companies;

– Potential lack of operating experience in a geographic market of the acquired business; and

– An increase in our expenses and working capital requirements.

Any of these factors could adversely affect our ability to achieve anticipated levels of cash flows from the acquired businesses and properties or realize other anticipated benefits of those acquisitions.

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We are vulnerable to risks associated with operating in the Gulf of Mexico.

Our operations and financial results could be significantly impacted by unique conditions in the Gulf of Mexico 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 Gulf of Mexico, including those relating to:

– Adverse weather conditions and natural disasters;

– Availability of required performance bonds and insurance;

– Oil field service costs and availability;

– Compliance with environmental and other laws and regulations;

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

Hedging transactions may limit our potential gains, result in financial losses or reduce our income .

We have entered into natural gas price hedging arrangements with respect to a portion of our expected production through 2010. As of December 31, 2008, 37% and 4% of our natural gas production was hedged using swaps and costless collars, respectively, with settlement in 2009, and 9% of our natural gas production was hedged with swaps for settlement in 2010, based on anticipated future gas production.  Such transactions may limit our potential gains if oil and natural gas prices were to rise substantially over the price established by the hedge. In addition, such transactions may expose us to the risk of loss in certain circumstances, including instances in which our production is less than expected, there is a widening of price differentials between delivery points for our production and the delivery point assumed in the hedge arrangement, or the counterparties to our hedging agreements fail to perform under the contracts.  Our current hedge positions are with counterparties that are lenders in our credit facilities. Our lenders are comprised of banks and financial institutions that could default or fail to perform under our contractual agreements. A default under any of these agreements could negatively impact our financial performance.

We have also entered into a series of interest rate swap agreements to hedge the change in the variable interest rates associated with our debt under our credit facility.  If interest rates should fall below the rate established in the hedge, we may not receive the benefit of the lower interest rates.

Future sales of our common stock may cause our stock price to decline.

Sales of substantial amounts of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our common stock to decline, which could impair our ability to raise capital through the sale of additional common or preferred stock.

Stock sales and purchases by institutional investors or stockholders with significant holdings could have significant influence over our stock volatility and our corresponding ability to raise capital through debt or equity offerings.

Because institutional investors have the ability to trade in large volumes of shares of our common stock, the price of our common stock could be subject to significant volatility, which could adversely affect the market price for our common stock as well as limit our ability to raise capital or issue additional equity in the future.

You may experience dilution of your ownership interests because of the future issuance of additional shares of our common and preferred stock.

We may in the future issue our previously authorized and unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders and purchasers of common stock offered hereby. We are currently authorized to issue an aggregate of 155,000,000 shares of capital stock consisting of 150,000,000 shares of common stock and 5,000,000 shares of preferred stock with preferences and rights as determined by our Board of Directors. As of December 31, 2008, 51,748,920 shares of common stock were issued, including 1,434,430 shares of restricted stock issued to certain employees and directors.  The majority of these shares vest over a three year period.  Of the restricted stock that has been granted, 716,991 shares had vested as of December 31, 2008 and the remaining shares will vest no later than 2012. Pursuant to our amended 2005 Long-Term Incentive Plan, we have reserved 4,950,000 shares of our common stock for issuance as restricted stock, stock options and/or other equity based grants to employees and directors. In addition, we have issued 1,245,875 options to purchase common stock issued to certain employees and directors, of which 304,119 have been exercised as of December 31, 2008. The potential issuance of additional shares of common stock may create downward pressure on the trading price of our common stock. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with the hiring of personnel, future acquisitions, future issuance of our securities for capital raising purposes, or for other business purposes.

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Provisions under Delaware law, our certificate of incorporation and bylaws could delay or prevent a change in control of our company, which could adversely affect the price of our common stock.

The existence of some provisions under Delaware law, our certificate of incorporation and bylaws could delay or prevent a change in control of the Company, which could adversely affect the price of our common stock. Delaware law imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. Our certificate of incorporation and bylaws prohibit our stockholders from taking action by written consent absent approval by all members of our Board of Directors. Further, our stockholders do not have the power to call a special meeting of stockholders.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

A description of our properties is located in Item 1. Business and is incorporated herein by reference.

Our headquarters are located at 717 Texas, Suite 2800, Houston, Texas 77002, where we sublease two floors of office space from Calpine and lease a third floor. We also maintain a division office in Denver, Colorado, where we were assigned a lease by Calpine and consequently deal directly with the landlord.  We also have field offices in Laredo, Texas, Rio Vista, California and Magnolia, Arkansas. All leases were negotiated at market prices applicable to their respective location.

Title to Properties

Our properties are subject to customary royalty interests, liens incident to operating agreements, liens for current taxes and other burdens, including other mineral encumbrances and restrictions as well as mortgage liens on at least 80% of our proved reserves in accordance with our credit facilities. We do not believe that any of these burdens materially interfere with our use of the properties in the operation of our business.

We believe that we have generally satisfactory title to or rights in all of our producing properties. As is customary in the oil and natural gas industry, we make minimal investigation of title at the time we acquire undeveloped properties. We make title investigations and receive title opinions of local counsel only before we commence drilling operations. We believe that we have satisfactory title to all of our other assets. Although title to our properties is subject to encumbrances in certain cases, we believe that none of these burdens will materially detract from the value of our properties or from our interest therein or will materially interfere with our use in the operation of our business.

Item 3. Legal Proceedings

We are party to various oil and natural gas litigation matters arising out of the ordinary course of business.  While the outcome of these proceedings cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on the consolidated financial statements.

Calpine Settlement

On December 20, 2005, Calpine filed for protection under the federal bankruptcy laws.  Two years later, on December 19, 2007, the Bankruptcy Court confirmed a plan of reorganization for Calpine, which emerged from bankruptcy on January 31, 2008.  During that period, on June 29, 2007, Calpine commenced the Lawsuit.  Over the next fourteen months, the Company vigorously disputed Calpine’s contentions in the Lawsuit, including any and all allegations that it underpaid for Calpine’s oil and gas business.

On October 22, 2008, Calpine and the Company announced that they had entered into the Settlement Agreement which, among other things, would (i) resolve all claims in the Lawsuit, (ii) result in Calpine conveying clean legal title on all remaining oil and gas assets to Rosetta (except those properties subject to the preferential rights of third parties who have indicated a desire to exercise their rights), (iii) settle all pending claims the Company filed in the Calpine bankruptcy, (iv) modify and extend a gas purchase agreement by which Calpine purchases the Company’s dedicated production from the Sacramento Valley, California, and (v) formalize the assumption by Calpine of the July 7, 2005 purchase and sale agreement (together with all interrelated agreements, the “Purchase Agreement”) by which Calpine’s oil and gas business was conveyed to the Company thus resulting in the parties honoring their obligations under the Purchase Agreement on a going-forward basis.  The Settlement Agreement became effective when the Bankruptcy Court entered its order on November 13, 2008, authorizing the execution of the Settlement Agreement and the performance of the obligations set forth therein. No objections or appeals to this order were filed or taken with the Bankruptcy Court before or after the hearing on November 13, 2008, and it became final on or about November 23, 2008.

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The parties completed this settlement pursuant to the terms of the Settlement Agreement on December 1, 2008. The cash component of  the settlement consisted of $12.4 million payable in cash to Calpine to resolve all outstanding legal disputes regarding various matters, including Calpine’s fraudulent conveyance lawsuit. In addition, the Company paid $84.6 million under the Purchase Agreement to close the original acquisition transaction of the producing properties that were the subject of the lawsuit. This $84.6 million consisted of $67.6 million, which the Company withheld from the purchase price at the closing on July 7, 2005, related to non-consent properties (excluding the properties subject to the Petersen preferential rights) that were not conveyed to the Company at closing on July 7, 2005, as well as $17.0 million for various disputed post-closing adjustments under the terms of the Purchase Agreement, as amended by the Bankruptcy Court order to remove the properties that had been subject to the Petersen preferential rights, as if these properties had not been part of the Purchase Agreement.

As a result of the conclusion of this settlement, the Company recorded a pre-tax charge of $12.4 million in the fourth quarter of 2008, which is included in Other Income (Expense) in the Consolidated Statement of Operations.

Arbitration between the Company and the successor to Pogo Producing Company

On October 27, 2008, the Company, Calpine and XTO, as the successor to Pogo, agreed to a Title Indemnity Agreement in which Calpine agreed to indemnify XTO for certain title disputes, and the Company, Calpine and XTO agreed to dismissal of the arbitration proceeding against the Company and release of Pogo’s proofs of claim. The Company’s proofs of claim were resolved within the framework of the Settlement Agreement with Calpine, which was approved by the Bankruptcy Court and an order issued in this regard.  XTO has dismissed with prejudice the arbitration against the Company.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our security holders during the fourth quarter of 2008.

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Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Trading Market

Our common stock is listed on The NASDAQ Global Select Market® under the symbol “ROSE”. Our common stock began publicly trading on February 13, 2006.

The following table sets forth for the 2008 and 2007 periods indicated the high and low sale prices of our common stock:

2008					2007
	High		Low			High		Low
January 1 - March 31	$	21.42	$	16.20	January 1 - March 31	$	21.07	$	17.66
April 1 - June 30		29.65		19.15	April 1 - June 30		25.00		20.74
July 1 - September 30		29.20		16.67	July 1 - September 30		21.97		15.67
October 1 - December 31		18.23		5.97	October 1 - December 31		20.84		17.69

The number of shareholders of record on February 24, 2009 was approximately 10,700. However, we estimate that we have a significantly greater number of beneficial shareholders because a substantial number of our common shares are held of record by brokers or dealers for the benefit of their customers.

We have not paid a cash dividend on our common stock and currently intend to retain earnings to fund the growth and development of our business. Any future change in our policy will be made at the discretion of our board of directors in light of the financial condition, capital requirements, earnings prospects of Rosetta and any limitations imposed by lenders or investors, as well as other factors the Board of Directors may deem relevant.  Our Senior Secured Revolving Line of Credit agreement restricts our ability to pay cash dividends on our common stock.  See Item 8. Financial Statements and Supplementary Data Note 10 – Long-Term Debt.

The following table sets forth certain information with respect to repurchases of our common stock during the three months ended December 31, 2008:

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May yet Be Purchased Under the Plans or Programs
October 1 - October 31		2,563	$	12.71		-		-
November 1 - November 30		1,669		10.02		-		-
December 1 - December 31		82		6.99		-		-

___________________________________

(1) All of the shares were surrendered by our employees to pay tax withholding upon the vesting of restricted stock awards.  These repurchases were not part of a publicly announced program to repurchase shares of our common stock, nor do we have a publicly announced program to repurchase shares of common stock.

Stock Performance Graph

The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

The following common stock performance graph shows the performance of Rosetta Resources Inc. common stock up to December 31, 2008.  As required by applicable rules of the Securities Exchange Commission, the performance graph shown below was prepared based on the following assumptions:

· A $100 investment was made in Rosetta Resources Inc. common stock at the opening trade price of $19.00 per share on February 13, 2006 (the first full trading day following the Company’s initial public offering of its common stock), and $100 was invested in each of the Standard & Poor’s 500 Index (S&P 500), a selected Peer Group (described below), and the Standard & Poor’s MidCap 400 Oil & Gas Exploration & Production Index (S&P 400 E&P) at the closing price on February 10, 2006.

· All dividends are reinvested for each measurement period.

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The seven companies that comprise the selected Peer Group are:  Petrohawk Energy Corporation (HK), St. Mary Land & Exploration Co. (SM), Bill Barrrett Corp. (BBG), Brigham Exploration Co. (BEXP), Berry Petroleum Co. (BRY), Comstock Resources Inc. (CRK), and Range Resources Corp. (RRC).  In 2008, we changed from using a selected Peer Group to the S&P 400 E&P Index because this published index is widely recognized in our industry and includes a representative group of independent peer companies (weighted by market capital) that are engaged in comparable exploration, development and production operations.  In the future, we will not include the Peer Group in our analysis.

Total Return Among Rosetta Resources Inc., the S&P 500 Index, the S&P 400 O&G E&P Index, and our Peer Group

	2/13/2006 (1)		12/31/2006		12/31/2007		12/31/2008
ROSE	$	100.00	$	98.26	$	104.37	$	37.26
Peer Group	$	100.00	$	98.01	$	148.08	$	105.67
S&P 500	$	100.00	$	111.94	$	115.89	$	71.29
S&P400 O&G E&P	$	100.00	$	103.01	$	148.46	$	67.48

___________________________________

(1) February 13, 2006 was the first full trading day following the effective date of the Company’s registration statement filed in connection with the public offering of its common stock.

Item 6. Selected Financial Data

The following table sets forth our selected financial data.  For the years ended December 31, 2008, 2007 and 2006 and the six months ended December 31, 2005 (Successor), the financial data has been derived from the consolidated financial statements of Rosetta Resources Inc.  For the six months ended June 30, 2005 and for the year ended December 31, 2004 (Predecessor), the financial data was derived from the combined financial statements of the domestic oil and natural gas properties of Calpine and are presented on a carve-out basis to include the historical operations of the domestic oil and natural gas business.  You should read the following selected historical consolidated/combined financial data in connection with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited Consolidated Financial Statements and related notes included elsewhere in this Form 10-K.

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Additionally, the historical financial data reflects successful efforts accounting for oil and natural gas properties for the Predecessor periods described above and the full cost method of accounting for oil and natural gas properties effective July 1, 2005 for the Successor periods.  In addition, Calpine adopted on January 1, 2003, Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS No. 123”) to measure the cost of employee services received in exchange for an award of equity instruments, whereas we adopted the intrinsic value method of accounting for stock options and stock awards pursuant to Accounting Principles Board Opinion No. 25, “Stock Issued to Employees” (“APB No. 25”) effective July 2005, and as required have adopted the guidance for stock-based compensation under SFAS No. 123 (revised 2004) “Share-Based Payments” (“SFAS No. 123R”) effective January 1, 2006.

	Successor-Consolidated									Predecessor - Combined
	Year Ended December 31,							Six Months Ended December 31,		Six Months Ended June 30,		Year Ended December 31,
	2008 (2)			2007		2006		2005		2005		2004 (1) (2)
	(In thousands, except per share data)
Operating Data:
Total revenue	$	499,347		$	363,489	$	271,763	$	113,104	$	103,831	$	248,006
Income (loss) from continuing operations		(188,110	)		57,205		44,608		17,535		18,681		(78,836	)
Net income (loss)		(188,110	)		57,205		44,608		17,535		18,681		(10,396	)
Income (loss) per share:
Income (loss) from continuing operations
Basic		(3.71	)		1.14		0.89		0.35		0.37		(1.58	)
Diluted		(3.71	)		1.13		0.88		0.35		0.37		(1.58	)
Net income (loss)
Basic		(3.71	)		1.14		0.89		0.35		0.37		(0.21	)
Diluted		(3.71	)		1.13		0.88		0.35		0.37		(0.21	)
Cash dividends declared per common share		-			-		-		-		-		-
Balance Sheet Data (At the end of the Period)
Total assets		1,154,378			1,357,214		1,219,405		1,119,269		-		656,528
Long-term debt		300,000			245,000		240,000		240,000		-		-
Stockholders' equity/owner's net investment		726,372			872,955		822,289		715,423		-		223,451

____________________________________

(1) In September 2004, Calpine and Calpine Natural Gas L.P. sold their natural gas reserves in the New Mexico San Juan Basin and Colorado Piceance Basin and such properties have been reflected as discontinued operations for the respective periods presented herein.

(2) Includes a $444.4 million and a $202.1 million non-cash, pre-tax impairment charge for the years ended December 31, 2008 and 2004, respectively.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Rosetta has delivered production growth by executing a business model based predominantly upon conventional exploration and exploitation. The Company actively pursued opportunities in conventional basins and plays characterized by higher decline rates. In early 2008, we began a strategic shift toward a business model that we believed could generate more sustainable, predictable performance over time. Accordingly, we have been on a path to de-emphasize high-decline rate, conventional programs in the Gulf of Mexico and Texas State Waters, while focusing on building positions and programs in unconventional onshore domestic basins.  These basins are characterized by having lower hydrocarbon risk project inventory and repeatable programs, which the Company believes can generate more sustainable, predictable results. Consistent with the nature of unconventional resources, we would expect annual production growth rates to moderate compared to historical production growth rates as we shift to more resource-driven projects and focus on drilling inventory generation. Our strategy shift will be accompanied by goals to deliver, over time, both acceptable rates of production growth, as well as growth in proved, probable and possible reserves in excess of historical performance.  The timing of and extent to which we can implement this strategy shift will depend on several factors, most notably commodity prices and access to credit.

Under more typical price scenarios, we believe we can successfully implement our strategy shift because of some inherent strengths. Of note, we believe our core existing onshore assets have upside that has not been fully analyzed through an unconventional resource lens. We think this approach could yield additional inventory for the Company over time. In addition, we have an experienced workforce and management team with background in unconventional resource operations. Finally, we have a financial and capital allocation approach that we believe allows us to adapt to the inevitable industry cycles and the current economic downturn. These factors do not ensure our success in executing our strategy shift, but we believe they provide a competitive advantage towards executing our strategy shift over the longer term.

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Our plan for implementing the strategy shift that is underway is to pursue, over time, both organic and inorganic opportunities that meet Rosetta’s criteria for funding, particularly inventory potential and attractive financial returns.  In 2008, we began several studies to test organic concepts in areas where we currently have assets for the purpose of identifying possible upside and inventory. We also began studying new domestic basins where we believe Rosetta can compete successfully.  While we have a preference for organic opportunities, we are also expanding our capability to evaluate and pursue acquisition opportunities that make sense for Rosetta. We believe this balanced approach is needed for long-term success; however, it is not our intention or desire to pursue acquisitions solely for the sake of growth.  Our ability to execute organic and inorganic activities will depend on market conditions.

On October 22, 2008, we signed the Settlement Agreement with Calpine.  This settlement resolved all disputes between the parties, whether relating to the oil and gas property purchase, Rosetta’s proofs of claim in the bankruptcy and its counter claims, or otherwise and was recorded as a pre-tax charge to income in the amount of $12.4 million.  In addition, we paid $84.6 million to close the original 2005 acquisition transaction of the producing properties that were the subject of the Lawsuit.  This $84.6 million consisted of $67.6 million which we withheld from the purchase price related to properties that were not conveyed to Rosetta, as well as $17.0 million for post-closing adjustments.

During 2008, our technical teams conducted a comprehensive review of several detailed field studies. Based upon these studies, and in coordination with our independent reserve engineers, we recognized a downward revision of 64 Bcfe of proved reserves, or approximately 15% of previously estimated reserves.  We believe that our year-end reserves reflect our comprehensive updated technical view of field performance.   In addition, we recognized 8 Bcfe of downward revisions due to  year-end commodity prices and a cumulative non-cash ceiling test impairment charge of $444.4 million on a pre-tax basis, and $278.9 million net of tax.

With the Calpine Settlement and known reserve revisions behind us, we enter 2009 in a position to execute our business plan and effect our desired goals, subject to economic and market factors. We believe that we now have greater operating control and latitude over critical activities, such as rationalizing our portfolio, attracting technical talent, pursuing acquisitions that fit our strategy, and building sustainable project inventory.  Our preliminary 2009 capital spending budget of $250 million was announced in the fourth quarter of 2008.  At that time, we indicated that we believed the program could be funded internally at an average gas price of $7 per Mcf.  We also indicated that we could expect to maintain annual production volumes in the range of 140 – 150 MMcfe/day for that level of spending.  Given the current pervasive commodity price and economic downturn, our capital spending and production guidance are in flux.  The priority for our 2009 organic spending is to spend within our internally generated cash flow in order to preserve our liquidity and retain flexibility.  We expect our capital spending level to be significantly reduced compared to our preliminary budget.  At this time, we intend to curtail our organic drilling programs, while testing several new play concepts, notably in the Bakken Shale in the Alberta Basin and the Eagle Ford Shale in South Texas. We have the discretion to adjust capital spending plans throughout the year in response to market conditions and the availability of proceeds from possible divestitures.  These adjustments could include shutting down our core area drilling programs until such time as services costs contract and/or commodity prices recover.  We will actively monitor our spending throughout the year.  Our goal is to be financially prudent; however, our capital decisions could significantly impact targets and performance.  Given the uncertainty in our capital program, it is not practical to provide production guidance at the outset of 2009.  However, it is likely that, at current prices, our capital spending level would not be sufficient to grow production or reserves organically.

We recognize that we are operating in one of the most challenging business environments in recent history and that the credit crisis, declining oil prices, lower natural gas prices and a weakening global economic outlook are all adversely impacting the business environment.  We are working with our lenders to effectively stay abreast of market and creditor conditions to ensure prudent and timely decisions should market conditions deteriorate further.  We believe that we have sufficient liquidity and operational flexibility to fund and actively manage a prudent capital expenditures program, including, but not limited to, capping these expenditures in an annual period to the cash flows available from operating activities.  We may also undertake divestitures to generate cash and exit non-core areas.  Also of note, our capital expenditures are primarily in areas where Rosetta acts as operator and has high working interests. As a result, we do not believe we have significant exposure to joint interest partners who may be unable to fund their portion of any capital program, but we are monitoring partner situations in light of the current economic environment.  We are actively working with service companies and suppliers to mitigate costs, and we are examining all cash costs for improved efficiency.

To the extent that capital expenditures or prudent acquisitions require cash flow in excess of available funds, we would consider drawing on our unused capacity under our existing revolving credit facility. As of December 31, 2008, the undrawn credit available to us was $175.0 million.  We have not received any indication from our lenders that draws under the credit facility are restricted below current availability at this time and we are proactively communicating with them on a routine basis. We affirmed our borrowing base in the third quarter of 2008 at $400.0 million and the next redetermination is to begin in March 2009.  Our plan is to extend the term of our revolving credit facility in the first half of 2009.

Finally, with respect to the current market environment for liquidity and access to credit, the Company, through banks participating in its credit facility, has invested available cash in money market accounts and funds whose investments are limited to United States Government Securities, securities backed by the United States Government, or securities of United States Government agencies. The Company followed this policy prior to the recent changes in credit markets, and believes this is an appropriate approach for the investment of Company funds in the current environment.

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All counterparties to our derivative instruments are participants in our credit facilities, and we have not received any indication that any of these counterparties are unable to perform their required obligations under the terms of the derivative contracts, although we are mindful that this could change and we are staying alert for such changes. Similarly, we have not received any indication that any of the banks participating in the existing bank facility are not capable of performing their obligations under the terms of the credit agreement.

Financial Highlights

Our consolidated financial statements reflect total revenue of $499.3 million on total volumes of 53.6 Bcfe for the year ended December 31, 2008.  Operating loss was $275.3 million, or (55%) of total revenue, and included depreciation, depletion and amortization expense of $198.9 million, a non-cash, pre-tax full cost ceiling test impairment charge of $444.4 million, lease operating expense of $55.7 million and $7.2 million of compensation expense for stock-based compensation granted to employees. Total net other income was comprised of interest expense (net of capitalized interest) on our long-term debt and $12.4 million of litigation expense related to the Calpine Settlement, offset by interest income on short-term cash investments.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon the Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, related disclosure of contingent assets and liabilities and proved oil and gas reserves. Certain 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. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our financial statements. Below, we have provided expanded discussion of our more significant accounting policies, estimates and judgments for our financial statements. We believe these accounting policies reflect the more significant estimates and assumptions used in preparation of the financial statements.

We also describe the most significant estimates and assumptions we make in applying these policies.  See Item 8. Financial Statements and Supplementary Data, Note 2 - Summary of Significant Accounting Policies, for a discussion of additional accounting policies and estimates made by management.

Principles of Consolidation  

The accompanying consolidated financial statements as of December 31, 2008, 2007 and 2006, contain the accounts of the Company and its majority owned subsidiaries after eliminating all significant intercompany balances and transactions.

Oil and Gas Activities

Accounting for oil and gas activities is subject to special, unique rules. Two generally accepted methods of accounting for oil and gas activities are the successful efforts method or the full cost method. The most significant differences between these two methods are the treatment of exploration costs and the manner in which the carrying value of oil and gas properties are amortized and evaluated for impairment. The successful efforts method requires certain exploration costs to be expensed as they are incurred while the full cost method provides for the capitalization of these costs. Both methods generally provide for the periodic amortization of capitalized costs based on proved reserve quantities. Impairment of oil and gas properties under the successful efforts method is based on an evaluation of the carrying value of individual oil and gas properties against their estimated fair value.  The assessment for impairment under the full cost method requires an evaluation of the carrying value of oil and gas properties included in a cost center against the net present value of future cash flows from the related proved reserves, using period-end prices and costs and a 10% discount rate.

Full Cost Method

We use the full cost method of accounting for our oil and gas activities. Under this method, all costs incurred in the acquisition, exploration and development of oil and gas properties are capitalized into a cost center (the amortization base), whether or not the activities to which they apply are successful.  As all of our operations are located in the U.S., all of our costs are included in one cost pool.  Such amounts include the cost of drilling and equipping productive wells, dry hole costs, lease acquisition costs and delay rentals. Capitalized costs also include salaries, employee benefits, costs of consulting services and other expenses that directly relate to our oil and gas activities.  Interest costs related to unproved properties are also capitalized.  Costs associated with production and general corporate activities are expensed in the period incurred. The capitalized costs of our oil and gas properties, plus an estimate of our future development and abandonment costs, are amortized on a unit-of-production method based on our estimate of total proved reserves. Unevaluated costs are excluded from the full cost pool and are periodically considered for impairment rather than amortization.  Upon evaluation, these costs are transferred to the full cost pool and amortized.  Our financial position and results of operations would have been significantly different had we used the successful efforts method of accounting for our oil and gas activities, since we generally reflect a higher level of capitalized costs as well as a higher depreciation, depletion and amortization rate on our oil and natural gas properties.

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Proved Oil and Gas Reserves

Our engineering estimates of proved oil and gas reserves directly impact financial accounting estimates, including depreciation, depletion and amortization expense and the full cost ceiling limitation. Proved oil and gas reserves are the estimated quantities of oil and gas reserves that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under period-end economic and operating conditions. The process of estimating quantities of proved reserves is very complex, requiring significant subjective decisions in the evaluation of all geological, engineering and economic data for each reservoir.  Accordingly, our reserve estimates are developed internally and subsequently, provided to Netherland Sewell & Associates, Inc. who then generates an annual year-end reserve report. The data for a given reservoir may change substantially over time as a result of numerous factors including additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Changes in oil and gas prices, operating costs and expected performance from a given reservoir also will result in revisions to the amount of our estimated proved reserves.  The estimate of proved oil and natural gas reserves primarily impact property, plant and equipment amounts in the consolidated balance sheet and the depreciation, depletion and amortization amounts in the consolidated statement of operations.  For more information regarding reserve estimation, including historical reserve revisions, refer to Item 8. Financial Statements and Supplementary Data,Supplemental Oil and Gas Disclosures.

Full Cost Ceiling Limitation

Under the full cost method, we are subject to quarterly calculations of a “ceiling” or limitation on the amount of costs associated with our oil and gas properties that can be capitalized on our balance sheet.  This ceiling limits such capitalized costs to the present value of estimated future cash flows from proved oil and natural gas reserves (including the effect of any related hedging activities) reduced by future operating expenses, development expenditures, abandonment costs (net of salvage values) to the extent not included in oil and gas properties pursuant to SFAS No. 143, and estimated future income taxes thereon.  If net capitalized costs exceed the applicable cost center ceiling, we are subject to a ceiling test write-down to the extent of such excess. If required, it would reduce earnings and stockholders’ equity in the period of occurrence and result in lower DD&A expense in future periods. The discounted present value of our proved reserves is a major component of the ceiling calculation and represents the component that requires the most subjective judgments. The ceiling calculation dictates that prices and costs in effect as of the last day of the quarter are held constant. However, we may not be subject to a write-down if prices increase subsequent to the end of a quarter but prior to the issuance of our financial statements in which a write-down might otherwise be required. The full cost ceiling test impairment calculations also take into consideration the effects of hedging contracts that are designated for hedge accounting. Given the fluctuation of natural gas and oil prices, it is reasonably possible that the estimated discounted future net cash flows from our proved reserves will change in the near term. If natural gas and oil prices decline, or if we have downward revisions to our estimated proved reserves, it is possible that write-downs of our oil and gas properties could occur in the future.

Our ceiling test computation was calculated quarterly using hedge adjusted market prices based on Henry Hub gas prices and West Texas Intermediate oil prices.  At September 30, 2008, the ceiling test computation was based on a Henry Hub price of $7.12 per MMBtu and a West Texas Intermediate oil price of $96.37 per Bbl (adjusted for basis and quality differentials).  At December 31, 2008, the ceiling test computation was based on a Henry Hub price of $5.71 per MMBtu and a West Texas Intermediate oil price of $41.00 per Bbl (adjusted for basis and quality differentials). The use of these prices resulted in non-cash, pre-tax writedowns of $205.7 million and $238.7 million at September 30, 2008 and December 31, 2008, respectively.  Due to the volatility of commodity prices, should natural gas prices continue to decline in the future, it is possible that an additional write-down could occur. 

There were no ceiling test write-downs for the years ended December 31, 2007 and 2006.

Depreciation, Depletion and Amortization

The quantities of estimated proved oil and gas reserves are a significant component of our calculation of depletion expense and revisions in such estimates may alter the rate of future depletion expense. Holding all other factors constant, if reserves are revised upward, earnings would increase due to lower depletion expense. Likewise, if reserves are revised downward, earnings would decrease due to higher depletion expense or due to a ceiling test write-down.  A five percent positive or negative revision to proved reserves throughout the Company would decrease or increase the depreciation, depletion and amortization (“DD&A”) rate by approximately $0.14 to $0.16 per MMcfe.  This estimated impact is based on current data at December 31, 2008 and actual events could require different adjustments to DD&A.

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Costs Withheld From Amortization  

Costs associated with unevaluated properties are excluded from our amortization base until we have evaluated the properties. The costs associated with unevaluated leasehold acreage wells, currently drilling and capitalized interest are initially excluded from our amortization base. Leasehold costs are either transferred to our amortization base with the costs of drilling a well on the lease or are assessed quarterly for possible impairment or reduction in value.  In addition, a portion of incurred (if not previously included in the amortization base) and future estimated development costs associated with qualifying major development projects may be temporarily excluded from amortization. To qualify, a project must require significant costs to ascertain the quantities of proved reserves attributable to the properties under development (e.g., the installation of an offshore production platform from which development wells are to be drilled). Incurred and estimated future development costs are allocated between completed and future work. Any temporarily excluded costs are included in the amortization base upon the earlier of when the associated reserves are determined to be proved or impairment is indicated.

Our decision to withhold costs from amortization and the timing of the transfer of those costs into the amortization base involve a significant amount of judgment and may be subject to changes over time based on several factors, including our drilling plans, availability of capital, project economics and results of drilling on adjacent acreage. At December 31, 2008, our domestic full cost pool had approximately $50.3 million of costs excluded from the amortization base.

Future Development and Abandonment Costs

Future development costs include costs incurred to obtain access to proved reserves such as drilling costs and the installation of production equipment and such costs are included in the calculation of DD&A expense. Future abandonment costs include costs to dismantle and relocate or dispose of our production platforms, gathering systems and related structures and restoration costs of land and seabed. We develop estimates of these costs for each of our properties based upon the property’s geographic location, type of production structure, well depth, currently available procedures and ongoing consultations with construction and engineering consultants. Because these costs typically extend many years into the future, estimating these future costs is difficult and requires management to make judgments that are subject to future revisions based upon numerous factors, including changing technology and the political and regulatory environment. We review our assumptions and estimates of future development and future abandonment costs on an annual basis.

We provide for future abandonment costs in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations”. This standard requires that a liability for the discounted fair value of an asset retirement obligation be recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset.  Holding all other factors constant, if our estimate of future abandonment and development costs is revised upward, earnings would decrease due to higher DD&A expense. Likewise, if these estimates are revised downward, earnings would increase due to lower DD&A expense.

Derivative Transactions and Hedging Activities

We enter into derivative transactions to hedge against changes in oil and natural gas prices and changes in interest rates related to outstanding debt under our credit agreements primarily through the use of fixed price swap agreements, basis swap agreements, costless collars and put options. Consistent with our hedge policy, we entered into a series of derivative transactions to hedge a portion of our expected natural gas production through 2010.  As of December 31, 2008, 37% and 4% of our natural gas production was hedged using swaps and costless collars, respectively, with settlement in 2009 and 9% of our natural gas production was hedged with swaps for settlement in 2010, based on our annual reserve report. We also entered into a series of interest rate swap agreements to hedge the change in interest rates associated with our variable rate debt through June of 2009.  These transactions are recorded in our financial statements in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). Although not risk free, we believe this policy will reduce our exposure to commodity price fluctuations and changes in interest rates and thereby achieve a more predictable cash flow. We do not enter into derivative agreements for trading or other speculative purposes.

In accordance with SFAS No. 133, as amended, all derivative instruments, unless designated as normal purchase and normal sale, are recorded on the balance sheet at fair market value and changes in the fair market value of the derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as a hedge transaction, and depending on the type of hedge transaction. Our derivative contracts are cash flow hedge transactions in which we are hedging the variability of cash flow related to a forecasted transaction. Changes in the fair market value of these derivative instruments are reported in other comprehensive income and reclassified as earnings in the period(s) in which earnings are impacted by the variability of the cash flow of the hedged item. We assess the effectiveness of hedging transactions quarterly, consistent with our documented risk management strategy for the particular hedging relationship. Changes in the fair market value of the ineffective portion of cash flow hedges are included in Other Income (Expense) in the Consolidated Statement of Operations.

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Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”).  SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements.  SFAS No. 157 does not require any new fair value measurements but may require some entities to change their measurement practices.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The FASB also issued FASB Staff Position (“FSP”) FAS 157-2 (“FSP No. 157-2”), which delayed the effective date of SFAS No. 157 for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008.  Effective January 1, 2008, the Company partially adopted SFAS No. 157 and has chosen to defer the implementation of SFAS No.157 for nonfinancial assets and liabilities in accordance with FSP No. 157-2.  Accordingly, the Company will apply SFAS No. 157 to its nonfinancial assets and liabilities that are disclosed or recognized at fair value on a nonrecurring basis and other assets and liabilities in the first quarter of 2009.  We are still in the process of evaluating the effect of SFAS No. 157 on our nonfinancial assets and liabilities and therefore have not yet determined the impact that it will have on our financial statements upon full adoption in 2009. Nonfinancial assets and liabilities for which we have not yet applied the provisions of SFAS No. 157 include our asset retirement obligations.  The adoption of SFAS No. 157 for financial assets and liabilities did not have a significant effect on our consolidated financial position, results of operations or cash flows.  See Item 8. Financial Statements and Supplementary Data, Note 7 - Fair Value Measurements.

Stock - -Based Compensation

We account for stock-based compensation in accordance with SFAS 123R. Under the provisions of SFAS 123R, stock-based compensation cost is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes option-pricing model and is recognized as expense over the requisite service period. The Black-Scholes model requires various highly judgmental assumptions including volatility, forfeiture rates and expected option life. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.

Revenue Recognition

The Company uses the sales method of accounting for the sale of its natural gas.   When actual natural gas sales volumes exceed our delivered share of sales volumes, an over-produced imbalance occurs. To the extent an over-produced imbalance exceeds our share of the remaining estimated proved natural gas reserves for a given property, the Company records a liability.  

Since there is a ready market for natural gas, crude oil and natural gas liquids (“NGLs”), the Company sells its products soon after production at various locations at which time title and risk of loss pass to the buyer. Revenue is recorded when title passes based on the Company’s net interest or nominated deliveries of production volumes. The Company records its share of revenues based on production volumes and contracted sales prices. The sales price for natural gas, natural gas liquids and crude oil are adjusted for transportation cost and other related deductions. The transportation costs and other deductions are based on contractual or historical data and do not require significant judgment. Subsequently, these deductions and transportation costs are adjusted to reflect actual charges based on third party documents once received by the Company. Historically, these adjustments have been insignificant. In addition, natural gas and crude oil volumes sold are not significantly different from the Company’s share of production.

It is the Company’s policy to calculate and pay royalties on natural gas, crude oil and NGLs in accordance with the particular contractual provisions of the lease.  Royalty liabilities are recorded in the period in which the natural gas, crude oil or NGLs are produced and are included in Royalties Payable on the Company’s Consolidated Balance Sheet.

Income Taxes

We provide for deferred income taxes on the difference between the tax basis of an asset or liability and its carrying amount in our financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This difference will result in taxable income or deductions in future years when the reported amount of the asset or liability is recovered or settled, respectively. Considerable judgment is required in determining when these events may occur and whether recovery of an asset is more likely than not.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Estimating the amount of the valuation allowance is dependent on estimates of future taxable income, alternative minimum tax income and change in stockholder ownership that would trigger limits on use of net operating losses under the Internal Revenue Code Section 382.  We have a significant deferred tax asset associated with our oil and gas properties.  It is more likely than not that we will realize this deferred tax asset in future years and therefore, we have not recorded a valuation allowance as of December 31, 2008.  See Item 8. Consolidated Financial Statements and Supplementary Data,Note 13 - Income Taxes.

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Additionally, our federal and state income tax returns are generally not filed before the consolidated financial statements are prepared, therefore we estimate the tax basis of our assets and liabilities at the end of each period as well as the effects of tax rate changes, tax credits and net operating and capital loss carryforwards and carrybacks. Adjustments related to differences between the estimates we used and actual amounts we reported are recorded in the period in which we file our income tax returns. These adjustments and changes in our estimates of asset recovery could have an impact on our results of operations. A one percent change in our effective tax rate would have affected our calculated income tax expense (benefit) by approximately $3.0 million for the year ended December 31, 2008.

FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”(“FIN 48”), requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.  For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

Recent Accounting Developments

The following recently issued accounting developments may impact the Company in future periods.

Business Combinations. In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141R”).  SFAS No. 141R broadens the guidance of SFAS No. 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses.  It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations and requires that acquisition-related costs incurred prior to the acquisition be expensed.  SFAS No. 141R also expands the definition of what qualifies as a business, and this expanded definition could include prospective oil and gas purchases.  This could cause us to expense transaction costs for future oil and gas property purchases that we have historically capitalized.  Additionally, SFAS No. 141R expands the required disclosures to improve the statement users’ abilities to evaluate the nature and financial effects of business combinations.  SFAS No. 141R is effective for business combinations for which the acquisition date is on or after January 1, 2009.

Noncontrolling Interests in Consolidated Financial Statements.   In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”), which improves the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  This statement is effective for fiscal years beginning after December 15, 2008.  We do not expect the adoption of SFAS No. 160 to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Disclosures about Derivative Instruments and Hedging Activities.   In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133” (“SFAS No. 161”), which is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures.  This statement is effective for fiscal years beginning after November 15, 2008.  We do not expect the adoption of SFAS No. 161 to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

Fair Value Measurements.  In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3”).  This FSP clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active.  This FSP was effective upon issuance, including prior periods for which financial statements have not been issued.  We applied this FSP to financial assets measured at fair value on a recurring basis at September 30, 2008.  See Item 8. Financial Statements and Supplementary Data, Note 7 - Fair Value Measurements.  The adoption of FSP FAS 157-3 did not have a significant impact on our consolidated financial position, results of operations or cash flows.

Oil and Gas Reporting Requirements.  In December 2008, the SEC released Release No. 33-8995, “Modernization of Oil and Gas Reporting” (the “Release”).  The disclosure requirements under this Release will permit reporting of oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices and the use of new technologies to determine proved reserves if those technologies have been demonstrated to result in reliable conclusions about reserves volumes.  Companies will also be allowed to disclose probable and possible reserves in SEC filings.  In addition, companies will be required to report the independence and qualifications of its reserves preparer or auditor and file reports when a third party is relied upon to prepare reserves estimates or conduct a reserves audit.  The new disclosure requirements become effective for the Company beginning with our annual report on Form 10-K for the year ended December 31, 2009.  We are currently evaluating the impact of this Release on our oil and gas accounting disclosures.

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Results of Operations

The following table summarizes our results of operations and compares the year ended December 31, 2008 to the years ended December 31, 2007 and 2006.

	Year Ended December 31,
	2008		2007		2006
	(In thousands, except per unit amounts)
Revenues:
Natural gas sales	$	443,611	$	323,341	$	236,496
Oil sales	$	55,736	$	40,148	$	35,267
Total revenues	$	499,347	$	363,489	$	271,763
Production:
Gas (Bcf)		50.4		42.5		30.3
Oil (MBbls)		546.4		561.2		551.3
Total Equivalents (Bcfe)		53.6		45.8		33.4
$ per unit:
Avg. Gas Price per Mcf	$	8.80	$	7.61	$	7.81
Avg. Gas Price per Mcf excluding Hedging		9.17		7.07		6.83
Avg. Oil Price per Bbl		102.00		71.54		64.01
Avg. Revenue per Mcfe	$	9.32	$	7.94	$	8.14

Revenues

Our revenues are derived from the sale of our oil and natural gas production, which includes the effects of qualifying commodity hedge contracts.  Our revenues may vary significantly from period to period as a result of changes in commodity prices or volumes of production sold.

Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

Total revenue for the year ended December 31, 2008 was $499.3 million which is an increase of $135.9 million, or 37%, from the year ended December 31, 2007.  Approximately 89% of revenue was attributable to natural gas sales on total volumes of 53.6 Bcfe.

Natural Gas.  For the year ended December 31, 2008, natural gas revenue increased by 37% or $120.3 million, including the realized impact of derivative instruments, from the comparable period in 2007, to $443.6 million.  The increase is primarily attributable to increased volumes and favorable average realized prices in 2008.  Production volumes increased overall by 19%, or 7.9 Bcfe, primarily due to the increase in the number of productive wells during 2008.  Net productive wells increased from 606 in 2007 to 825 in 2008.  The effect of gas hedging activities on natural gas revenue for the year ended December 31, 2008 was a loss of $18.7 million or a decrease of $0.37 per Mcf as compared to a gain of $22.9 million or an increase of $0.54 per Mcf for the year ended December 31, 2007.  The average realized natural gas price including the effects of hedging increased 16% or $1.19 to $8.80 per Mcf for the year ended December 31, 2008 as compared to the same period in 2007 of $7.61 per Mcf. In 2008, the Henry Hub natural gas spot price averaged $9.13 per Mcf compared to the 2007 average of $7.17 per Mcf.

Crude Oil.  For the year ended December 31, 2008, oil revenue increased by 39% or $15.6 million primarily due to the increase of $30.46 per Bbl in the average oil price from $71.54 per Bbl for the year ended December 31, 2007 as compared to $102.00 per Bbl for the year ended December 31, 2008.  At December 31, 2008, the West Texas Intermediate price for oil was $41.00 per Bbl compared to $92.50 per Bbl at December 31, 2007. Oil volumes decreased by 3% or 14.8 MBbls to 546.4 MBbls at December 31, 2008 from 561.2 MBbls at December 31, 2007.  The decrease in oil production volumes was associated with decreased production in the Gulf of Mexico primarily due to the effects of Hurricane Ike in September 2008 as well as lower production in Other Onshore.

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

Total revenue for the year ended December 31, 2007 was $363.5 million which is an increase of $91.7 million, or 34%, from the year ended December 31, 2006.  Approximately 89% of revenue was attributable to natural gas sales on total volumes of 45.8 Bcfe.

Natural Gas.  For the year ended December 31, 2007, natural gas revenue increased by 37% or $86.8 million, including the realized impact of derivative instruments, from the comparable period in 2006, to $323.3 million.  The increase is primarily attributable to California and Lobo production of 15.9 Bcfe and 14.2 Bcfe, respectively, or 78% of the increased production.  In addition, production volumes increased overall by 40% or 12.2 Bcfe.  This increase is primarily due to an increase in the number of wells producing in 2007 as compared to 2006, which includes the acquisition of the OPEX properties in the second quarter of 2007.  The effect of gas hedging activities on natural gas revenue for the year ended December 31, 2007 was a gain of $22.9 million or an increase of $0.54 per Mcf as compared to a gain of $29.6 million for the year ended December 31, 2006.  The average realized natural gas price including the effects of hedging decreased 3% from $7.61 per Mcf for the year ended December 31, 2007 as compared to the same period in 2006 of $7.81 per Mcf.

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Crude Oil.  For the year ended December 31, 2007, oil revenue increased by 14% or $4.9 million primarily due to the increase of $7.53 per Bbl in the average oil price from $64.01 per Bbl for the year ended December 31, 2006 as compared to $71.54 per Bbl for the year ended December 31, 2007.  Oil volumes increased by 2% or 9.9 MBbls to 561.2 MBbls at December 31, 2007.  The slight increase in oil production volumes were associated with increased production in California, Lobo and Texas State Water regions due to the new wells in 2007.

Year Ended December 31, 2006

Total revenue of $271.8 million for the year ended December 31, 2006 consists primarily of natural gas sales comprising 87% of total revenue on total volumes of 33.4 Bcfe.

Natural Gas.  Natural gas sales revenue was $236.5 million, including the effects of hedging, based on total gas production volumes of 30.3 Bcf.  Approximately 75% of the production volumes were from the following three areas: California, Lobo, and Perdido.  Average natural gas prices were $7.81 per Mcf for the respective period including the effects of hedging.  The effect of hedging on natural gas sales revenue was an increase of $29.6 million for an increase in total price from $6.83 to $7.81 per Mcf.

Crude Oil.  Oil sales revenue was $35.3 million for the year ended December 31, 2006 with oil production volumes of 551.3 MBbls.  The oil production volumes were primarily in the Offshore and Other Onshore regions with approximately 75% of the total production volumes.  The average oil price was $64.01 per Bbl for the year ended December 31, 2006.

Operating Expenses

The following table presents information about our operating expenses:

	Year Ended December 31,
	2008		2007		2006
	(In thousands, except per unit amounts)
Lease operating expense	$	55,694	$	47,044	$	36,273
Depreciation, depletion and amortization		198,862		152,882		105,886
Impairment of oil and gas properties		444,369		-		-
Production taxes		13,528		6,417		6,433
General and administrative costs	$	52,846	$	43,867	$	33,233
$ per unit:
Avg. lease operating expense per Mcfe	$	1.04	$	1.03	$	1.09
Avg. DD&A per Mcfe		3.71		3.34		3.17
Avg. production taxes per Mcfe		0.25		0.14		0.19
Avg. G&A per Mcfe	$	0.99	$	0.96	$	1.00

Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007

Lease Operating Expense.  Lease operating expense increased $8.7 million for the year ended December 31, 2008 as compared to the same period for 2007. This overall increase is primarily due to the increase in the number of productive wells as well as increased production of 17% for 2008 which led to higher costs for equipment rentals, maintenance and repairs, and costs associated with non-operated properties.  Lease operating expense includes workover costs of $0.14 per Mcfe, ad valorem taxes of $0.21 per Mcfe and insurance of $0.03 per Mcfe for the year ended December 31, 2008 as compared to workover costs of $0.11 per Mcfe, ad valorem taxes of $0.26 per Mcfe and insurance of $0.05 per Mcfe for the same period in 2007.

Depreciation, Depletion, and Amortization.  Depreciation, depletion and amortization expense increased $46.0 million for the year ended December 31, 2008 as compared to the same period for 2007.  The increase is due to a 17% increase in total production and a higher DD&A rate for 2008 due to the decrease in oil and natural gas reserves as compared to 2007.  The DD&A rate for the respective period in 2008 was $3.71 per Mcfe while the rate for the same period in 2007 was $3.34 per Mcfe due to the increase in finding costs.  Our DD&A rate for the first quarter of 2009 is expected to be $3.03 per Mcfe after the effects of the full cost ceiling write-down.

Impairment of Oil and Gas Properties.  Based upon the quarterly ceiling test computations using hedge adjusted market prices in effect at September 30, 2008 and December 31, 2008, and in conjunction with the downward revisions of a portion of the Company’s reserves in the third and fourth quarters of 2008,the net capitalized costs of oil and natural gas properties exceeded the cost center ceiling at September 30 and December 31, 2008 and a pre-tax, non-cash impairment expense of $444.4 million was recorded.

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Production Taxes.  Production taxes as a percentage of oil and natural gas sales were 2.7% for the year ended December 31, 2008 as compared to 1.8% for the year ended December 31, 2007.  This increase is the result of increased production in areas that do not qualify for tax credits for the year ended December 31, 2008 as compared to the same period for 2007.  

General and Administrative Costs.  General and administrative costs, net of capitalized general and administrative costs of $7.1 million for the year ended December 31, 2008, increased by $9.0 million for the year ended December 31, 2008 as compared to the same period for 2007, with capitalized general and administrative costs of $5.5 million.  The increase in costs incurred in the current period are primarily related to increases in legal fees related to the Calpine litigation of $6.9 million and increases in payroll expenses of $2.1 million resulting from increased headcount and a $1.3 million accrual related to the severance of a former executive officer, as well as the absence of approximately $5.0 million in CEO transition costs that were incurred in 2007 but not 2008.  

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

Lease Operating Expense.  Lease operating expense increased $10.8 million for the year ended December 31, 2007 as compared to the same period for 2006. This overall increase is primarily due the increase in production of 37% for 2007 which led to higher costs for equipment rentals, maintenance and repairs, and costs associated with non-operated properties.  In addition, there was an increase of $5.2 million in ad valorem taxes primarily related to property appraisals in California. The overall increase was offset by a $1.6 million decrease in workover expense primarily due to the insurance reimbursement in 2007 of $2.4 million for claims submitted as a result of Hurricane Rita. Lease operating expense includes workover costs of $0.11 per Mcfe, ad valorem taxes of $0.26 per Mcfe and insurance of $0.05 per Mcfe for the year ended December 31, 2007 as compared to workover costs of $0.19 per Mcfe, ad valorem taxes of $0.20 per Mcfe and insurance of $0.04 per Mcfe for the same period in 2006.

Depreciation, Depletion, and Amortization.  Depreciation, depletion and amortization expense increased $47.0 million for the year ended December 31, 2007 as compared to the same period for 2006.  The increase is due to a 37% increase in total production and a higher DD&A rate for 2007 as compared to 2006.  The DD&A rate for the respective period in 2007 was $3.34 per Mcfe while the rate for the same period in 2006 was $3.17 per Mcfe due to the increase in finding costs.

Production Taxes.  Production taxes as a percentage of oil and natural gas sales were 1.8% for the year ended December 31, 2007 as compared to 2.4% for the year ended December 31, 2006.  This decrease is the result of increased tax credits received for the year ended December 31, 2007 as compared to the same period for 2006.  The tax credits were received for natural gas wells drilled in qualifying formations primarily in the Lobo and Perdido regions.

General and Administrative Costs.  General and administrative costs, net of capitalized general and administrative costs of $5.5 million for the year ended December 31, 2007, increased by $10.6 million for the year ended December 31, 2007 as compared to the same period for 2006, with capitalized general and administrative costs of $3.5 million.  This increase is net of decreases in audit and consulting fees related to higher costs in the first six months of 2006 associated with becoming a public company, which was not incurred in 2007.  The increase in costs incurred in 2007 are primarily related to increases in the CEO transition costs of approximately $5.0 million, increases in legal fees related to the Calpine litigation of $2.6 million and increases in  payroll expenses associated with the payout of bonuses of $2.9 million.  The increase is also associated with stock-based compensation, which increased $1.1 million from $5.7 million for the year ended December 31, 2006 to $6.8 million for the year ended December 31, 2007.

Year Ended December 31, 2006

Lease Operating Expense.  Lease operating expense of $36.3 million related directly to oil and gas volumes which totaled 33.4 Bcfe for the year ended December 31, 2006 or costs of $1.09 per Mcfe.  Lease operating costs were affected by the wells that came on-line in South Texas.  Lease operating expense includes workover costs of $0.19 per Mcfe, ad valorem taxes of $0.20 per Mcfe and insurance of $0.04 per Mcfe.

Depreciation, Depletion and Amortization.  Depreciation, depletion and amortization was $105.9 million for the year ended December 31, 2006 under the full cost method of accounting.  The DD&A rate was $3.17 per Mcfe.  There were no ceiling test write-downs for the year ended December 31, 2006.

Production Taxes.  Production taxes as a percentage of natural gas and oil sales were approximately 2.4% for the year ended December 31, 2006.  Production taxes were primarily based on the wellhead values of production and vary across the different regions.

General and Administrative costs. For the year ended December 31, 2006, general and administrative costs were $33.2 million, net of capitalization of certain general and administrative costs of $3.4 million under the full cost method of accounting for oil and natural gas properties.  General and administrative costs include salary and employee benefits as well as legal, consulting and auditing fees.  In addition, stock compensation expense for the year ended December 31, 2006 was $5.7 million and is included in general and administrative costs.

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Total Other Expense

Other expense includes interest expense, interest income and other income/expense, net which increased $10.2 million for the year ended December 31, 2008 as compared to the respective period in 2007.  The increase in other expense is the result of a $12.4 million charge related to the Calpine Settlement partially offset by $3.0 million decrease in interest expense in 2008.

Other expense increased $2.5 million for the year ended December 31, 2007 as compared to the respective period in 2006.  The increase in other expense is the result of reduced interest income in 2007 to offset interest expense as compared to 2006.  The interest income is earned on the cash balances, which were greater during 2006 than in 2007.  We expended $35.3 million during the fourth quarter of 2006 to fund various asset acquisitions and $38.7 million during the second quarter of 2007 for the acquisition of the OPEX Properties.

Other expense for the year ended December 31, 2006 was $12.9 million and is primarily comprised of interest expense of $17.4 million (net of $2.1 million of capitalized interest) offset by interest income of $4.5 million.  The interest expense is associated with the senior secured revolving line of credit and second lien term loan and the interest income is related to the interest earned on the overnight investments of our cash balances.

Provision for Income Taxes

Our 2008 income tax benefit of $112.8 million was primarily due to the 2008 ceiling test write-downs.  For the year ended December 31, 2008, the effective tax rate was 37.5% compared to the effective tax rate of 37.3% for the year ended December 31, 2007 and 38.3% for the year ended December 31, 2006.  The provision for income taxes differs from the taxes computed at the federal statutory income tax rate primarily due to the effect of state taxes.

Liquidity and Capital Resources

Our primary source of liquidity and capital is our operating cash flow. We also maintain a revolving line of credit, which can be accessed as needed to supplement operating cash flow.

Operating Cash Flow.  Our cash flows depend on many factors, including the price of oil and natural gas and the success of our development and exploration activities as well as future acquisitions. We actively manage our exposure to commodity price fluctuations by executing derivative transactions to hedge the change in prices of a portion of our production, thereby mitigating our exposure to price declines, but these transactions will also limit our earnings potential in periods of rising natural gas prices. The effects of these derivative transactions on our natural gas sales are discussed above under “Results of Operations – Natural Gas.”  The majority of our capital expenditures are discretionary and could be curtailed if our cash flows decline from expected levels.  Current economic conditions and lower commodity prices could adversely affect our cash flow and liquidity. We will continue to monitor our cash flow and liquidity and if appropriate, we may consider adjusting our capital expenditure program.

Senior Secured Revolving Line of Credit.  BNP Paribas, in July 2005, provided the Company with a senior secured revolving line of credit concurrent with the Acquisition in the amount of up to $400.0 million (“Revolver”). This Revolver was syndicated to a group of lenders on September 27, 2005 and expires on April 5, 2010. Availability under the Revolver is restricted to the borrowing base.  The borrowing base is subject to review and adjustment on a semi-annual basis and other interim adjustments, including adjustments based on the Company’s hedging arrangements. In June 2008, the borrowing base was adjusted to $400.0 million and affirmed in December 2008.  The next borrowing base review is scheduled to begin on March 2, 2009.  Initial amounts outstanding under the Revolver bore interest, as amended, at specified margins over the London Interbank Offered Rate (“LIBOR”) of 1.25% to 2.00%. These rates over LIBOR were adjusted in June 2008 to be 1.125% to 1.875%.  Such margins will fluctuate based on the utilization of the facility. Borrowings under the Revolver are collateralized by perfected first priority liens and security interests on substantially all of the Company’s assets, including a mortgage lien on oil and natural gas properties having at least 80% of the pretax SEC PV-10 reserve value, a guaranty by all of the Company’s domestic subsidiaries, a pledge of 100% of the membership interests of domestic subsidiaries and a lien on cash securing the Calpine gas purchase and sale contract. These collateralized amounts under the mortgages are subject to semi-annual reviews based on updated reserve information.   The Company is subject to the financial covenants of a minimum current ratio of not less than 1.0 to 1.0 as of the end of each fiscal quarter and a maximum leverage ratio of not greater than 3.5 to 1.0, calculated at the end of each fiscal quarter for the four fiscal quarters then ended, measured quarterly with the pro forma effect of acquisitions and divestitures.  At December 31, 2008, the Company’s current ratio was 2.7 and the leverage ratio was 0.8.  In addition, the Company is subject to covenants limiting dividends and other restricted payments, transactions with affiliates, incurrence of debt, changes of control, asset sales, and liens on properties. The Company was in compliance with all covenants at December 31, 2008.  As of December 31, 2008, the Company had $175.0 million available for borrowing under their revolving line of credit. All amounts drawn under the Revolver are due and payable on April 5, 2010.

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Second Lien Term Loan.   BNP Paribas, in July 2005, also provided the Company with a second lien term loan concurrent with the Acquisition of oil and gas properties from Calpine (“Term Loan”).  Borrowings under the Term Loan are $75.0 million as of December 31, 2008.  Such borrowings are syndicated to a group of lenders including BNP Paribas.  Borrowings under the Term Loan bear interest at LIBOR plus 4.00%. The loan is collateralized by second priority liens on substantially all of the Company’s assets.  The Company is subject to the financial covenants of a minimum asset coverage ratio of not less than 1.5 to 1.0 and a maximum leverage ratio of not more than 4.0 to 1.0, calculated at the end of each fiscal quarter for the four fiscal quarters then ended, measured quarterly with the pro forma effect of acquisitions and divestitures.  At December 31, 2008, the Company’s asset coverage ratio was 3.1 and the leverage ratio was 0.8.  In addition, the Company is subject to covenants limiting dividends and other restricted payments, transactions with affiliates, incurrence of debt, changes of control, asset sales, and liens on properties. The Company was in compliance with all covenants at December 31, 2008. The principal balance of the Term Loan is due and payable on July 7, 2010.

Our ability to raise capital depends on the current state of the financial markets, which are subject to general economic and industry conditions.  Therefore, the availability of and price of capital in the financial markets could negatively affect our liquidity position. Our current liquidity is supported by our Revolver maturing on April 5, 2010.  We are in discussion with the lenders under our Revolver to extend the maturity of the Revolver and the Term Loan.  If we are unable to extend the maturity of the Revolver, it will become a current liability on April 5, 2009 and would result in Rosetta being in default with respect to the working capital covenants in the revolving credit facility and second lien term loan. Similarly, if we are unable to extend the maturity of the Term Loan, it will become a current liability on July 7, 2009.  We believe that we will be successful in extending these maturities on acceptable terms and conditions. Current market conditions are expected to result in increased costs of borrowing.

Working Capital

At December 31, 2008, we had a working capital surplus of $28.6 million as compared to a working capital deficit of $62.9 million at December 31, 2007.  Our working capital is affected primarily by fluctuations in the fair value of our commodity derivative instruments, deferred taxes associated with hedging activities, cash and cash equivalents balance and our capital spending program.  This surplus was largely caused by the increases in our cash balance and short-term hedged assets in conjunction with a decrease in our accounts payable and other current liabilities balances.  As of December 31, 2008, the working capital asset balances of our cash and cash equivalents and derivative instruments were approximately $42.9 million and $34.7 million, respectively, and there was no balance for current deferred tax assets.  In addition, the associated working capital liability balances for accrued liabilities were approximately $48.8 million as of December 31, 2008.

Cash Flows

	Year Ended December 31,
	2008			2007			2006
	(In thousands)
Cash flows provided by operating activities	$	374,719		$	257,307		$	199,610
Cash flows used in investing activities		(393,070	)		(322,041	)		(236,064	)
Cash flows provided by (used in) financing activities		57,990			5,170			(490	)
Net increase (decrease) in cash and cash equivalents	$	39,639		$	(59,564	)	$	(36,944	)

Operating Activities. Key drivers of net cash provided by operating activities are commodity prices, production volumes and costs and expenses, which primarily include operating costs, taxes other than income taxes, transportation and general and administrative expenses.  Net cash provided by operating activities (“Operating Cash Flow”) continued to be a primary source of liquidity and capital used to finance our capital expenditures for the year ended December 31, 2008.

Cash flows provided by operating activities increased by $117.4 million for the year ended December 31, 2008 as compared to the same period for 2007. This increase is largely due to higher natural gas and oil prices during 2008 compared to 2007.  As noted above, we also had a working capital surplus of $28.6 million, which was largely caused by the increase in our cash balance.  For the year ended December 31, 2008, we incurred approximately $334.4 million in capital expenditures as compared to $336.1 million for the year ended December 31, 2007.  For the year ended December 31, 2008, we had net losses of $188.1 million with an increase of production of 17% as compared to the year ended December 31, 2007 with net income of $57.2 million.

Cash flows provided by operating activities increased by $57.7 million for the year ended December 31, 2007 as compared to the same period for 2006. This increase is largely affected by our net income, excluding non-cash expenses such as depreciation, depletion and amortization, oil and gas properties impairments, and deferred income taxes.  For the year ended December 31, 2007, we had net income of $57.2 million with an increase of production of 37% as compared to the year ended December 31, 2006 with net income of $44.6 million.  As noted above, we also had a working capital deficit of $62.9 million, which was largely caused by the decrease in our cash balance to fund capital expenditures, including property acquisitions.  For the year ended December 31, 2007, we incurred approximately $336.1 million in capital expenditures as compared to $242.2 million for the year ended December 31, 2006.

Net cash provided by operating activities for the year ended December 31, 2006 was $199.6 million with net income of $44.6 million and total production of 33.4 Bcfe. Natural gas prices averaged $7.81 per Mcf, including the effects of hedging, and oil averaged $64.01 per Bbl.

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Investing Activities.  The primary driver of cash used in investing activities is capital spending.

Cash flows used in investing activities increased by $71.0 million for the year ended December 31, 2008 as compared to the same period for 2007 and related to our expenditures for the acquisitions and development of oil and gas properties and drilling.  The Company acquired the Petroflow properties in the San Juan Basin for $29.0 million, the Pinedale and South Texas properties for approximately $55.0 million, and the Calpine non-consent properties as part of the Calpine Settlement for $30.9 million.  Additionally, acquisition costs for the year ended December 31, 2008 include a non-cash purchase price adjustment of $36.7 million related to the release of suspended revenues and non-consent liabilities associated with non-consent properties as part of the Calpine Settlement, as well as an $8.0 million reduction in accrued capital costs.  During the year ended December 31, 2008, we participated in the drilling of 184 gross wells as compared to the drilling of 195 gross wells for the year ended December 31, 2007.

Cash flows used in investing activities increased by $86.0 million for the year ended December 31, 2007 as compared to the same period for 2006 and related to our expenditures for the acquisition of the OPEX properties and drilling and development of oil and gas properties.   During the year ended December 31, 2007, we participated in the drilling of 195 gross wells as compared to the drilling of 142 gross wells for the year ended December 31, 2006.

Cash used in investing activities for the year ended December 31, 2006 was $236.1 million.  These expenditures were primarily from the California, South Texas and Gulf of Mexico regions and included acquisitions of $35.3 million.

Financing Activities.  The primary driver of cash used in financing activities is equity transactions and issuance and repayments of debt.

Cash flows provided by financing activities increased by $52.8 million for the year ended December 31, 2008 as compared to the same period for 2007.  The net increase is primarily related to net borrowings of $55 million made in 2008 against the Revolver.  In addition, there was an increase of approximately $3.0 million in the stock options exercised for the year ended December 31, 2008 compared to 2007.  

Cash flows provided by financing activities increased by $5.7 million for the year ended December 31, 2007 as compared to the same period for 2006.  The net increase is primarily related to net borrowings of $5.0 million made in 2007 against the Revolver.  In addition, there were fewer purchases of treasury stock for the year ended December 31, 2007 than for the comparable period in 2006.  The purchases of stock were surrendered by certain employees to pay tax withholding upon vesting of restricted stock awards.  These purchases are not part of a publicly announced program to repurchase shares of our common stock, nor do we have a publicly announced program to purchase shares of common stock.

Net cash used in financing activities for the year ended December 31, 2006 was primarily associated with the purchases of treasury stock surrendered by the employees to pay tax withholding upon the vesting of restricted stock awards offset by proceeds from issuances of common stock.

Commodity Price Risk, Interest Rate Risk and Related Hedging Activities

The energy markets have historically been very volatile and there can be no assurance that oil and natural gas prices will not be subject to wide fluctuations in the future. To mitigate our exposure to changes in commodity prices, management hedges oil and natural gas prices from time to time primarily through the use of certain derivative instruments including fixed price swaps, basis swaps, costless collars and put options. Although not risk free, we believe these activities will reduce our exposure to commodity price fluctuations and thereby achieve a more predictable cash flow. Consistent with this policy, we have entered into a series of natural gas fixed-price swaps, which are intended to establish a fixed price for a portion of our expected natural gas production through 2010. The fixed-price swap agreements we have entered into require payments to (or receipts from) counterparties based on the differential between a fixed price and a variable price for a notional quantity of natural gas without the exchange of underlying volumes. The notional amounts of these financial instruments were based on expected proved production from existing wells at inception of the hedge instruments.

The following table sets forth the results of commodity hedging transaction settlements for the year ended December 31, 2008:

	For the Year Ended December 31,
	2008			2007
Natural Gas
Quantity settled (MMBtu)		26,684,616			23,464,500
Increase (decrease) in natural gas sales revenue (In thousands)	$	(18,669	)	$	22,926
Interest Rate Swaps
Decrease (increase) in interest expense (In thousands)	$	(1,158	)	$	20

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Borrowings under our Revolver and Term Loan mature on April 5, 2010 and July 7, 2010, respectively, and bear interest at a LIBOR-based rate. This exposes us to risk of earnings loss due to increases in market interest rates. To mitigate this exposure, we have entered into a series of interest rate swap agreements through June 2009. If we determine the risk may become substantial and the costs are not prohibitive, we may enter into additional interest rate swap agreements in the future.

In accordance with SFAS No. 133, as amended, all derivative instruments, not designated as a normal purchase sale, are recorded on the balance sheet at fair market value and changes in the fair market value of the derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as a hedge transaction, and depending on the type of hedge transaction. Our derivative contracts are cash flow hedge transactions in which we are hedging the variability of cash flow related to a forecasted transaction. Changes in the fair market value of these derivative instruments are reported in other comprehensive income and reclassified as earnings in the period(s) in which earnings are impacted by the variability of the cash flow of the hedged item. We assess the effectiveness of hedging transactions on a quarterly basis, consistent with documented risk management strategy for the particular hedging relationship. Changes in the fair market value of the ineffective portion of cash flow hedges, if any, are included in other income (expense).

Our current commodity and interest rate hedge positions are with counterparties that are lenders in our credit facilities. This allows us to secure any margin obligation resulting from a negative change in the fair market value of the derivative contracts in connection with our credit obligations and eliminate the need for independent collateral postings.  As of December 31, 2008, we had no deposits for collateral.

Capital Requirements

The historical capital expenditures summary table is included in Item 1. Business and is incorporated herein by reference.

Our capital expenditures for the year ended December 31, 2008 were $334.4 million, and we have plans to carefully execute an organic capital program in 2009 that can be funded from internally generated cash flows.  We also have the discretion to use available cash, borrowing base, and proceeds from divestitures to fund capital expenditures, including acquisitions, that make sense for Rosetta.  However, our main priority is to preserve liquidity.

Commitments and Contingencies

As is common within the industry, we have entered into various commitments and operating agreements related to the exploration and development of and production from proved oil and natural gas properties.It is management’s belief that such commitments will be met without a material adverse effect on our financial position, results of operations or cash flows.

Contractual Obligations. At December 31, 2008, the aggregate amounts of our contractually obligated payment commitments for the next five years are as follows:

	Payments Due By Period
	Total		2009		2010 to 2011		2012 to 2013		2014 & Beyond
	(In thousands)
Senior secured revolving line of credit	$	225,000	$	-	$	225,000	$	-	$	-
Second lien term loan		75,000		-		75,000		-		-
Operating leases		15,793		3,055		6,021		6,204		513
Interest payments on long-term debt (1)		10,494		7,638		2,856		-		-
Rig commitments		5,025		5,025		-		-		-
Total contractual obligations	$	331,312	$	15,718	$	308,877	$	6,204	$	513

___________________________________

(1) Future interest payments were calculated based on interest rates and amounts outstanding at December 31, 2008.

Asset Retirement Obligation. The Company also has liabilities of $27.9 million related to asset retirement obligations on its Consolidated Balance Sheet at December 31, 2008 excluded from the table above. Due to the nature of these obligations, we cannot determine precisely when the payments will be made to settle these obligations. See Item 8. Financial Statements and Supplementary Data, Note 9 -Asset Retirement Obligation.

Contingencies

We are party to various litigation matters arising out of the normal course of business. Although the ultimate outcome of each of these matters cannot be absolutely determined, and the liability the Company may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued with respect to such matters, management does not believe any such matters will have a material adverse effect on the Company’s financial position, results of operation or cash flows.

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Off-Balance Sheet Arrangements

At December 31, 2008 and 2007, we did not have any off-balance sheet arrangements.

Forward-Looking Statements

This report includes forward-looking information regarding Rosetta that is intended to be covered by the “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included or incorporated by reference in this report are forward-looking statements, including without limitation all statements regarding future plans, business objectives, strategies, expected future financial position or performance, expected future operational position or performance, budgets and projected costs, future competitive position, or goals and/or projections of management for future operations. In some cases, you can identify a forward-looking statement by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target” or “continue,” the negative of such terms or variations thereon, or other comparable terminology.

The forward-looking statements contained in this report are largely based on our expectations for the future, which reflect certain estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions, operating trends, and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. As such, management’s assumptions about future events may prove to be inaccurate. For a more detailed description of the risks and uncertainties involved, see Item 1A. Risk Factors in Part I. of this report.  We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events, changes in circumstances, or otherwise. These cautionary statements qualify all forward-looking statements attributable to us, or persons acting on our behalf. Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or that the events and circumstances they describe will occur. Factors that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements herein include, but are not limited to:  

– conditions in the energy and economic markets;

– the supply and demand for natural gas and oil;

– the price of natural gas and oil;

– potential reserve revisions;

– changes or advances in technology;

– reserve levels;

– inflation;

– the availability and cost of relevant raw materials, goods and services;

– future processing volumes and pipeline throughput;

– the occurrence of property acquisitions or divestitures;

– drilling and exploration risks;

– the availability and cost of processing and transportation;

– developments in oil-producing and natural gas-producing countries;

– competition in the oil and natural gas industry;

– the ability and willingness of our current or potential counterparties or vendors to enter into transactions with us and/or to fulfill their obligations to us;

– our ability to access the capital markets on favorable terms or at all;

39

– our ability to obtain credit and/or capital in desired amounts and/or on favorable terms;

– failure of our joint interest partners to fund any or all of their portion of any capital program;

– present and possible future claims, litigation and enforcement actions;

– effects of the application of applicable laws and regulations, including changes in such regulations or the interpretation thereof;

– relevant legislative or regulatory changes, including retroactive royalty or production tax regimes, changes in environmental regulation, environmental risks and liability under federal, state and foreign environmental laws and regulations;

– general economic conditions, either internationally, nationally or in jurisdictions affecting our business;

– disputes with mineral lease and royalty owners regarding calculation and payment of royalties;

– the weather, including the occurrence of any adverse weather conditions and/or natural disasters affecting our business; and

– any other factors that impact or could impact the exploration of oil or natural gas resources, including but not limited to the geology of a resource, the total amount and costs to develop recoverable reserves, legal title, regulatory, natural gas administration, marketing and operational factors relating to the extraction of oil and natural gas.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in oil and natural gas prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonable possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. All of our market risk sensitive instruments were entered into for purposes other than speculative trading.  See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations “ Commodity Price Risk, Interest Rate Risk and Related Hedging Activities.”

Commodity Price Risk. Our major market risk exposure is in the pricing of our oil and natural gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices applicable to our U.S. natural gas production. Pricing for oil and natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future. The prices we receive for production depend on many factors outside of our control.

Our fixed-price swap agreements are used to fix the sales price for our anticipated future oil and natural gas production. Upon settlement, we receive a fixed price for the hedged commodity and pay our counterparty a floating market price, as defined in each instrument. These instruments are settled monthly. When the floating price exceeds the fixed price for a contract month, we pay our counterparty. When the fixed price exceeds the floating price, our counterparty is required to make a payment to us. We have designated these swaps as cash flow hedges.

We use derivative transactions to manage exposure to changes in commodity prices and interest rates. Our objective for holding derivative instruments is to achieve a consistent level of cash flow to support a portion of our planned capital spending. Our use of derivative transactions for hedging activities could materially affect our results of operations, in particular quarterly or annual periods since such instruments can limit our ability to benefit from favorable interest rate movements. We do not enter into derivative instruments for speculative purposes.

We believe the use of derivative transactions, although not free of risk, allows us to reduce our exposure to oil and natural gas sales price fluctuations and interest rates and thereby achieve a more predictable cash flow. While the use of derivative instruments limits the downside risk of adverse price movements, their use may also limit future revenues from favorable price movements. Moreover, our derivative contracts generally do not apply to all of our production or variable rate debt and thus provide only partial price protection against declines in commodity prices or rising interest rates. We expect that the amount of our derivative contracts will vary from time to time.

On December 31, 2008, we had open natural gas derivative hedges in an asset position with a fair value of $39.4 million.  A 10 percent increase in natural gas prices would reduce the fair value by approximately $15.1 million, while a 10 percent decrease in natural gas prices would increase the fair value by approximately $14.7 million.  These fair value changes assume volatility based on prevailing market parameters at December 31, 2008.

As of December 31, 2008, we had the following financial fixed price swap positions outstanding with average underlying prices that represent hedged prices of commodities at various market locations:

40

Settlement Period	Derivative Instrument	Hedge Strategy	Notional Daily Volume MMBtu		Total of Notional Volume MMBtu		Average Floor/Fixed Prices MMBtu		Average Ceiling Prices MMBtu		Natural Gas Production Hedged (1)			Fair Market Value Gain/(Loss) (In thousands)
2009	Swap	Cash flow		52,141		19,031,465	$	7.65	$	-		37	%	$	31,082
2009	Costless Collar	Cash flow		5,000		1,825,000		8.00		10.05		4	%		3,660
2010	Swap	Cash flow		10,000		3,650,000		8.31		-		9	%		4,615
						24,506,465								$	39,357

(1) Estimated based on anticipated future gas production.

Interest Rate Risks. In July 2005, we entered into our credit facilities including (1) a senior secured revolving line of credit in the aggregate amount of up to $400 million (the “Revolver”), and (2) a senior secured second lien term loan, initially, in the aggregate amount of $100 million (the “Term Loan”). Both the Revolver and the Term Loan were amended and syndicated on September 27, 2005.

Availability under the Revolver is restricted to a borrowing base calculation of value assigned to proved oil and natural gas reserves. The borrowing base is $400 million and is subject to review and adjustment on a semi-annual basis and other interim adjustments, including adjustments based on our derivative arrangements. Amounts outstanding under the Revolver bear interest at specified margins over the London Interbank Offered Rate (“LIBOR”) of 1.125% to 1.875%, based on facility utilization. The Revolver will mature on April 5, 2010.

The Term Loan initially in the amount of $100 million was reduced to $75 million on the syndication date of September 27, 2005 due to the repayment of $25 million. Borrowings under the Term Loan initially bore interest at LIBOR plus 5.00%.  The interest rate for the Term Loan has been reduced to LIBOR plus 4.00%. The Term Loan is collateralized by a second lien on all assets securing the Revolver. The Term Loan will mature on July 7, 2010.

We had availability under the Revolver of $175.0 million as of December 31, 2008. A one hundred basis point increase in each of the LIBOR rate and federal funds rate as of December 31, 2008 and 2007 for both our Revolver and Term Loan would result in an estimated $3.0 million and $2.5 million increase, respectively, in annual interest expense.

In 2007, we entered into a series of fixed rate swap agreements for a portion of our variable rate debt.  Our fixed-rate swap agreements are used to fix the interest rate we pay under our variable rate credit facilities. The fixed-rate swaps are freestanding financial agreements that require us and the counterparty to net cash settle our gains and losses on a monthly basis.  Upon settlement, we receive a floating market LIBOR rate and pay our counterparty a fixed interest rate, as defined in each instrument. When the floating rate exceeds the fixed rate for a contract month, our counterparty pays us. When the fixed price exceeds the floating price, we are required to make a payment to our counterparty. We have designated these swaps as cash flow hedges.

We have hedged the interest rates on $50.0 million of our variable rate debt through June 2009.  As of December 31, 2008 we had the following financial interest rate swap positions outstanding:

Settlement Period	Derivative Instrument	Hedge Strategy	Average Fixed Rate			Fair Market Value Gain/(Loss) (In thousands)
2009	Swap	Cash flow		4.55	%	$	(985	)
						$	(985	)

41

Item 8.  Financial Statements and Supplementary Data

Index to Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	43
Consolidated Balance Sheet at December 31, 2008 and 2007	44
Consolidated Statement of Operations for the years ended December 31, 2008, 2007 and 2006	45
Consolidated Statement of Cash Flows for the years ended December 31, 2008, 2007 and 2006	46
Consolidated Statement of Stockholders' Equity for the years ended December 31, 2008, 2007 and 2006	47
Notes to Consolidated Financial Statements	48

42

Report of Independent Registered Public Accounting Firm

To the Board of Directors

and Stockholders of Rosetta Resources Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of stockholders' equity present fairly, in all material respects, the financial position of Rosetta Resources Inc. and its subsidiaries (the "Company") at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control Over Financial Reporting appearing under Item 9A.  Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our audits (which were integrated audits in 2008 and 2007).  We conducted our audits in accordance with the 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 financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included 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, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

February 27, 2009

Houston, Texas

43

Item 8.  Financial Statements and Supplementary Data

Rosetta Resources Inc.

Consolidated Balance Sheet

(In thousands, except share amounts)

	December 31,
	2008			2007
Assets
Current assets:
Cash and cash equivalents	$	42,855		$	3,216
Restricted cash		1,421			-
Accounts receivable		41,885			55,048
Derivative instruments		34,742			3,966
Prepaid expenses		5,046			10,413
Other current assets		4,071			4,249
Total current assets		130,020			76,892
Oil and natural gas properties, full cost method, of which $50.3 million at December 31, 2008 and $40.9 million at December 31, 2007 were excluded from amortization		1,900,672			1,566,082
Other property and equipment		9,439			6,393
		1,910,111			1,572,475
Accumulated depreciation, depletion, and amortization, including impairment		(935,851	)		(295,749	)
Total property and equipment, net		974,260			1,276,726
Deferred loan fees		1,168			2,195
Deferred tax asset		42,652			-
Other assets		6,278			1,401
Total other  assets		50,098			3,596
Total assets	$	1,154,378		$	1,357,214
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2,268		$	33,949
Accrued liabilities		48,824			64,216
Royalties payable		17,388			18,486
Derivative instruments		985			2,032
Prepayment on gas sales		19,382			20,392
Deferred income taxes		12,575			720
Total current liabilities		101,422			139,795
Long-term liabilities:
Derivative instruments		-			13,508
Long-term debt		300,000			245,000
Asset retirement obligation		26,584			18,040
Deferred income taxes		-			67,916
Total liabilities		428,006			484,259
Commitments and Contingencies (Note 11)
Stockholders' equity:
Preferred stock, $0.001 par value; authorized 5,000,000 shares; no shares issued in 2008 or 2007		-			-
Common stock, $0.001 par value; authorized 150,000,000 shares; issued 51,031,481 shares and 50,542,648 shares at December 31, 2008 and December 31, 2007, respectively		51			50
Additional paid-in capital		773,676			762,827
Treasury stock, at cost; 155,790 shares and 109,303 shares at December 31, 2008 and 2007, respectively		(2,672	)		(2,045	)
Accumulated other comprehensive income (loss)		24,079			(7,225	)
Retained earnings (accumulated deficit)		(68,762	)		119,348
Total stockholders' equity		726,372			872,955
Total liabilities and stockholders' equity	$	1,154,378		$	1,357,214

The accompanying notes to the financial statements are an integral part hereof.

44

Rosetta Resources Inc.

Consolidated Statement of Operations

(In thousands, except per share amounts)

	Year Ended December 31,
	2008			2007			2006
Revenues:
Natural gas sales	$	443,611		$	323,341		$	236,496
Oil sales		55,736			40,148			35,267
Total revenues		499,347			363,489			271,763
Operating costs and expenses:
Lease operating expense		55,694			47,044			36,273
Depreciation, depletion, and amortization		198,862			152,882			105,886
Impairment of oil and gas properties		444,369			-			-
Treating and transportation		6,323			4,230			2,544
Marketing fees		3,064			2,450			2,257
Production taxes		13,528			6,417			6,433
General and administrative costs		52,846			43,867			33,233
Total operating costs and expenses		774,686			256,890			186,626
Operating income (loss)		(275,339	)		106,599			85,137
Other (income) expense
Interest expense, net of interest capitalized		14,688			17,734			17,428
Interest income		(1,600	)		(1,674	)		(4,503	)
Other (income) expense, net		12,510			(698	)		(40	)
Total other expense		25,598			15,362			12,885
Income (loss) before provision for income taxes		(300,937	)		91,237			72,252
Income tax expense (benefit)		(112,827	)		34,032			27,644
Net income (loss)	$	(188,110	)	$	57,205		$	44,608
Earnings (loss) per share:
Basic	$	(3.71	)	$	1.14		$	0.89
Diluted	$	(3.71	)	$	1.13		$	0.88
Weighted average shares outstanding:
Basic		50,693			50,379			50,237
Diluted		50,693			50,589			50,408

The accompanying notes to the financial statements are an integral part hereof.

45

Rosetta Resources Inc.

Consolidated Statement of Cash Flows

(In thousands)

	Year Ended December 31,
	2008			2007			2006
Cash flows from operating activities
Net income (loss)		(188,110	)		57,205			44,608
Adjustments to reconcile net income to net cash from operating activities
Depreciation, depletion and amortization		198,862			152,882			105,886
Impairment of oil and gas properties		444,369			-			-
Deferred income taxes		(116,519	)		33,915			27,472
Amortization of deferred loan fees recorded as interest expense		1,027			1,180			1,180
Stock compensation expense		7,234			6,831			5,702
Other non-cash items		(512	)		(181	)		(171	)
Change in operating assets and liabilities:
Accounts receivable		13,163			(18,640	)		3,643
Income taxes receivable		(776	)		-			6,000
Prepaid expenses		5,367			(1,652	)		650
Other current assets		178			(1,284	)		(2,965	)
Other assets		191			144			1,691
Accounts payable		5,031			10,909			8,765
Accrued liabilities		7,322			3,998			310
Royalties payable		(2,108	)		12,000			(3,161	)
Net cash provided by operating activities		374,719			257,307			199,610
Cash flows from investing activities
Acquisition of oil and gas properties		(163,187	)		(38,656	)		(35,286	)
Purchases of oil and gas assets		(228,464	)		(284,541	)		(201,293	)
Increase in restricted cash		(1,421	)		-			-
Other		2			1,156			515
Net cash used in investing activities		(393,070	)		(322,041	)		(236,064	)
Cash flows from financing activities
Equity offering transaction fees		-			-			268
Borrowings on revolving credit facility		55,000			10,000			-
Payments on revolving credit facility		-			(5,000	)		-
Proceeds from stock options exercised		3,617			653			804
Purchases of treasury stock		(627	)		(483	)		(1,562	)
Net cash provided by (used in) financing activities		57,990			5,170			(490	)
Net increase (decrease) in cash		39,639			(59,564	)		(36,944	)
Cash and cash equivalents, beginning of year		3,216			62,780			99,724
Cash and cash equivalents, end of year	$	42,855		$	3,216		$	62,780
Supplemental disclosures:
Cash paid for interest expense, net of capitalized interest	$	13,658		$	18,862		$	17,875
Cash paid for income taxes	$	4,470		$	115		$	172
Supplemental non-cash disclosures:
Capital expenditures included in Accrued liabilities	$	26,555		$	34,599		$	21,674
Accrued purchase price adjustment	$	-		$	-		$	11,400
Release of suspended net revenues resulting from Calpine Settlement included in Accounts payable and Acquisition of oil and gas properties	$	36,713		$	-		$	-

The accompanying notes to the financial statements are an integral part hereof.

46

Rosetta Resources Inc.

Consolidated Statement of Stockholders’ Equity

(In thousands, except share amounts)

												Accumulated			Retained
	Common Stock				Additional		Treasury Stock					Other			Earnings /			Total
					Paid-In							Comprehensive			(Accumulated			Stockholders'
	Shares		Amount		Capital		Shares		Amount			(Loss)/Income			Deficit)			Equity
Balance December 31, 2005		50,003,500	$	50	$	748,569		-	$	-		$	(50,731	)	$	17,535		$	715,423
Equity offering - transaction fees		-		-		268		-		-			-			-			268
Stock options exercised		49,896		-		804		-		-			-			-			804
Treasury stock - employee tax payment		-		-		-		85,788		(1,562	)		-			-			(1,562	)
Stock-based compensation		-		-		5,702		-		-			-			-			5,702
Vesting of restricted stock		352,398		-		-		-		-			-			-			-
Comprehensive Income:
Net Income		-		-		-		-		-			-			44,608			44,608
Change in fair value of derivative hedging instruments		-		-		-		-		-			121,540			-			121,540
Hedge settlements reclassified to income		-		-		-		-		-			(29,578	)		-			(29,578	)
Tax expense related to cash flow hedges		-		-		-		-		-			(34,916	)		-			(34,916	)
Comprehensive Income		-		-		-		-		-			-			-			101,654
Balance December 31, 2006		50,405,794	$	50	$	755,343		85,788	$	(1,562	)	$	6,315		$	62,143		$	822,289
Stock options exercised		40,104		-		653		-		-			-			-			653
Treasury stock - employee tax payment		-		-		-		23,515		(483	)		-			-			(483	)
Stock-based compensation		-		-		6,831		-		-			-			-			6,831
Vesting of restricted stock		96,750		-		-		-		-			-			-			-
Comprehensive Income:		-		-		-		-		-			-			-			-
Net Income		-		-		-		-		-			-			57,205			57,205
Change in fair value of derivative hedging instruments		-		-		-		-		-			1,276			-			1,276
Hedge settlements reclassified to income		-		-		-		-		-			(22,926	)		-			(22,926	)
Tax benefit related to cash flow hedges		-		-		-		-		-			8,110			-			8,110
Comprehensive Income		-		-		-		-		-			-			-			43,665
Balance December 31, 2007		50,542,648	$	50	$	762,827		109,303	$	(2,045	)	$	(7,225	)	$	119,348		$	872,955
Stock options exercised		214,119		1		3,615		-		-			-			-			3,616
Treasury stock - employee tax payment		-		-		-		46,487		(627	)		-			-			(627	)
Stock-based compensation		-		-		7,234		-		-			-			-			7,234
Vesting of restricted stock		274,714		-		-		-		-			-			-			-
Comprehensive Loss:		-		-		-		-		-			-			-			-
Net Loss		-		-		-		-		-			-			(188,110	)		(188,110	)
Change in fair value of derivative hedging instruments		-		-		-		-		-			30,059			-			30,057
Hedge settlements reclassified to income		-		-		-		-		-			19,827			-			19,829
Tax expense related to cash flow hedges		-		-		-		-		-			(18,582	)		-			(18,582	)
Comprehensive Loss		-		-		-		-		-			-			-			(156,806	)
Balance December 31, 2008		51,031,481	$	51	$	773,676		155,790	$	(2,672	)	$	24,079		$	(68,762	)	$	726,372

The accompanying notes to the financial statements are an integral part hereof.

47

Rosetta Resources Inc.

Notes to Consolidated Financial Statements

(1) Organization and Operations of the Company

Nature of Operations.   Rosetta Resources Inc. (together with its consolidated subsidiaries, the “Company”) is an independent oil and gas company that is engaged in oil and natural gas exploration, development, production and acquisition activities in the United States. The Company’s main operations are primarily concentrated in the Sacramento Basin of California, the Rockies, the Lobo and Perdido Trends in South Texas, the State Waters of Texas and the Gulf of Mexico.

Certain reclassifications of prior year balances have been made to conform such amounts to current year classifications.  These reclassifications have no impact on net income (loss).

(2) Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements for the years ended December 31, 2008, 2007 and 2006 contain the accounts of Rosetta Resources Inc. and its majority owned subsidiaries after eliminating all significant intercompany balances and transactions.

Use of Estimates in Preparation of Financial Statements

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenue and expense during the reporting period. Certain 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.  The Company evaluates their estimates and assumptions on a regular basis.  The Company bases their estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of the Company’s financial statements. The most significant estimates with regard to these financial statements relate to the provision for income taxes including uncertain tax positions, the outcome of pending litigation, stock-based compensation,valuation of  derivative instruments, future development and abandonment costs, estimates to certain oil and gas revenues and expenses and estimates of proved oil and natural gas reserve quantities used to calculate depletion, depreciation and impairment of proved oil and natural gas properties and equipment.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

With respect to the current market environment for liquidity and access to credit, the Company, through banks participating in its credit facility, has invested available cash in money market accounts and funds whose investments are limited to United States Government Securities, securities backed by the United States Government, or securities of United States Government agencies. The Company followed this policy prior to the recent changes in credit markets, and believes this is an appropriate approach for the investment of Company funds in the current environment.

Restricted Cash

Restricted cash of $1.4 million as of December 31, 2008 consists of cash deposited by the Company in an escrow account, which was created in conjunction with the South Texas acquisitions for potential environmental remediation costs associated with acquired properties.

Allowance for Doubtful Accounts

The Company regularly reviews all aged accounts receivables for collectability and establishes an allowance as necessary for individual customer balances.

48

Property, Plant and Equipment, Net

The Company follows the full cost method of accounting for oil and natural gas properties.  Under the full cost method, all costs incurred in acquiring, exploring and developing properties, including salaries, benefits and other internal costs directly attributable to these activities, are capitalized when incurred into cost centers that are established on a country-by-country basis, and are amortized as reserves in the cost center in which they are produced, subject to a limitation that the capitalized costs not exceed the value of those reserves. In some cases, however, certain significant costs, such as those associated with offshore U.S. operations, unevaluated properties and significant development projects are deferred separately without amortization until the specific property to which they relate is found to be either productive or nonproductive, at which time those deferred costs and any reserves attributable to the property are included in the computation of amortization in the cost center.  All costs incurred in oil and natural gas producing activities are regarded as integral to the acquisition, discovery and development of whatever reserves ultimately result from the efforts as a whole, and are thus associated with the Company’s reserves. The Company capitalizes internal costs directly identified with acquisition, exploration and development activities.  The Company capitalized $7.1 million and $5.5 million of internal costs for the years ended December 31, 2008 and 2007, respectively.  Unevaluated costs are excluded from the full cost pool and are periodically evaluated for impairment at which time they are transferred to the full cost pool to be amortized.  Upon evaluation, costs associated with productive properties are transferred to the full cost pool and amortized. Gains or losses on the sale of oil and natural gas properties are generally included in the full cost pool unless a significant portion of the pool or reserves are sold.

The Company assesses the impairment for oil and natural gas properties quarterly using a ceiling test to determine if impairment is necessary.  This ceiling limits such capitalized costs to the present value of estimated future cash flows from proved oil and natural gas reserves (including the effect of any related hedging activities) reduced by future operating expenses, development expenditures, abandonment costs (net of salvage values) to the extent not included in oil and gas properties pursuant to SFAS No. 143, and estimated future income taxes thereon.  However, in periods in which a write-down is required, if oil and gas prices increase subsequent to the end of a quarter but prior to the issuance of our financial statements, the Company may not be subject to a write-down.  If the net capitalized costs of oil and natural gas properties exceed the cost center ceiling, the Company is subject to a ceiling test write-down to the extent of such excess.  A ceiling test write-down is a charge to earnings and cannot be reinstated even if the cost ceiling increases at a subsequent reporting date.  If required, it would reduce earnings and impact shareholders’ equity in the period of occurrence and result in a lower depreciation, depletion and amortization expense in the future.

The Company’s ceiling test computation was calculated quarterly using hedge adjusted market prices based on Henry Hub gas prices and West Texas Intermediate oil prices.  At September 30, 2008, the ceiling test computation was based on a Henry Hub price of $7.12 per MMBtu and a West Texas Intermediate oil price of $96.37 per Bbl (adjusted for basis and quality differentials).  At December 31, 2008, the ceiling test computation was based on a Henry Hub price of $5.71 per MMBtu and a West Texas Intermediate oil price of $41.00 per Bbl (adjusted for basis and quality differentials). Cash flow hedges of natural gas production in place at September 30 and December 31, 2008 increased the calculated ceiling value by approximately $37 million (pre-tax) and $47 million (pre-tax), respectively. Based upon studies to date, and in coordination with the Company's independent reserve engineers, the Company recognized a downward revision of 64 Bcfe of proved reserves during the third quarter of 2008.  Based upon this analysis and the reserve revision, a non-cash, pre-tax write-down of $205.7 million was recorded at September 30, 2008.  Due to continued declines in oil and gas prices and a downward revision of 8 Bcfe due to year-end commodity prices, at December 31, 2008, capitalized costs of our proved oil and gas properties exceeded our ceiling, resulting in a non-cash, pre-tax write-down of $238.7 million.  Due to the volatility of commodity prices, should natural gas prices continue to decline in the future, it is possible that an additional write-down could occur.

No impairment charge was recorded for the years ended December 31, 2007 and 2006.

Other property, plant and equipment primarily includes furniture, fixtures and automobiles, which are recorded at cost and depreciated on a straight-line basis over useful lives of five to seven years. Repair and maintenance costs are charged to expense as incurred while renewals and betterments are capitalized as additions to the related assets in the period incurred. Gains or losses from the disposal of property, plant and equipment are recorded in the period incurred. The net book value of the property, plant and equipment that is retired or sold is charged to accumulated depreciation, asset cost and amortization, and the difference is recognized as a gain or loss in the results of operations in the period the retirement or sale transpires.

Capitalized Interest

The Company capitalizes interest on capital invested in projects related to unevaluated properties and significant development projects in accordance with SFAS No. 34, “Capitalization of Interest Cost,” (“SFAS No. 34”).  As proved reserves are established or impairment determined, the related capitalized interest is included in costs subject to amortization.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and other payables approximate their respective fair market values due to their short maturities. Derivatives are also recorded on the balance sheet at fair market value.  The carrying amount reported in the consolidated balance sheet at December 31, 2008 for long-term debt is $300 million.  The Company adjusted the fair value measurement of its long-term debt as of December 31, 2008, in accordance with SFAS No. 157 using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile.  The Company has determined the fair market value of its debt to be $275 million at December 31, 2008. 

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Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, accounts receivable and derivative instruments. The Company’s accounts receivable and derivative instruments are concentrated among entities engaged in the energy industry within the United States and financial institutions, respectively.

Deferred Loan Fees

Deferred loan fees incurred in connection with the credit facility are recorded on the Company’s Consolidated Balance Sheet as deferred loan fees. The deferred loan fees are amortized to interest expense over the term of the related debt using the straight-line method, which approximates the effective interest method.

Derivative Instruments and Hedging Activities

The Company uses derivative instruments to manage market risks resulting from fluctuations in commodity prices of natural gas and crude oil. The Company also uses derivatives to manage interest rate risk associated with its debt under its credit facility.  The Company periodically enters into derivative contracts, including price swaps or costless price collars, which may require payments to (or receipts from) counterparties based on the differential between a fixed price or interest rate and a variable price or LIBOR rate for a fixed  notional quantity or amount without the exchange of underlying volumes. The notional amounts of these financial instruments were based on expected proved production from existing wells at inception of the hedge instruments or debt under its current credit agreements.

Derivatives are recorded on the balance sheet at fair market value and changes in the fair market value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated and qualifies as a hedge transaction. The Company’s derivatives consist of cash flow hedge transactions in which the Company is hedging the variability of cash flows related to a forecasted transaction. Changes in the fair market value of these derivative instruments designated as cash flow hedges are reported in accumulated other comprehensive income and reclassified to earnings in the periods in which the contracts are settled. The ineffective portion of the cash flow hedge is recognized in current period earnings as other income (expense). Gains and losses on derivative instruments that do not qualify for hedge accounting are included in revenue in the period in which they occur.  The resulting cash flows from derivatives are reported as cash flows from operating activities.

At the inception of a derivative contract, the Company may designate the derivative as a cash flow hedge. For all derivatives designated as cash flow hedges, the Company formally documents the relationship between the derivative contract and the hedged items, as well as the risk management objective for entering into the derivative contract. To be designated as a cash flow hedge transaction, the relationship between the derivative and hedged items must be highly effective in achieving the offset of changes in cash flows attributable to the risk both at the inception of the derivative and on an ongoing basis. The Company measures hedge effectiveness on a quarterly basis and hedge accounting is discontinued prospectively if it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item. Gains and losses included in accumulated other comprehensive income related to cash flow hedge derivatives that become ineffective remain unchanged until the related production is delivered. If the Company determines that it is probable that a hedged forecasted transaction will not occur, deferred gains or losses on the hedging instrument are recognized in earnings immediately.  The Company does not enter into derivative agreements for trading or other speculative purposes.  See Note 6 – Commodity Hedging Contracts and Other Derivatives for a description of the derivative contracts which the Company executes.

Future Development and Abandonment Costs

Future development costs include costs incurred to obtain access to proved reserves, such as drilling costs and the installation of production equipment, and such costs are included in the calculation of DD&A expense.  Future abandonment costs include costs to dismantle and relocate or dispose of our production platforms, gathering systems and related structures and restoration costs of land and seabed. We develop estimates of these costs for each of our properties based upon their geographic location, type of production structure, well depth, currently available procedures and ongoing consultations with construction and engineering consultants. Because these costs typically extend many years into the future, estimating these future costs is difficult and requires management to make judgments that are subject to future revisions based upon numerous factors, including changing technology and the political and regulatory environment. We review our assumptions and estimates of future development and future abandonment costs on an annual basis.

We provide for future abandonment costs in accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations”. This standard requires that a liability for the fair value of an asset retirement obligation be recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset.

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Environmental

Environmental expenditures are expensed or capitalized, as appropriate, depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and that do not have future economic benefit, are expensed. Liabilities related to future costs are recorded on an undiscounted basis when environmental assessments and/or remediation activities are probable and the cost can be reasonably estimated. There were no significant environmental liabilities at December 31, 2008 or 2007.

Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) “Share-Based Payments” (“SFAS No. 123R”).  This statement applies to all awards granted, modified, repurchased or cancelled after January 1, 2006 and to the unvested portion of all awards granted prior to that date.  The Company adopted this statement using the modified version of the prospective application (modified prospective application).   Under the modified prospective application, compensation cost for the portion of awards for which the employee’s requisite service has not been rendered that are outstanding as of January 1, 2006 must be recognized as the requisite service is rendered on or after that date.  The compensation cost for that portion of awards shall be based on the original fair market value of those awards on the date of grant as calculated for recognition under SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS No. 123”).  The compensation cost for these earlier awards shall be attributed to periods beginning on or after January 1, 2006 using the attribution method that was used under SFAS No. 123.

Any excess tax benefit is recognized as a credit to additional paid in capital when realized and is calculated as the amount by which the tax deduction we receive exceeds the deferred tax asset associated with the recorded stock compensation expense.  We have approximately $0.2 million of related excess tax benefits which will be recognized upon utilization of our net operating loss carryforward.  SFAS No. 123R requires the cash flows that result from tax deductions in excess of the compensation expense to be recognized as financing activities.

Preferred Stock

The Company is authorized to issue 5,000,000 shares of preferred stock with preferences and rights as determined by the Company’s Board of Directors.  As of December 31, 2008 and 2007, there were no shares outstanding.

Treasury Stock

Shares of common stock were repurchased by the Company as the shares were surrendered by the employees to pay tax withholding upon the vesting of restricted stock awards.  These repurchases were not part of a publicly announced program to repurchase shares of the Company’s common stock, nor does the Company have a publicly announced program to repurchase shares of common stock.

Revenue Recognition

The Company uses the sales method of accounting for the sale of its natural gas.   When actual natural gas sales volumes exceed our delivered share of sales volumes, an over-produced imbalance occurs. To the extent an over-produced imbalance exceeds our share of the remaining estimated proved natural gas reserves for a given property, the Company records a liability.  At December 31, 2008 and 2007, imbalances were insignificant.

Since there is a ready market for natural gas, crude oil and natural gas liquids (“NGLs”), the Company sells its products soon after production at various locations at which time title and risk of loss pass to the buyer. Revenue is recorded when title passes based on the Company’s net interest or nominated deliveries of production volumes. The Company records its share of revenues based on production volumes and contracted sales prices. The sales price for natural gas, natural gas liquids and crude oil are adjusted for transportation cost and other related deductions. The transportation costs and other deductions are based on contractual or historical data and do not require significant judgment. Subsequently, these deductions and transportation costs are adjusted to reflect actual charges based on third party documents once received by the Company. Historically, these adjustments have been insignificant. In addition, natural gas and crude oil volumes sold are not significantly different from the Company’s share of production.

It is the Company’s policy to calculate and pay royalties on natural gas, crude oil and NGLs in accordance with the particular contractual provisions of the lease.  Royalty liabilities are recorded in the period in which the natural gas, crude oil or NGLs are produced and are included in Royalties Payable on the Company’s Consolidated Balance Sheet.

Income Taxes

Deferred income taxes are provided to reflect the tax consequences in future years of differences between the financial statement and tax bases of assets and liabilities using the liability method in accordance with the provisions set forth in SFAS No. 109, “Accounting for Income Taxes”. Income taxes are provided based on earnings reported for tax return purposes in addition to a provision for deferred income taxes and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.

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FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”(“FIN 48”) requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.  For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

Recent Accounting Developments

The following recently issued accounting developments may impact the Company in future periods.

Business Combinations. In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141R”).  SFAS No. 141R broadens the guidance of SFAS No. 141, extending its applicability to all transactions and other events in which one entity obtains control over one or more other businesses.  It broadens the fair value measurement and recognition of assets acquired, liabilities assumed, and interests transferred as a result of business combinations and requires that acquisition-related costs incurred prior to the acquisition be expensed.  SFAS No. 141R also expands the definition of what qualifies as a business, and this expanded definition could include prospective oil and gas purchases.  This could cause us to expense transaction costs for future oil and gas property purchases that we have historically capitalized.  Additionally, SFAS No. 141R expands the required disclosures to improve the statement users’ abilities to evaluate the nature and financial effects of business combinations.  SFAS No. 141R is effective for business combinations for which the acquisition date is on or after January 1, 2009.

Noncontrolling Interests in Consolidated Financial Statements.   In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”), which improves the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  This statement is effective for fiscal years beginning after December 15, 2008.  We do not expect the adoption of SFAS No. 160 to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Disclosures about Derivative Instruments and Hedging Activities.   In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133” (“SFAS No. 161”), which is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures.  This statement is effective for fiscal years beginning after November 15, 2008.  We do not expect the adoption of SFAS No. 161 to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

Fair Value Measurements.  In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3”).  This FSP clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active.  This FSP was effective upon issuance, including prior periods for which financial statements have not been issued.  We applied this FSP to financial assets measured at fair value on a recurring basis at September 30, 2008.  See Note 7 - Fair Value Measurements.  The adoption of FSP FAS 157-3 did not have a significant impact on our consolidated financial position, results of operations or cash flows.

Oil and Gas Reporting Requirements.  In December 2008, the SEC released Release No. 33-8995, “Modernization of Oil and Gas Reporting” (the “Release”).  The disclosure requirements under this Release will permit reporting of oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices and the use of new technologies to determine proved reserves if those technologies have been demonstrated to result in reliable conclusions about reserves volumes.  Companies will also be allowed to disclose probable and possible reserves in SEC filings.  In addition, companies will be required to report the independence and qualifications of its reserves preparer or auditor and file reports when a third party is relied upon to prepare reserves estimates or conduct a reserves audit.  The new disclosure requirements become effective for the Company beginning with our annual report on Form 10-K for the year ended December 31, 2009.  We are currently evaluating the impact of this Release on our oil and gas accounting disclosures.

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(3) Accounts Receivable

Accounts receivable consisted of the following:

	December 31,
	2008		2007
	(In thousands)
Natural gas, NGLs and oil revenue sales	$	37,982	$	46,376
Joint interest billings		3,422		7,750
Short-term receivable for royalty recoupment		481		922
Total		41,885		55,048

There are no balances in accounts receivable that will not be collected and that an allowance was unnecessary at December 31, 2008 and December 31, 2007.

(4) Property, Plant and Equipment

The Company’s total property, plant and equipment consists of the following:

	December 31,
	2008			2007
	(In thousands)
Proved properties	$	1,813,527		$	1,499,046
Unproved/unevaluated properties		50,252			40,903
Gas gathering system and compressor stations		36,893			26,133
Other		9,439			6,393
Total		1,910,111			1,572,475
Less: Accumulated depreciation, depletion, and amortization		(935,851	)		(295,749	)
	$	974,260		$	1,276,726

Included in the Company’s oil and natural gas properties are asset retirement costs of $23.2 million and $20.1 million at December 31, 2008 and 2007, respectively, including additions of $1.7 million and $2.1 million for the year ended December 31, 2008 and 2007, respectively. 

Pursuant to full cost accounting rules, the Company must perform a ceiling test each quarter on its proved oil and gas assets within each separate cost center.  The Company’s ceiling test was calculated using hedge adjusted market prices of gas and oil at September 30 and December 31, 2008, which were based on a Henry Hub price of $7.12 per MMBtu and $5.71 per MMBtu, respectively, and a West Texas Intermediate oil price of $96.37 per Bbl and $41.00 per Bbl (adjusted for basis and quality differentials), respectively. Cash flow hedges of natural gas production in place at September 30 and December 31, 2008 increased the calculated ceiling value by approximately $37 million (pre-tax) and $47 million (pre-tax), respectively.  Based upon studies to date, and in coordination with the Company's independent reserve engineers, the Company recognized a downward revision of 64 Bcfe of proved reserves during the third quarter of 2008.  Based upon this analysis and the reserve revision, a non-cash, pre-tax write-down of $205.7 million was recorded at September 30, 2008.  Due to continued declines in oil and gas prices and a downward revision of 8 Bcfe due to year-end commodity prices, at December 31, 2008, capitalized costs of our proved oil and gas properties exceeded our ceiling, resulting in a non-cash, pre-tax write-down of $238.7 million.  It is possible that another write-down of the Company's oil and gas properties could occur in the future should oil and natural gas prices continue to decline and/or the Company experiences downward adjustments to the estimated proved reserves.

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Capitalized costs excluded from depreciation, depletion, and amortization as of December 31, 2008 and 2007, are as follows by the year in which such costs were incurred:

	December 31, 2008
	Total		2008		2007		2006		Prior
	(in thousands)
Onshore:
Development cost		13,320		13,320		-		-		-
Exploration cost		3,555		3,555		-		-		-
Acquisition cost of undeveloped acreage		29,926		23,958		4,949		988		31
Capitalized Interest		2,552		1,978		433		141		-
		49,353		42,811		5,382		1,129		31
Offshore:
Development cost		-		-		-		-		-
Exploration cost		-		-		-		-		-
Acquisition cost of undeveloped acreage		786		-		-		786		-
Capitalized Interest		113		-		-		113		-
		899		-		-		899		-
		50,252		42,811		5,382		2,028		31

	December 31, 2007
	Total		2007		2006		2005
	(in thousands)
Onshore:
Development cost		591		591		-		-
Exploration cost		5,650		5,650		-		-
Acquisition cost of undeveloped acreage		24,995		9,023		7,568		8,404
Capitalized Interest		3,061		2,026		999		36
		34,297		17,290		8,567		8,440
Offshore:
Development cost		-		-		-		-
Exploration cost		-		-		-		-
Acquisition cost of undeveloped acreage		6,069		209		5,860		-
Capitalized Interest		537		381		150		6
		6,606		590		6,010		6
		40,903		17,880		14,577		8,446

It is anticipated that the acquisition of undeveloped acreage and associated capitalized interest of $33.4 million and development and exploration costs of $16.9 million will be included in oil and gas properties subject to amortization within five years and one year, respectively.

Property Acquisitions.  During the fourth quarter of 2008, the Company acquired a 90% working interest in a 1,280-acre position in the Pinedale Anticline in the Rockies for $35.0 million and a 70% working interest in certain properties in the Catarina Field and a 35% working interest in a significant acreage position in the Eagle Ford shale in South Texas for $20.0 million from Pinedale Energy, LLC and CEU W&D, LLC and W&D Gas Partners, LLC, respectively.

During the second quarter of 2008, the Company acquired a 50% working interest position in approximately 12,000 gross acres in the Rockies from North American Petroleum Corporation USA, a subsidiary of Petroflow Energy Ltd. for $29.0 million.

During the second quarter of 2007, the Company acquired properties located in the Sacramento Basin from Output Exploration, LLC and OPEX Energy, LLC at a total purchase price of $38.7 million.

During the fourth quarter of 2006, the Company acquired a 50% working interest in Main Pass 29 in the Gulf of Mexico from Andex/Wolf for $16.7 million and a 25% working interest in Grand Isle 72 in the Gulf of Mexico from Contango Oil and Gas for $7.0 million.

In April 2006, the Company also acquired certain oil and gas producing non-operated properties located in Duval, Zapata, and Jim Hogg Counties, Texas and Escambia County in Alabama from Contango Oil and Gas for $11.6 million in cash.

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Gas Gathering System and Compressor Stations. In December 2008 we purchased approximately 62 miles of low pressure gathering from Pacific Gas and Electric for $1.3 million.   The gathering system is located in the heart of the Rio Vista field and gathers much of our low pressure production within the Rio Vista field.  The gas gathering system and compressor stations of $39.8 million and $26.1 million at December 31, 2008 and 2007, respectively, are primarily located in California and the Rockies, and are recorded at cost and depreciated on a straight-line basis over useful lives of 15 years.  The accumulated depreciation for the gas gathering system at December 31, 2008 and 2007 was $5.3 million and $3.0 million, respectively.  The depreciation expense associated with the gas gathering system and compressor stations for the years ended December 31, 2008, 2007 and 2006 was $2.2 million, $1.5 million, and $1.0 million, respectively.

Other Property and Equipment. Other property and equipment at December 31, 2008 and 2007 of $9.4 million and $6.4 million, respectively, consists primarily of furniture and fixtures.  The accumulated depreciation associated with other assets at December 31, 2008 and 2007 was $2.6 million and $1.4 million, respectively.  For the years ended December 31, 2008, 2007 and 2006 depreciation expense for other property and equipment was $1.2 million, $0.8 million, and $0.5 million, respectively.

(5) Deferred Loan Fees

At December 31, 2008 and 2007, deferred loan fees were $1.2 million and $2.2 million, respectively. Total amortization expense for deferred loan fees was $1.0 million, $1.2 million and $1.2 million for the years ended December 31, 2008, 2007 and 2006, respectively.

(6) Commodity Hedging Contracts and Other Derivatives

The following financial fixed price swap and costless collar transactions were outstanding with associated notional volumes and average underlying prices that represent hedged prices of commodities at various market locations at December 31, 2008:

Settlement Period	Derivative Instrument	Hedge Strategy	Notional Daily Volume MMBtu		Total of Notional Volume MMBtu		Average Floor/Fixed Prices MMBtu		Average Ceiling Prices MMBtu		Natural Gas Production Hedged (1)			Fair Market Value Gain/(Loss) (In thousands)
2009	Swap	Cash flow		52,141		19,031,465	$	7.65	$	-		37	%	$	31,082
2009	Costless Collar	Cash flow		5,000		1,825,000		8.00		10.05		4	%		3,660
2010	Swap	Cash flow		10,000		3,650,000		8.31		-		9	%		4,615
						24,506,465								$	39,357

(1) Estimated based on anticipated future gas production.

The Company has hedged the interest rates on $50.0 million of its outstanding debt through June 2009.  As of December 31, 2008, the Company had the following financial interest rate swap positions outstanding:

Settlement Period	Derivative Instrument	Hedge Strategy	Average Fixed Rate			Fair Market Value Gain/(Loss) (In thousands)
2009	Swap	Cash flow		4.55	%	$	(985	)
						$	(985	)

The Company’s current cash flow hedge positions are with counterparties who are also lenders in the Company’s credit facilities.  This eliminates the need for independent collateral postings with respect to any margin obligation resulting from a negative change in fair market value of the derivative contracts in connection with the Company’s hedge related credit obligations.  As of December 31, 2008, the Company made no deposits for collateral.

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The following table sets forth the results of hedge transaction settlements for the respective period for the Consolidated Statement of Operations:

	For the Year Ended December 31,
	2008			2007
Natural Gas
Quantity settled (MMBtu)		26,684,616			23,464,500
Increase (decrease) in natural gas sales revenue (In thousands)	$	(18,669	)	$	22,926
Interest Rate Swaps
Decrease (increase) in interest expense (In thousands)	$	(1,158	)	$	20

The Company expects to reclassify gains of $33.8 million based on market pricing as of December 31, 2008 to earnings from the balance in accumulated other comprehensive income (loss) on the Consolidated Balance Sheet during the next twelve months.

At December 2008, the Company had derivative assets of $39.4 million, of which $4.6 million is included in other assets on the Consolidated Balance Sheet.  The Company also had derivative liabilities of $0.9 million included in current liabilities on the Consolidated Balance Sheet at December 31, 2008.

(7) Fair Value Measurements

The Company partially adopted Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“SFAS No. 157”) effective January 1, 2008.  As defined in SFAS No. 157, fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (“exit price”).  To estimate fair value, the Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.  These inputs can be readily observable, market corroborated or generally unobservable.  SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (“Level 1”) and the lowest priority to unobservable inputs (“Level 3”).  The three levels of the fair value hierarchy are as follows:

– Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

– Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

– Level 3 inputs are measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources. 

Level 3 instruments include money market funds, natural gas swaps, natural gas zero cost collars and interest rate swaps.  The Company’s money market funds represent cash equivalents whose investments are limited to United States Government Securities, securities backed by the United States Government, or securities of United States Government agencies.  The fair value represents cash held by the fund manager as of December 31, 2008. The Company utilizes counterparty and third party broker quotes to determine the valuation of its derivative instruments.  Fair values derived from counterparties and brokers are further verified using the closing price as of December 31, 2008 for the relevant NYMEX futures contracts and Intercontinental Exchange traded contracts for each derivative settlement location.  

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2008. As required by SFAS No. 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

	At fair value as of December 31, 2008 (In thousands)
	Level 1		Level 2		Level 3			Total
Assets (Liabilities):
Money market funds				-		5,025			5,025
Commodity derivative contracts		-		-		39,357			39,357
Interest rate swap contracts		-		-		(985	)		(985	)
Total				-		43,397			43,397

The determination of the fair values above incorporates various factors required under SFAS No. 157. These factors include the credit standing of the counterparties involved, the impact of credit enhancements and the impact of the Company’s nonperformance risk on its liabilities. The Company considered credit adjustments for the counterparties using current credit default swap values and default probabilities for each counterparty in determining fair value.

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The table below presents a reconciliation for the assets and liabilities classified as Level 3 in the fair value hierarchy during 2008. Level 3 instruments presented in the table consist of net derivatives that, in management’s judgment, reflect the assumptions a marketplace participant would have used at December 31, 2008.

	Derivatives
	Asset (Liability)			Investments		Total
	(In thousands)
Balance as of January 1, 2008	$	(10,792	)		-		(10,792	)
Total (gains) losses (realized or unrealized)
included in earnings		-			25		25
included in other comprehensive income		29,337			-		29,337
Purchases, issuances and settlements		19,827			5,000		24,827
Transfers in and out of level 3		-			-		-
Balance as of December 31, 2008	$	38,372		$	5,025	$	43,397
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2008	$	-		$	-	$	-

(8) Accrued Liabilities

The Company’s accrued liabilities consist of the following:

	December 31,
	2008		2007
	(In thousands)
Accrued capital costs	$	26,555	$	34,599
Accrued purchase price adjustments		-		11,400
Accrued payroll and employee incentive expense		5,721		5,361
Accrued lease operating expense		12,196		4,930
Asset retirement obligation		1,359		4,629
Other		2,993		3,297
Total	$	48,824	$	64,216

(9) Asset Retirement Obligation

Activity related to the Company’s asset retirement obligation (“ARO”) is as follows:

	For the Year Ended December 31,
	2008			2007
	(In thousands)
ARO as of the beginning of the period	$	22,670		$	10,689
Revision of previous estimate		1,785			9,751
Liabilities incurred during period		1,727			2,105
Liabilities settled during period		(363	)		(1,355	)
Accretion expense		2,125			1,480
ARO as of the end of the period	$	27,944		$	22,670

Of the total ARO, approximately $1.4 million and $4.6 million are included in accrued liabilities on the Consolidated Balance Sheet at December 31, 2008 and 2007, respectively.

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(10) Long-Term Debt

Long-term debt consists of the following:

	December 31,
	2008		2007
	(In thousands)
Senior secured revolving line of credit	$	225,000	$	170,000
Second lien term loan		75,000		75,000
		300,000		245,000
Less: current portion of long-term debt		-		-
	$	300,000	$	245,000

Senior Secured Revolving Line of Credit.  BNP Paribas, in July 2005, provided the Company with a senior secured revolving line of credit concurrent with the acquisition in the amount of up to $400.0 million (“Revolver”). This Revolver was syndicated to a group of lenders on September 27, 2005. Availability under the Revolver is restricted to the borrowing base.  The borrowing base is subject to review and adjustment on a semi-annual basis and other interim adjustments, including adjustments based on the Company’s hedging arrangements. In June 2008, the borrowing base was adjusted to $400.0 million and affirmed in December 2008.  The next borrowing base review is scheduled to begin on March 2, 2009.  Initial amounts outstanding under the Revolver bore interest, as amended, at specified margins over the London Interbank Offered Rate (“LIBOR”) of 1.25% to 2.00%. These rates over LIBOR were adjusted in June 2008 to be 1.125% to 1.875%.  Such margins will fluctuate based on the utilization of the facility. Borrowings under the Revolver are collateralized by perfected first priority liens and security interests on substantially all of the Company’s assets, including a mortgage lien on oil and natural gas properties having at least 80% of the pretax SEC PV-10 reserve value, a guaranty by all of the Company’s domestic subsidiaries, a pledge of 100% of the membership interests of domestic subsidiaries and a lien on cash securing the Calpine gas purchase and sale contract. These collateralized amounts under the mortgages are subject to semi-annual reviews based on updated reserve information.   The Company is subject to the financial covenants of a minimum current ratio of not less than 1.0 to 1.0 as of the end of each fiscal quarter and a maximum leverage ratio of not greater than 3.5 to 1.0, calculated at the end of each fiscal quarter for the four fiscal quarters then ended, measured quarterly with the pro forma effect of acquisitions and divestitures.  At December 31, 2008, the Company’s current ratio was 2.7 and the leverage ratio was 0.8.  In addition, the Company is subject to covenants limiting dividends and other restricted payments, transactions with affiliates, incurrence of debt, changes of control, asset sales, and liens on properties. The Company was in compliance with all covenants at December 31, 2008.  As of December 31, 2008, the Company had $175.0 million available for borrowing under their revolving line of credit. All amounts drawn under the Revolver are due and payable on April 5, 2010.

Second Lien Term Loan.   BNP Paribas, in July 2005, also provided the Company with a second lien term loan concurrent with the acquisition of oil and gas properties from Calpine (“Term Loan”).  Borrowings under the Term Loan are $75.0 million as of December 31, 2008.  Such borrowings are syndicated to a group of lenders including BNP Paribas.  Borrowings under the Term Loan bear interest at LIBOR plus 4.00%. The loan is collateralized by second priority liens on substantially all of the Company’s assets.  The Company is subject to the financial covenants of a minimum asset coverage ratio of not less than 1.5 to 1.0 and a maximum leverage ratio of not more than 4.0 to 1.0, calculated at the end of each fiscal quarter for the four fiscal quarters then ended, measured quarterly with the pro forma effect of acquisitions and divestitures.  At December 31, 2008, the Company’s asset coverage ratio was 3.1 and the leverage ratio was 0.8.  In addition, the Company is subject to covenants limiting dividends and other restricted payments, transactions with affiliates, incurrence of debt, changes of control, asset sales, and liens on properties. The Company was in compliance with all covenants at December 31, 2008. The principal balance of the Term Loan is due and payable on July 7, 2010.

The Company’s ability to raise capital depends on the current state of the financial markets, which are subject to general and economic and industry conditions.  Therefore, the availability of and price of capital in the financial markets could negatively affect the Company’s liquidity position.  The Company has already begun the process of extending the maturity of its revolving credit facility and second lien term loan.  If the Company is unable to extend the maturity of the revolving credit facility, it will become a current liability on April 5, 2009 and would result in the Company being in default with respect to the working capital covenants in the revolving credit facility and second lien term loan.  The Company believes that it will be successful in extending this maturity on acceptable terms and conditions.  Similarly, if the Company is unable to extend the maturity of the second lien term loan, it will become a current liability on July 7, 2009.  Current market conditions could result in increased costs of borrowing.

Aggregate maturities of long-term debt at December 31, 2008 due in the next five years are $300 million in 2010.

(11) Commitments and Contingencies

The Company is party to various oil and natural gas litigation matters arising out of the normal course of business. The ultimate outcome of each of these matters cannot be absolutely determined, and the liability the Company may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued for with respect to such matters. Management does not believe any such matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows.

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Calpine Settlement

On December 20, 2005, Calpine Corporation and certain of its subsidiaries filed for protection under the federal bankruptcy laws in the Bankruptcy Court.  Two years later, on December 19, 2007, the Bankruptcy Court confirmed a plan of reorganization for Calpine, which emerged from bankruptcy on January 31, 2008.  During that period, on June 29, 2007, Calpine commenced the Lawsuit.  Over the next fourteen months, the Company vigorously disputed Calpine’s contentions in the Lawsuit, including any and all allegations that it underpaid for Calpine’s oil and gas business.

On  October 22, 2008, Calpine and the Company announced that they had entered into a comprehensive settlement agreement (the “Settlement Agreement”) which, among other things, would (i) resolve all claims in the Lawsuit, (ii) result in Calpine conveying clean legal title on all remaining oil and gas assets to Rosetta (except those properties subject to the preferential rights of third parties who have indicated a desire to exercise their rights), (iii) settle all pending claims the Company filed in the Calpine bankruptcy, (iv) modify and extend a gas purchase agreement by which Calpine purchases the Company’s dedicated production from the Sacramento Valley, California, and (v) formalize the assumption by Calpine of the July 7, 2005 purchase and sale agreement (together with all interrelated agreements, the “Purchase Agreement”) by which Calpine’s oil and gas business was conveyed to the Company thus resulting in the parties honoring their obligations under the Purchase Agreement on a going-forward basis.  The Settlement Agreement became effective when the Bankruptcy Court entered its order on November 13, 2008, authorizing the execution of the Settlement Agreement and the performance of the obligations set forth therein. No objections or appeals to this order were filed or taken with the Bankruptcy Court before or after the hearing on November 13, 2008, and it became final on or about November 23, 2008.

The parties completed this settlement pursuant to the terms of the Settlement Agreement on December 1, 2008. The cash component of the settlement consisted of $12.4 million pre-tax payable in cash to Calpine to resolve all outstanding legal disputes regarding various matters, including Calpine’s fraudulent conveyance lawsuit. In addition, the Company paid $84.6 million under the Purchase Agreement to close the original acquisition transaction of the producing properties that were the subject of the lawsuit. This $84.6 million consisted of $67.6 million, which the Company withheld from the purchase price at the closing on July 7, 2005, related to non-consent properties (excluding the properties subject to preferential rights) that were not conveyed to the Company at closing on July 7, 2005, as well as $17.0 million for various disputed post-closing adjustments under the terms of the Purchase Agreement, as amended by the Bankruptcy Court order to remove the properties that had been subject to the Petersen preferential rights as if these properties had not been part of the Purchase Agreement.

As a result of the conclusion of this settlement, the Company recorded a pre-tax charge of $12.4 million in the fourth quarter of 2008, which is included in Other Income (Expense) in the Consolidated Statement of Operations.

Arbitration between the Company and the successor to Pogo Producing Company

On October 27, 2008, the Company, Calpine and XTO, as the successor to Pogo, agreed to a Title Indemnity Agreement in which Calpine agreed to indemnify XTO for certain title disputes, and the Company, Calpine and XTO agreed to dismissal of the arbitration proceeding against the Company and release of Pogo’s proofs of claim. The Company’s proofs of claim were resolved within the framework of the Settlement Agreement with Calpine, which was approved by the Bankruptcy Court and an order issued in this regard.  XTO has dismissed with prejudice the arbitration against the Company.

Lease Obligations and Other Commitments

The Company has operating leases for office space and other property and equipment. The Company incurred lease rental expense of $3.3 million, $2.6 million and $2.4 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Future minimum annual rental commitments under non-cancelable leases at December 31, 2008 are as follows (In thousands):

2009	$	3,055
2010		2,972
2011		3,049
2012		3,074
2013		3,130
Thereafter		513
	$	15,793

The Company also has drilling rig commitments of $5.0 million for 2009.

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(12) Stock-Based Compensation

Effective January 1, 2006, the Company began accounting for stock-based compensation under SFAS No. 123R, whereby the Company records stock-based compensation expense based on the fair value of awards described below.  Stock-based compensation expense recorded for all share-based payment arrangements for the years ended December 31, 2008, 2007 and 2006 was $7.2 million, $6.8 million and $5.7 million, respectively, with an associated tax benefit of $2.9 million, $2.5 million and $2.1 million, respectively.  The remaining unrecognized compensation expense associated with total unvested awards as of December 31, 2008 was $9.8 million.

2005 Long-Term Incentive Plan

In July 2005, the Board of Directors adopted the Rosetta 2005 Long-Term Incentive Plan (the “Plan”) whereby stock is granted to employees, officers and directors of the Company. The Plan allows for the grant of stock options, stock awards, restricted stock, restricted stock units, stock appreciation rights, performance awards and other incentive awards. Employees, non-employee directors and other service providers of the Company and its affiliates who, in the opinion of the Compensation Committee or another Committee of the Board of Directors (the “Committee”), are in a position to make a significant contribution to the success of the Company and the Company’s affiliates are eligible to participate in the Plan. The Plan provides for administration by the Committee, which determines the type and size of award and sets the terms, conditions, restrictions and limitations applicable to the award within the confines of the Plan’s terms. The maximum number of shares available for grant under the Plan was increased from 3,000,000 shares to 4,950,000 shares by vote of the shareholders in 2008.  The shares available for grant include these 4,950,000 shares plus any shares of common stock that become available under the Plan for any reason other than exercise, such as shares traded for the related tax liabilities of employees. The maximum number of shares of common stock available for grant of awards under the Plan to any one participant is (i) 300,000 shares during any fiscal year in which the participant begins work for Rosetta and (ii) 200,000 shares during each fiscal year thereafter.

Stock Options

The Company has granted stock options under its 2005 Long-Term Incentive Plan (the “Plan”).  Options generally expire ten years from the date of grant.  The exercise price of the options can not be less than the fair market value per share of the Company’s common stock on the grant date.  The majority of options generally vest over a three year period.

The weighted average fair value at date of grant for options granted during the years ended December 31, 2008, 2007 and 2006 was $9.19 per share, $9.51 per share, and $10.71 per share, respectively.  The fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Year Ended December 31,
	2008			2007			2006
Expected option term (years)		6.5			6.5			6.5
Expected volatility		42.45	%		42.45	%		56.65	%
Expected dividend rate		0.00	%		0.00	%		0.00	%
Risk free interest rate		3.48% - 3.84	%		4.36% - 5.00	%		4.33% - 5.15	%

The Company has assumed an annual forfeiture rate of 11% for the options granted in 2008 based on the Company’s history for this type of award to various employee groups.  Compensation expense is recognized ratably over the requisite service period.

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The following table summarizes information related to outstanding and exercisable options held by the Company’s employees and directors at December 31, 2008:

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (In years)		Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2006		853,354		$	16.80
Granted		316,100			19.11
Exercised		(40,104	)		16.26
Forfeited		(156,750	)		17.60
Outstanding at December 31, 2007		972,600		$	17.45
Granted		209,375			19.13
Exercised		(214,119	)		16.89
Forfeited		(26,100	)		17.57
Outstanding at December 31, 2008		941,756		$	17.94
Options Vested and Exercisable at December 31, 2008		629,155		$	17.76		7.34	$	-

Stock-based compensation expense recorded for stock option awards for the years ended December 31, 2008, 2007 and 2006 was $1.7 million, $3.9 million and $2.9 million, respectively.  Unrecognized expense as of December 31, 2008 for all outstanding stock options is $1.4 million and will be recognized over a weighted average period of 0.92 years.

The total intrinsic value of options exercised during the years ended December 31, 2008, 2007 and 2006 is $1.4 million, $0.2 million and $0.1 million, respectively.  

Restricted Stock

The Company has granted restricted stock under its 2005 Long-Term Incentive Plan.  The majority of restricted stock vests over a three-year period.  The fair value of restricted stock grants is based on the value of the Company’s common stock on the date of grant.  Compensation expense is recognized ratably over the requisite service period.  The Company also assumes an annual forfeiture rate of 11% for these awards based on the Company’s history for this type of award to various employee groups.

The following table summarizes information related to restricted stock held by the Company’s employees and directors at December 31, 2008:

	Shares			Weighted Average Grant Date Fair Value
Non-vested shares outstanding at December 31, 2006		326,900		$	17.05
Granted		315,350			19.48
Vested		(96,750	)		16.95
Forfeited		(90,075	)		18.34
Non-vested shares outstanding at December 31, 2007		455,425		$	18.50
Granted		607,079			20.06
Vested		(274,714	)		18.31
Forfeited		(70,351	)		19.54
Non-vested shares outstanding at December 31, 2008		717,439		$	19.78

The non-vested restricted stock outstanding at December 31, 2008 generally vests at a rate of 25% on the first anniversary of the date of grant, 25% on the second anniversary and 50% on the third anniversary.  The fair value of awards vested for the year ended December 31, 2008 was $6.2 million.

Stock-based compensation expense recorded for restricted stock awards for the years ended December 31, 2008, 2007 and 2006 was $5.5 million, $2.9 million and $2.8 million, respectively.  Unrecognized expense as of December 31, 2008 for all outstanding restricted stock awards is $8.5 million and will be recognized over a weighted average period of 1.78 years.

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(13) Income Taxes

The Company’s income tax expense (benefit) consists of the following:

	Year Ended December 31,
	2008			2007		2006
	(In thousands)
Current:
Federal	$	2,304		$	-	$	-
State		1,388			115		172
		3,692			115		172
Deferred:
Federal		(107,568	)		31,979		24,132
State		(8,951	)		1,938		3,340
		(116,519	)		33,917		27,472
Total income tax expense (benefit)	$	(112,827	)	$	34,032	$	27,644

The differences between income taxes computed using the statutory federal income tax rate and that shown in the statement of operations are summarized as follows:

	Year Ended December 31,
	2008						2007					2006
	(In thousands)			(%)			(In thousands)		(%)			(In thousands)		(%)
US Statutory Rate	$	(105,327	)		35.0	%	$	31,933		35.0	%	$	25,288		35.0	%
Income/franschise tax, net of federal benefit		(7,562	)		2.5	%		2,053		2.3	%		2,283		3.2	%
Permanent differences and other		62			0.0	%		46		0.0	%		73		0.0	%
Total tax expense (Benefit)	$	(112,827	)		37.5	%	$	34,032		37.3	%	$	27,644		38.2	%

The effective tax rate in all periods is the result of the earnings in various domestic tax jurisdictions that apply a broad range of income tax rates. The provision for income taxes differs from the tax computed at the federal statutory income tax rate due primarily to state taxes. Future effective tax rates could be adversely affected if unfavorable changes in tax laws and regulations occur, or if the Company experiences future adverse determinations by taxing authorities.

The components of deferred taxes are as follows:

	December 31,
	2008			2007
	(In thousands)
Deferred tax assets
Oil and gas properties basis differences	$	39,089		$	-
Alternative Minimum Tax credit		2,443			-
Accrued liabilities not currently deductible		2,603			3,273
Hedge activity		-			4,289
Net operating loss carryforward		621			12,506
Other		1,158			892
Total deferred tax assets		45,914			20,960
Oil and gas properties basis differences		-			(89,397	)
Hedge activity		(14,294	)		-
Other		(1,543	)		(200	)
Total gross deferred tax liabilities		(15,837	)		(89,597	)
Net deferred tax assets (liabilities)	$	30,077		$	(68,637	)

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At December 31, 2008, the Company had a deferred tax asset related to federal and state net operating loss carryforwards of approximately $1.5 million.  The net operating loss carryforward will begin to expire in 2025.  Additionally, the Company had a deferred tax asset related to oil and gas properties basis of $39.1 million.  Realization of the deferred tax assets is dependent, in part, on generating sufficient taxable income prior to expiration of the loss carryforwards. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. There is no valuation allowance against future taxable income recorded on deferred tax assets as the Company believes it is more likely than not that the asset will be utilized.

It is expected that the amount of unrecognized tax benefits may change in the next twelve months; however, the Company does not expect the change to have a significant impact on our financial condition or results of operations.  As of December 31, 2008 and 2007, the Company has no unrecognized tax benefits that if recognized would affect the effective tax rate.

The Company files income tax returns in the U.S. and in various state jurisdictions.  With few exceptions, the Company is subject to US federal, state and local income tax examinations by tax authorities for tax periods 2005 and forward.

Estimated interest and penalties related to potential underpayment on any unrecognized tax benefits are classified as a component of tax expense in the consolidated statement of operations.  The Company has not recorded any interest or penalties associated with unrecognized tax benefits.

(14) Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if contracts to issue common stock and stock options were exercised at the end of the period.

The following is a calculation of basic and diluted weighted average shares outstanding:

	Year Ended December 31,
	2008		2007		2006
	(In thousands)
Basic weighted average number of shares outstanding		50,693		50,379		50,237
Dilution effect of stock option and awards at the end of  the period		-		210		171
Diluted weighted average number of shares outstanding		50,693		50,589		50,408
Anti-dilutive stock options and awards		592		385		198

Because the Company recognized a net loss for the year ended December 31, 2008, no unvested stock awards and options were included in computing earnings per share because the effect was anti-dilutive.  In computing earnings per share, no adjustments were made to reported net income.

(15) Operating Segments

The Company has one reportable segment, oil and natural gas exploration and production, as determined in accordance with SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information”.  Also, as all of our operations are located in the U.S., all of our costs are included in one cost pool.  See below for information by geographic location.

Geographic Area Information

The Company owns oil and natural gas interests in eight main geographic areas all within the United States or its territorial waters. Geographic revenue and property, plant and equipment information below are based on physical location of the assets at the end of each period.

	Year Ended December 31,
	2008 (1)		2007 (1)		2006 (1)
Oil and Natural Gas Revenue	(In thousands)
California	$	141,569	$	110,607	$	76,408
Rockies		29,491		10,676		2,115
South Texas		204,791		143,886		100,988
Texas State Waters		49,745		8,789		8,183
Other Onshore		44,809		25,905		27,757
Gulf of Mexico		47,611		40,700		26,734
	$	518,016	$	340,563	$	242,185

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	December 31,
	2008		2007
Oil and Natural Gas Properties	(In thousands)
California	$	619,593	$	540,924
Rockies		175,294		76,343
South Texas		712,464		591,355
Texas State Waters		65,085		55,918
Other Onshore		171,855		145,675
Gulf of Mexico		156,381		155,867
Other		9,439		6,393
	$	1,910,111	$	1,572,475

___________________________________

(1) Excludes the effects of hedging losses of $18.7 million for the year ended December 31, 2008 and hedging gains of $22.9 million and $29.6 million for the years ended December 31, 2007 and 2006, respectively.

Major Customers

For the year ended December 31, 2008, the Company had one major customer, Calpine Energy Services (“CES”), a Calpine affiliate, which accounted for approximately 61% of the Company’s consolidated annual revenue.  The Company’s annual consolidated revenue from CES accounted for approximately 55% for the year ended December 31, 2007 and 45% for the year ended December 31, 2006, respectively, and is reflected in oil and natural gas sales.

For the years ended December 31, 2008, 2007 and 2006, revenues from sales to CES were $305.9 million, $201.4 million, and $99.1 million, respectively.  There was no receivable from CES at December 31, 2008 or 2007.  Under the gas purchase and sale contract, CES is required to collateralize payments under the contract by daily margin payments into the Company’s collateral account, which are then settled at the end of the month. At December 31, 2008 and 2007, the Company had $19.4 million and $20.4 million in the margin account for December sales to CES which is included in Accrued Liabilities on the Consolidated Balance Sheet.

Marketing Services Agreement

The Company entered into a new marketing services agreement (“MSA”) with Calpine Producer Services (“CPS”) in connection with the partial transfer and release agreement (“PTRA”) settlement on August 3, 2007 for the period July 1, 2007 through June 30, 2009, subject to earlier termination on the occurrence of certain events. The MSA covers a majority of the Company’s current and future production during the term of the MSA. Additionally, CPS provides services related to the sale of the Company’s production including nominating, scheduling, balancing and other customary marketing services and assists the Company with volume reconciliation, well connections, credit review, training, severance and other similar taxes, royalty support documentation, contract administration, billing, collateral management and other administrative functions. All CPS activities are performed as agent and on the Company’s behalf, and under the Company’s control and direction. The fee payable by the Company under the MSA is based on net proceeds of all commodity sales multiplied by 0.50%, subject to caps imposed under the MSA. For the years ended December 31, 2008, 2007 and 2006, the fee was approximately $3.1 million, $2.5 million, and $2.3 million, respectively.  The MSA provides that all contracts, agreements, collateral and funds related to the marketing and sales activity be contracted directly with the Company or the Company’s designee, and paid directly to the Company.  The MSA will expire in June 2009 and the Company does not have intentions of renewing the MSA.  The Company is expanding its internal capabilities in this regard so as to be able to market in-house all of its oil and gas production at the conclusion of the MSA.

(16) Related Party Transactions

In January 2006, the Company purchased certain leases from LOTO Energy II, LLC ("LOTO II") for cash, subject to a retained overriding royalty in favor of LOTO II.  LOTO II is indirectly owned in part by family trusts established by our former director G. Louis Graziadio, III.  The Company also made certain ongoing development commitments to LOTO II associated with these leases.  LOTO II is indirectly owned in part by family trusts established by Mr. Graziadio who was its president at the time of this purchase.

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Supplemental Oil and Gas Disclosures

(Unaudited)

The following disclosures for the Company are made in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 69, “Disclosures About Oil and Natural gas Producing Activities (an amendment of FASB Statements 19, 25, 33 and 39)” (“SFAS No. 69”). Users of this information should be aware that the process of estimating quantities of proved, proved developed and proved undeveloped crude oil and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions to existing reserve estimates occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures.

Proved reserves represent estimated quantities of natural gas and crude oil that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made.

Proved developed reserves are proved reserves expected to be recovered, through wells and equipment in place and under operating methods being utilized at the time the estimates were made.

Proved undeveloped 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 can be 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 are not attributed 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.

Estimates of proved developed and proved undeveloped reserves as of December 31, 2008, 2007, and 2006, were based on estimates made by our independent engineers, Netherland, Sewell & Associates, Inc.  Netherland, Sewell & Associates, Inc., are engaged by and provide their reports to our senior management team. We make representations to the independent engineers that we have provided all relevant operating data and documents, and in turn, we review these reserve reports provided by the independent engineers to ensure completeness and accuracy.

Our relevant management controls over proved reserve attribution, estimation and evaluation include:

– Controls over and processes for the collection and processing of all pertinent operating data and documents needed by our independent reservoir engineers to estimate our proved reserves; and

– Engagement of qualified, independent reservoir engineers for review of our operating data and documents and preparation of reserve reports annually in accordance with all SEC reserve estimation guidelines.

Market prices as of each year-end were used for future sales of natural gas, crude oil and natural gas liquids. Future operating costs, production and ad valorem taxes and capital costs were based on current costs as of each year-end, with no escalation. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production and timing of development expenditures. Reserve data represent estimates only and should not be construed as being exact. Moreover, the standardized measure should not be construed as the current market value of the proved oil and natural gas reserves or the costs that would be incurred to obtain equivalent reserves. A market value determination would include many additional factors including (a) anticipated future changes in natural gas and crude oil prices, production and development costs, (b) an allowance for return on investment, (c) the value of additional reserves, not considered proved at present, which may be recovered as a result of further exploration and development activities, and (d) other business risk.

65

Capitalized Costs Relating to Oil and Gas Producing Activities

The following table sets forth the capitalized costs relating to the Company’s natural gas and crude oil producing activities at December 31, 2008 and 2007:

	2008			2007
	(In thousands)
Proved properties	$	1,813,527		$	1,499,046
Unproved properties		50,252			40,903
Total		1,863,779			1,539,949
Less: Accumulated depreciation, depletion, and amortization		(927,961	)		(291,321	)
Net capitalized costs	$	935,818		$	1,248,628

Pursuant to SFAS No. 143 “Accounting for Asset Retirement Obligations”, net capitalized costs include asset retirement costs of $23.2 million and $20.1 million as of December 31, 2008 and 2007, respectively.

Costs Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development Activities

The following table sets forth costs incurred related to the Company’s oil and natural gas activities for the years ended December 31, 2008, 2007 and 2006:

	Year Ended December 31,
	2008		2007		2006
	(In thousands)
Acquisition costs of properties
Proved	$	103,177	$	40,760	$	39,194
Unproved		32,276		23,824		22,317
Subtotal		135,453		64,584		61,511
Exploration costs		35,735		90,117		48,446
Development costs		152,260		178,894		125,971
Total	$	323,448	$	333,595	$	235,928

Results of operations for oil and natural gas producing activities

	Year Ended December 31,
	2008 (1)			2007 (1)		2006 (1)
Oil and natural gas producing revenues	$	518,016		$	340,563	$	242,185
Total Revenues		518,016			340,563		242,185
Production costs		78,609			60,140		47,507
Depreciation, depletion, and amortization		198,862			152,882		105,886
Impairment of oil and gas properties		444,369			-		-
Income before income taxes		(203,824	)		127,541		88,792
Income tax provision		(76,434	)		47,573		34,007
Results of  operations	$	(127,390	)	$	79,968	$	54,785

___________________________________

(1) Excludes the effects of hedging losses of $18.7 million for the year ended December 31, 2008 and hedging gains of $22.9 million and $29.6 million for the years ended December 31, 2007 and 2006, respectively.

The results of operations for oil and natural gas producing activities exclude interest charges and general and administrative expenses.  Sales are based on market prices.

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Net Proved and Proved Developed Reserve Summary

The following table sets forth the Company’s net proved and proved developed reserves (all within the United States) at December 31, 2008, 2007, and 2006, as estimated by the independent petroleum consultants and the changes in the net proved reserves for each of the three years then ended.

				Natural gas liquids
	Natural gas			and crude oil			Bcfe (1)
	(Bcf)(1):			(MBbl)(2)(3):			equivalents (4):
Net proved reserves at December 31, 2005   (5)		345			2,481			359
Revisions of previous estimates		(10	)		424			(7	)
Purchases in place		4			286			6
Extensions, discoveries and other additions		81			315			83
Sales in place		-			-			-
Production		(30	)		(576	)		(33	)
Net proved reserves at December 31, 2006   (5)		390			2,930			408
Revisions of previous estimates		(30	)		-			(30	)
Purchases in place		10			-			10
Extensions, discoveries and other additions		72			652			76
Sales in place		-			-			-
Production		(42	)		(561	)		(46	)
Net proved reserves at December 31, 2007   (5)		400			3,021			418
Revisions of previous estimates (6)		(77	)		779			(72	)
Purchases in place		63			293			65
Extensions, discoveries and other additions		38			418			40
Sales in place		-			-			-
Production		(48	)		(908	)		(53	)
Net proved reserves at December 31, 2008		376			3,603			398

Net proved developed reserves

	Proved Developed Reserves
	Natural gas (Bcf) (1)		Natural gas liquids and crude oil (MBbl) (2) (3)		Equivalents Bcfe (4)
December 31, 2006  (5)		251		1,965		263
December 31, 2007  (5)		286		2,658		302
December 31, 2008		308		3,253		327

___________________________________

(1) Billion cubic feet or billion cubic feet equivalent, as applicable

(2) Thousand barrels

(3) Includes crude oil, condensate and natural gas liquids

(4) Natural gas liquids and crude oil volumes have been converted to equivalent natural gas volumes using a conversion factor of six cubic feet of natural gas to one barrel of natural gas liquids and crude oil.

(5) Excludes estimated reserves pertaining to interests in certain leases and wells associated with the Non-Consent Properties.

(6) Downward revision of 64 Bcfe of proved reserves and 8 Bcfe due to year-end commodity prices.

Standardized Measure of Discounted Future Net cash Flows Relating to Proved Oil and Natural Gas Reserves

The following information has been developed utilizing procedures prescribed by SFAS No. 69 and based on natural gas and crude oil reserve and production volumes estimated by the independent petroleum reservoir engineers. This information may be useful for certain comparison purposes but should not be solely relied upon in evaluating the Company or its performance. Further, information contained in the following table should not be considered as representative of realistic assessments of future cash flows, nor should the standardized measure of discounted future net cash flows be viewed as representative of the current value of the Company’s oil and natural gas assets.

67

The future cash flows presented below are based on sales prices, cost rates and statutory income tax rates in existence as of the date of the projections. It is expected that material revisions to some estimates of natural gas and crude oil reserves may occur in the future, development and production of the reserves may occur in periods other than those assumed, and actual prices realized and costs incurred may vary significantly from those used. Income tax expense has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and natural gas producing activities.

Management does not rely upon the following information in making investment and operating decisions. Such decisions are based upon a wide range of factors, including estimates of probable as well as proved reserves and varying price and cost assumptions considered more representative of a range of possible economic conditions that may be anticipated.

The following table sets forth the standardized measure of discounted future net cash flows from projected production of the Company’s natural gas and crude oil reserves for the years ended December 31, 2008, 2007 and 2006.

	Year Ended December 31,
	2008			2007			2006
	(In millions)
Future cash inflows	$	2,437		$	3,026		$	2,452
Future production costs		(776	)		(819	)		(684	)
Future development costs		(269	)		(302	)		(312	)
Future income taxes		(166	)		(323	)		(182	)
Future net cash flows		1,226			1,582			1,274
Discount to present value at 10% annual rate		(485	)		(628	)		(552	)
Standardized measure of discounted future net cash flows relating to proved natural gas, natural gas liquids and crude oil reserves	$	741		$	954		$	722

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Changes in Standardized Measure of Discounted Future Net cash Flows

The following table sets forth the changes in the standardized measure of discounted future net cash flows at December 31, 2008, 2007 and 2006.

	(In millions)
Balance December 31, 2005   (1)	$	1,116
Sales and transfers of natural gas, natural gas liquids and crude oil produced, net of production costs		(224	)
Net changes in prices and production costs		(547	)
Extensions, discoveries, additions and improved recovery, net of related costs		275
Development costs incurred		73
Revisions of previous quantity estimates and development costs		(348	)
Accretion of discount		132
Net change in income taxes		132
Purchases of reserve in place		19
Sales of reserves in place		-
Changes in timing and other		94
Balance December 31, 2006   (1)		722
Sales and transfers of natural gas, natural gas liquids and crude oil produced, net of production costs		(303	)
Net changes in prices and production costs		253
Extensions, discoveries, additions and improved recovery, net of related costs		283
Development costs incurred		92
Revisions of previous quantity estimates and development costs		(76	)
Accretion of discount		79
Net change in income taxes		(113	)
Purchases of reserve in place		38
Sales of reserves in place		-
Changes in timing and other		(21	)
Balance December 31, 2007   (1)		954
Sales and transfers of natural gas, natural gas liquids and crude oil produced, net of production costs		(439	)
Net changes in prices and production costs		(73	)
Extensions, discoveries, additions and improved recovery, net of related costs		123
Development costs incurred		98
Revisions of previous quantity estimates and development costs		(191	)
Accretion of discount		114
Net change in income taxes		95
Purchases of reserve in place		119
Sales of reserves in place		-
Changes in timing and other		(59	)
Balance December 31, 2008	$	741

___________________________________

(1) Excludes non-consent properties - see Note 11.

69

Rosetta Resources Inc.

Selected Data

Quarterly Information

(Unaudited)

Summaries of the Company’s results of operations by quarter for the years ended 2008 and 2007 are as follows:

	2008
	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
	(In thousands, except per share data)
Revenues	$	128,333	$	154,467	$	130,036		$	86,512
Impairment of oil and gas properties		-		-		(205,659	)		(238,710	)
Operating Income		45,908		66,730		(155,806	)		(232,170	)
Net Income		27,489		39,315		(99,375	)		(155,539	)
Basic earnings per share	$	0.54	$	0.78	$	(1.96	)	$	(3.06	)
Diluted earnings per share	$	0.54	$	0.77	$	(1.96	)	$	(3.06	)

	2007
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(In thousands, except per share data)
Revenues	$	75,796	$	86,874	$	89,718	$	111,101
Impairment of oil and gas properties		-		-		-		-
Operating Income		25,969		25,317		24,415		30,898
Net Income		13,991		13,091		12,713		17,410
Basic earnings per share	$	0.28	$	0.26	$	0.25	$	0.35
Diluted earnings per share	$	0.28	$	0.26	$	0.25	$	0.34

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of December 31, 2008. Disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act filings is (i) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2008, our disclosure controls and procedures were effective.

Management’s Annual Report on Internal Control Over Financial Reporting

Management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a – 15(f).  Management conducted an assessment as of December 31, 2008 of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2008, based on criteria in Internal Control – Integrated Framework issued by the COSO.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2008, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Item 5.02(e). Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On February 23, 2009, the Compensation Committee amended and restated the 2005 Long-Term Incentive Plan.  The amended and restated 2005 Long-Term Incentive Plan is attached hereto as Exhibit 10.9.  These amendments were not material.  Additionally, on February 23, 2009, the Compensation Committee adopted the 2005 Long-Term Incentive Plan Performance Share Unit Award Agreement which is attached hereto as Exhibit 10.39.  This is a form of agreement for performance share unit awards to be made under the 2005 Long-Term Incentive Plan.  Because this Annual Report on Form 10-K is being filed within four business days from February 23, 2009, the amendment and restatement of the 2005 Long-Term Incentive Plan and the adoption of the 2005 Long-Term Incentive Plan Performance Share Unit Award Agreement are being disclosed hereunder rather than under Item 5.02(e) of Form 8-K.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required to be contained in this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2009 annual meeting under the headings “Security Ownership of Directors and Executive Officers,” “Company Nominees for Director,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Corporate Governance and Committees of the Board.”

Item 11. Executive Compensation

The information required to be contained in this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2009 annual meeting under the headings “Executive Compensation,” “Information Concerning the Board of Directors,” and “Compensation Committee Report.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

This information required to be contained in this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2009 annual meeting under the headings ”Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans.”

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required to be contained in this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2009 annual meeting under the heading “Certain Transactions” and “Corporate Governance and Committees of the Board.”

Item 14. Principal Accountant Fees and Services

The information required to be contained in this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2009 annual meeting under the heading “Audit and Non-Audit Fees Summary.”

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Part IV

Item 15. Exhibits and Financial Statement Schedules

a. The following documents are filed as a part of this report or incorporated herein by reference:

(1) Our Consolidated Financial Statements are listed on page 42 of this report.

(2) Financial Statement Schedules:

None

(3) Exhibits:

The following documents are included as exhibits to this report:

Exhibit Number	Description
3.1	Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
3.2	Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on December 10, 2008 (Registration No. 000-51801)).
4.1	Registration Rights Agreement (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.1	Purchase and Sale Agreement with Calpine Corporation, Calpine Gas Holdings, L.L.C. and Calpine Fuels Corporation (incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.2	Transfer and Assumption Agreements with Calpine Corporation and Subsidiaries of Rosetta Resources Inc. (incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.3*	Settlement Agreement and Amendment with Calpine Corporation attached hereto as Exhibit 10.3.
10.4*	Amended and Restated Base Contract for Sale and Purchase of Natural Gas with Calpine Energy Services, L.P. attached hereto as Exhibit 10.4.
10.5	Services Agreement with Calpine Producer Services, L.P. (incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.9 †*	Amended and Restated 2005 Long-Term Incentive Plan attached hereto as Exhibit 10.9.
10.10 †	Form of Option Grant Agreement (incorporated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).

10.11 †	Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.12 †	Form of Bonus Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.18	Senior Revolving Credit Agreement (incorporated herein by reference to Exhibit 10.18 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.19	Second Lien Term Loan Agreement (incorporated herein by reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).

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10.20	Guarantee and Collateral Agreement (incorporated herein by reference to Exhibit 10.20 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.21	Second Lien Guarantee and Collateral Agreement (incorporated herein by reference to Exhibit 10.21 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.22	First Amendment to Senior Revolving Credit Agreement (incorporated herein by reference to Exhibit 10.22 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.23	First Amendment to Second Lien Term Loan Agreement (incorporated herein by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.24	First Amendment to Guarantee and Collateral Agreement (incorporated herein by reference to Exhibit 10.24 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.25	First Amendment to Second Lien Guarantee and Collateral Agreement (incorporated herein by reference to Exhibit 10.25 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.26	Deposit Account Control Agreement (incorporated herein by reference to Exhibit 10.26 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.27*	Second Amendment to Senior Revolving Credit Agreement attached hereto as Exhibit 10.27.
10.28*	Second Amendment to Second Lien Term Loan Agreement attached hereto as Exhibit 10.28.
10.29*	Third Amendment to Senior Revolving Credit Agreement attached hereto as Exhibit 10.29.
10.30*	Third Amendment to Second Lien Term Loan Agreement attached hereto as Exhibit 10.30.
10.31 †*	Amended and Restated Employment Agreement with Randy L. Limbacher attached hereto as Exhibit 10.31.
10.32 †*	Amended and Restated Employment Agreement with Michael J. Rosinski attached hereto as Exhibit 10.32.
10.33 †	Amended Employment Agreement with Charles S. Chambers (incorporated herein by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q filed November 9, 2007).
10.34	Partial Transfer and Settlement Agreement with Calpine Corporation (incorporated herein by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q filed November 9, 2007).
10.35	Marketing and Related Services Agreement with Calpine Natural Gas Services, L.P. (incorporated herein by reference to Exhibit 10.5 to Form 10-Q filed November 9, 2007).
10.36*	Indemnification Agreement with Directors and Officers attached hereto as Exhibit 10.36.
10.37 †*	Amended and Restated Employment Agreement with Michael H. Hickey attached hereto as Exhibit 10.37.
10.38 †	Amended and Restated Employment Agreement with Edward E. Seeman (incorporated herein by reference to Exhibit 10.38 to Form 10-K filed February 29, 2008).
10.39 †*	2005 Long-Term Incentive Plan Performance Share Unit Award Agreement attached hereto as Exhibit 10.39.
10.40 †*	Executive Employee Change of Control Plan attached hereto as Exhibit 10.40.
10.41 †*	Executive Employee Severance Plan attached hereto as Exhibit 10.41.
10.42	Fourth Amendment to Senior Revolving Credit Agreement (incorporated herein by reference to Exhibit 10.42 to Form 10-Q filed August 8, 2008).
10.43	Fourth Amendment to Second Lien Term Loan Agreement(incorporated herein by reference to Exhibit 10.43 to Form 10-Q filed August 8, 2008).
21.1*	Subsidiaries of the registrant

74

23.1*	Consent of PricewaterhouseCoopers LLP
23.2*	Consent of Netherland, Sewell & Associates, Inc.
31.1*	Certification of Periodic Financial Reports by Chief Executive Officer in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Periodic Financial Reports by Chief Financial Officer in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Periodic Financial Reports by Chief Executive Officer and Chief Financial Officer in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002.

____________________________________

* Filed herewith

† Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.

75

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on February 27, 2009.

ROSETTA RESOURCES INC.
By:	/s/ Randy L. Limbacher
	Randy L. Limbacher, President and
	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated:

Signature	Title	Date
/s/ Randy L. Limbacher	President and Chief Executive Officer	February 27, 2009
Randy L. Limbacher	(Principal Executive Officer)
/s/ Michael J. Rosinski	Executive Vice President and Chief Financial	February 27, 2009
Michael J. Rosinski	Officer (Principal Financial Officer)
/s/ Denise DuBard	Vice President, Controller	February 27, 2009
Denise DuBard	(Principal Accounting Officer)
/s/ D. Henry Houston	Non-Executive Chairman, Director	February 27, 2009
D. Henry Houston
/s/ Richard W. Beckler	Director	February 27, 2009
Richard W. Beckler
/s/ Matt Fitzgerald	Director	February 27, 2009
Matt Fitzgerald
/s/ Philip L. Frederickson	Director	February 27, 2009
Philip L. Frederickson
/s/ Josiah O. Low, III	Director	February 27, 2009
Josiah O. Low, III
/s/ Donald D. Patteson, Jr.	Director	February 27, 2009
Donald D. Patteson, Jr.

76

Glossary of Oil and Natural Gas Terms

We are in the business of exploring for and producing oil and natural gas. Oil and gas exploration is a specialized industry. Many of the terms used to describe our business are unique to the oil and natural gas industry. The following is a description of the meanings of some of the oil and natural gas industry terms used in this report.

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.

Amplitude. The difference between the maximum displacement of a seismic wave and the point of no displacement, or the null point.

(Amplitude plays) anomalies. An abrupt increase in seismic amplitude that can in some instances indicate the presence of hydrocarbons.

Anticline. An arch-shaped fold in rock in which layers are upwardly convex, often forming a hydrocarbon trap. Anticlines may form hydrocarbon traps, particularly in folds with reservoir-quality rocks in their core and impermeable seals in the outer layers of the fold.

Appraisal well. A well drilled several spacing locations away from a producing well to determine the boundaries or extent of a productive formation and to establish the existence of additional reserves.

Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, of oil or other liquid hydrocarbons.

Bcf. Billion cubic feet of natural gas.

Bcfe. Billion cubic feet equivalent determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

Behind Pipe Pays. Reserves expected to be recovered from zones in existing wells, which will require additional completion work or future recompletion prior to the start of production.

Block. A block depicted on the Outer Continental Shelf Leasing and Official Protraction Diagrams issued by the U.S. Minerals Management Service or a similar depiction on official protraction or similar diagrams, issued by a state bordering on the Gulf of Mexico.

Btu or British thermal unit. The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

Coalbed methane. Coal is a carbon-rich sedimentary rock that forms from the remains of plants deposited as peat in swampy environments. Natural gas associated with coal, called coal gas or coalbed methane, can be produced economically from coal beds in some areas.

Completion. The installation of permanent equipment for the production of oil or natural gas.

Developed acreage. The number of acres that are allocated or assignable to productive wells or wells capable of production.

Development well. A well drilled within the proved boundaries of an oil or natural gas reservoir with the intention of completing the 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 exceeds production expenses and taxes.

Dry hole costs. Costs incurred in drilling a well, assuming a well is not successful, including plugging and abandonment costs.

Exploitation.  Optimizing oil and gas production from producing properties or establishing additional reserves in producing areas through additional drilling or the application of new technology.

Exploratory well. A well drilled to find and produce oil or natural gas reserves not classified as proved, to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir or to extend a known reservoir.

77

Farmout.  An agreement whereby the owner of a leasehold or working interest agrees to assign an interest in certain specific acreage to the assignees, retaining an interest such as an overriding royalty interest, an oil and gas payment, offset acreage or other type of interest, subject to the drilling of one or more specific wells or other performance as a condition of the assignment.

Fault. A break or planar surface in brittle rock across which there is observable displacement.

Faulted downthrown rollover anticline. An arch-shaped fold in rock in which the convex geological structure is tipped as opposed to perpendicular to the ground and in which a visible break or displacement has occurred in brittle rock, often forming a hydrocarbon trap.

Field. An area consisting of either a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.

Finding and development costs. Capital costs incurred in the acquisition, exploration, development and revisions of proved oil and natural gas reserves divided by proved reserve additions.

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 operation in which a portion of the well is drilled horizontally within a productive or potentially productive formation. This operation usually yields a well that has the ability to produce higher volumes than a vertical well drilled in the same formation.

Hydrocarbon indicator. A type of seismic amplitude anomaly, seismic event, or characteristic of seismic data that can occur in a hydrocarbon-bearing reservoir.

Infill well. A well drilled between known producing wells to better exploit the reservoir.

Injection well or injection. A well which is used to place liquids or natural gases into the producing zone during secondary/tertiary recovery operations to assist in maintaining reservoir pressure and enhancing recoveries from the field.

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.

MBbls. Thousand barrels of crude oil or other liquid hydrocarbons.

Mcf. Thousand cubic feet of natural gas.

Mcfe. Thousand cubic feet equivalent determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.

MMBbls. Million barrels of oil or other liquid hydrocarbons.

MMBtu. Million British Thermal Units.

MMcf. 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 oil, condensate or natural gas liquids.

Net acres or net wells. The sum of the fractional working interests owned in gross acres or wells, as the case may be.

Net revenue interest. An interest in all oil and natural gas produced and saved from, or attributable to, a particular property, net of all royalties, overriding royalties, net profits interests, carried interests, reversionary interests and any other burdens to which the person’s interest is subject.

Nonoperated 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.

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NYMEX. New York Mercantile Exchange.

OCS block. Outer continental shelf block located outside the state territorial limit.

Operated working interests. Where the working interests for a property are co-owned, and where more than one party elects to participate in the development of a lease or unit, there is an operator designated “for full control of all operations within the limits of the operating agreement” for the development and production of the wells on the co-owned interests. The working interests of the operating party become the “operated working interests.”

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.

Payout. Generally refers to the recovery by the incurring party of its costs of drilling, completing, equipping and operating a well before another party’s participation in the benefits of the well commences or is increased to a new level.

Permeability. The ability, or measurement of a rock’s ability, to transmit fluids, typically measured in darcies or millidarcies. Formations that transmit fluids readily are described as permeable and tend to have many large, well-connected pores.

Porosity. The percentage of pore volume or void space, or that volume within rock that can contain fluids.

PV-10 or present value of estimated future net revenues. An estimate of the present value of the estimated future net revenues from proved oil and natural gas reserves at a date indicated after deducting estimated production and ad valorem taxes, future capital costs and operating expenses, but before deducting any estimates of federal income taxes. The estimated future net revenues are discounted at an annual rate of 10%, in accordance with the Securities and Exchange Commission’s practice, to determine their “present value.” The present value is shown to indicate the effect of time on the value of the revenue stream and should not be construed as being the fair market value of the properties. Estimates of future net revenues are made using oil and natural gas prices and operating costs at the date indicated and held constant for the life of the reserves.

Productive well. A well that is producing or is capable of production, including natural gas wells awaiting pipeline connections to commence deliveries and oil wells awaiting connection to production facilities.

Progradation. The accumulation of sequences by deposition in which beds are deposited successively basinward because sediment supply exceeds accommodation.

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.

Proved developed non-producing reserves. Proved developed reserves expected to be recovered from zones behind casing in existing wells. See Rule 4-10(a), paragraph (2) through (2)iii for a more complete definition.

Proved developed producing reserves. Proved developed reserves that are expected to be recovered from completion intervals currently open in existing wells and capable of production to market. See Rule 4-10(a), paragraph (2) through (2)iii for a more complete definition.

Proved developed reserves. Proved reserves that can be expected to be recovered from existing wells with existing equipment and operating methods. See Rule 4-10(a), paragraph (3) for a more complete definition.

Proved reserves. The estimated quantities of 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. See Rule 4-10(a), paragraph (2) through (2)iii for a more complete definition.

Proved undeveloped reserves. Proved 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. See Rule 4-10(a), paragraph (4) for a more complete definition.

Reserve life index. This index is calculated by dividing year-end reserves by the average production during the past year to estimate the number of years of remaining production.

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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 individual and separate from other reservoirs.

Resistivity. The ability of a material to resist electrical conduction. Resistivity is used to indicate the presence of water and /or hydrocarbons.

Secondary recovery. An artificial method or process used to restore or increase production from a reservoir after the primary production by the natural producing mechanism and reservoir pressure has experienced partial depletion. Natural gas injection and waterflooding are examples of this technique.

Shelf. Areas in the Gulf of Mexico with depths less than 1,300 feet. Our shelf area and operations also includes a small amount of properties and operations in the onshore and bay areas of the Gulf Coast.

Stratigraphy. The study of the history, composition, relative ages and distribution of layers of the earth’s crust.

Stratigraphic trap. A sealed geologic container capable of retaining hydrocarbons that was formed by changes in rock type or pinch-outs, unconformities, or sedimentary features such as reefs.

Tcf. Trillion cubic feet of natural gas.

Tcfe. Trillion cubic feet equivalent determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.

Trap. A configuration of rocks suitable for containing hydrocarbons and sealed by a relatively impermeable formation through which hydrocarbons will not escape.

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 or natural gas regardless of whether or not such acreage contains proved reserves.

Waterflooding. A secondary recovery operation in which water is injected into the producing formation in order to maintain reservoir pressure and force oil toward and into the producing wells.

Working interest. The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production.

Workover. The repair or stimulation of an existing production well for the purpose of restoring, prolonging or enhancing the production of hydrocarbons.

Workover rig. A portable rig used to repair or adjust downhole equipment on an existing well.

/d. “Per day” when used with volumetric units or dollars.

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Index to Exhibits

Exhibit Number	Description
3.1	Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
3.2	Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on December 10, 2008 (Registration No. 000-51801)).
4.1	Registration Rights Agreement (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.1	Purchase and Sale Agreement with Calpine Corporation, Calpine Gas Holdings, L.L.C. and Calpine Fuels Corporation (incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.2	Transfer and Assumption Agreements with Calpine Corporation and Subsidiaries of Rosetta Resources Inc. (incorporated herein by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.3*	Settlement Agreement and Amendment with Calpine Corporation attached hereto as Exhibit 10.3.
10.4*	Amended and Restated Base Contract for Sale and Purchase of Natural Gas with Calpine Energy Services, L.P. attached hereto as Exhibit 10.4.
10.5	Services Agreement with Calpine Producer Services, L.P. (incorporated herein by reference to Exhibit 10.5 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.9 †*	Amended and Restated 2005 Long-Term Incentive Plan attached hereto as Exhibit 10.9.
10.10 †	Form of Option Grant Agreement (incorporated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.11 †	Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.12 †	Form of Bonus Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.18	Senior Revolving Credit Agreement (incorporated herein by reference to Exhibit 10.18 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.19	Second Lien Term Loan Agreement (incorporated herein by reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.20	Guarantee and Collateral Agreement (incorporated herein by reference to Exhibit 10.20 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.21	Second Lien Guarantee and Collateral Agreement (incorporated herein by reference to Exhibit 10.21 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.22	First Amendment to Senior Revolving Credit Agreement (incorporated herein by reference to Exhibit 10.22 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.23	First Amendment to Second Lien Term Loan Agreement (incorporated herein by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.24	First Amendment to Guarantee and Collateral Agreement (incorporated herein by reference to Exhibit 10.24 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).

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10.25	First Amendment to Second Lien Guarantee and Collateral Agreement (incorporated herein by reference to Exhibit 10.25 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.26	Deposit Account Control Agreement (incorporated herein by reference to Exhibit 10.26 to the Company’s Registration Statement on Form S-1 filed on October 7, 2005 (Registration No. 333-128888)).
10.27*	Second Amendment to Senior Revolving Credit Agreement attached hereto as Exhibit 10.27.
10.28*	Second Amendment to Second Lien Term Loan Agreement attached hereto as Exhibit 10.28.
10.29*	Third Amendment to Senior Revolving Credit Agreement attached hereto as Exhibit 10.29.
10.30*	Third Amendment to Second Lien Term Loan Agreement attached hereto as Exhibit 10.30.
10.31 †*	Amended and Restated Employment Agreement with Randy L. Limbacher attached hereto as Exhibit 10.31.
10.32 †*	Amended and Restated Employment Agreement with Michael J. Rosinski attached hereto as Exhibit 10.32.
10.33 †	Amended Employment Agreement with Charles S. Chambers (incorporated herein by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q filed November 9, 2007).
10.34	Partial Transfer and Settlement Agreement with Calpine Corporation (incorporated herein by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q filed November 9, 2007).
10.35	Marketing and Related Services Agreement with Calpine Natural Gas Services, L.P. (incorporated herein by reference to Exhibit 10.5 to Form 10-Q filed November 9, 2007).
10.36*	Indemnification Agreement with Directors and Officers attached hereto as Exhibit 10.36.
10.37 †*	Amended and Restated Employment Agreement with Michael H. Hickey attached hereto as Exhibit 10.37.
10.38 †	Amended and Restated Employment Agreement with Edward E. Seeman (incorporated herein by reference to Exhibit 10.38 to Form 10-K filed February 29, 2008).
10.39 †*	2005 Long-Term Incentive Plan Performance Share Unit Award Agreement attached hereto as Exhibit 10.39.
10.40 †*	Executive Employee Change of Control Plan attached hereto as Exhibit 10.40.
10.41 †*	Executive Employee Severance Plan attached hereto as Exhibit 10.41.
10.42	Fourth Amendment to Senior Revolving Credit Agreement (incorporated herein by reference to Exhibit 10.42 to Form 10-Q filed August 8, 2008).
10.43	Fourth Amendment to Second Lien Term Loan Agreement(incorporated herein by reference to Exhibit 10.43 to Form 10-Q filed August 8, 2008).
21.1*	Subsidiaries of the registrant
23.1*	Consent of PricewaterhouseCoopers LLP
23.2*	Consent of Netherland, Sewell & Associates, Inc.
31.1*	Certification of Periodic Financial Reports by Chief Executive Officer in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Periodic Financial Reports by Chief Financial Officer in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Periodic Financial Reports by Chief Executive Officer and Chief Financial Officer in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002.

___________________________________

* Filed herewith

† Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.

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EX-10.3

Exhibit 10.3

SETTLEMENT AGREEMENT

AND AMENDMENT

This Settlement Agreement and Amendment (this “Agreement”) entered into this 22nd day of October, 2008, is made by and among those parties to a certain purchase and sale agreement dated as of July 7, 2005 (as modified, supplemented and amended from time to time, the “Purchase and Sale Agreement”), a certain transfer and assumption agreement dated as of July 7, 2005 (as modified, supplemented and amended from time to time, the “Transfer and Assumption Agreement”), a certain Marketing Agreement and Related Services Agreement, dated as of July 1, 2007 (the “Marketing Agreement”), a certain Base Contract for Sale and Purchase of Natural Gas, dated July 7, 2005, and Confirmation Nos. 1 and 2 of the same date (the “GPA”), and all other interrelated agreements thereto, including the Transition Services Agreement (collectively, the “PSA”), namely, Calpine Gas Holdings LLC, CPN Pipeline Company, Calpine Corporation, Calpine Producer Services, L.P., Calpine Fuels Corporation, Calpine Energy Services, L.P., and their subsidiaries and affiliates, as applicable (collectively, “Calpine”), on the one hand, and Rosetta Resources Inc., Rosetta Resources Operating LP (individually and as successor by merger with Rosetta Resources California, LLC; Rosetta Resources Rockies, LLC; Rosetta Resources Texas GP, LLC; Rosetta Resources Texas LP, LLC; and Rosetta Resources Texas LP) and Rosetta Resources Offshore, LLC and their subsidiaries and affiliates, as applicable (collectively, “Rosetta”), on the other hand.  Calpine and Rosetta are sometimes referred to collectively as the “Parties” and individually as a “Party.”

RECITALS

A.           The PSA provided for the sale to Rosetta of ultimate ownership and control of all or substantially all of the assets comprising Calpine’s oil and gas business (the “Sale Transaction”).  Except as otherwise provided in this Agreement, capitalized terms shall have the respective meanings given to them in the PSA.

B.           On or about December 20, 2005 (the “Commencement Date”), Calpine filed petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”).  Calpine’s chapter 11 cases are being jointly administered under Case No.  05-60200-brl (the “Chapter  11 Cases”).

C.           As a result of Calpine’s filing for protection under Chapter 11 of the Bankruptcy Code, certain issues remained open and unresolved with respect to the PSA and potential conveyances thereunder, and a number of disputes have arisen between the Parties.  Among other things, there are open issues with respect to the status of legal title to the Properties as of the Commencement Date.  Specifically, the Non-Consent Properties, the Petersen Properties (as defined below), and a number of other oil and gas properties identified in the PSA were not conveyed, and/or were not able to be conveyed, to Rosetta prior to the Commencement Date and, in a motion filed under Section 365 in June 2006 and the corresponding Order(s) thereto entered by the Bankruptcy Court (the “365 Motion and Orders”), Calpine identified a list of other oil and gas properties (which included the Non-Consent Properties, among others) contending Calpine still held some legal, equitable or other interest in these oil and gas properties.

D.           On or about August 1, 2006, Rosetta filed a series of Proofs-of-Claim in the Chapter 11 Cases (the “POCs”).  Since the filing of the POCs, Calpine has filed an objection to the POCs  (the “Calpine Objection”) and Calpine’s Objection has been carried or continued by the Bankruptcy Court, postponing adjudication of those issues until after the Lawsuit (defined below) has been resolved.

E.           On or about June 29, 2007, Calpine Corporation filed an adversary proceeding styled Calpine Corp. v. Rosetta Resources, Inc., Adv. No. 07-01760-brl, in the Bankruptcy Court, against Rosetta Resources Inc. alleging that the Sale Transaction was a fraudulent conveyance under relevant state and federal law, and shortly thereafter, Rosetta Resources Inc. filed counterclaims against Calpine Corporation in such proceeding (such proceeding, including such counterclaims, the “Lawsuit”).

F.           Pursuant to that certain Partial Transfer and Release Agreement dated as of August 3, 2007 (as modified, supplemented and amended from time to time, the “PTRA”) and approved by the Bankruptcy Court on September 11, 2007, the Parties reached an interim business solution with respect to a certain list of properties resolving the outstanding disputes concerning legal title on those properties, subject to the outcome of the Lawsuit.  Pursuant to the PTRA, various conveyances and other documents were executed and delivered by the Parties.

G.           On or about December 19, 2007, the Bankruptcy Court approved Calpine’s Sixth Amended Joint Plan of Reorganization (the “Plan”), which in the Plan or order approving the Plan (the “Order”) provided, among other things, that Calpine and Rosetta agreed to extend the deadline under Section 365 for Calpine to assume or reject the PSA and required any settlement of litigation to which the Unsecured Creditors’ Committee is a party to have Bankruptcy Court approval.  On or about January 31, 2008, Calpine emerged from bankruptcy, announcing the effective date of the Plan.

H.           Following negotiations, the Parties have now reached a final business solution in connection with the PSA (under which Calpine is to convey to Rosetta all “Oil and Gas Properties” (defined below)), the POCs, Calpine’s Objection, the Sale Transaction and the Lawsuit, and desire to settle all outstanding disputes and issues on the basis set forth in this Agreement, which includes the following attached exhibits:

(a)           Exhibit A – Petersen Properties;

(b)           Exhibit B – Conveyance Documents;

(c)           Exhibit C – Amended and Restated GPA, including Special Provisions and Confirmation Nos. 1 and 2 for the dedicated California production; and

(d)           Exhibit D - Rio Vista Office Sublease.

AGREEMENT

NOW THEREFORE, for valuable consideration as exchanged between Calpine and Rosetta in this Agreement, the Parties agree:

1.           Amendment; Assumption of PSA.

(a)           Calpine and Rosetta hereby amend the PSA to remove the “Petersen Properties” (as defined in Section 3(a) below) from the “Properties,” “Non-Consent Properties,” and “Preferential Rights Properties” (as defined in the PSA, and all applicable schedules and exhibits thereto) that were, or shall be conveyed to Rosetta pursuant to the PSA.

(b)           Calpine hereby agrees to assume the PSA, as so amended, and each Party hereby agrees that, except as otherwise expressly provided in this Agreement, all of its respective obligations under the PSA shall and hereby do apply to the Sale Transaction, including without limitation its respective indemnity obligations (including without limitation as provided in Article 16 of the Purchase and Sale Agreement and Section 4 of the Transfer and Assumption Agreement).

2.           Settlement Payment.

(a)           At the “Settlement Closing” (as defined in Section 8 below), Rosetta agrees to pay to Calpine the aggregate sum of Ninety-Seven Million Dollars ($97,000,000.00) (the “Settlement Payment”).

(b)           The Settlement Payment shall fully discharge and satisfy all obligations for final adjustments, payments and reconciliations provided for in the PSA, including without limitation Articles 4 and 15 of the Purchase and Sale Agreement, and as described in the proposed Final Settlement Statement dated as of May 12, 2006, a copy of which was previously delivered to Calpine by Rosetta (the “PSA FSS”), and all amounts otherwise currently due from Calpine to Rosetta, or from Rosetta to Calpine, pursuant to this Agreement, including without limitation all claims for accumulated or earned interest, net revenues and additional monies related to the PSA.

(c)           The Settlement Payment constitutes the full and final adjustment of the Purchase Price and no additional payments shall be required, including, without limitation, in connection with any net revenues from any Properties, Non-Consent Properties, and Petersen Properties attributable to Calpine’s interests and that were received by Rosetta after the Effective Date, and amounts withheld at Closing for the Petersen Properties and Non-Consent Properties.

(d)           The Settlement Payment shall constitute sufficient and adequate consideration for the full and final releases that Calpine grants in this Agreement to fully compromise and release all claims asserted in the Lawsuit, including without limitation, all claims that could have been or should have been asserted by Calpine in relation thereto and whether known or unknown.

3.           Petersen Properties.

(a)           Pursuant to Section 1(a), the Parties amend the PSA, as of the Effective Date, to exclude the properties set forth in Exhibit A attached hereto, being those leases and wells that are more fully described as the “Transferred Assets” and any of Calpine’s other rights within the “Area of Mutual Interest,” as such terms are defined in the July 1998 Joint Development and Acquisition Agreement entered into by and between Petersen Production Co., LLC and Sheridan Energy, Inc. (the “Petersen Preferential Rights Properties” or the “Petersen Properties”).  For all purposes under this Agreement and the PSA, the Petersen Properties are not included in the “Oil and Gas Properties” to be conveyed to Rosetta.

(b)           The Parties agree that Rosetta (i) withheld that portion of the Purchase Price allocated to the Petersen Properties at the Closing, and (ii) subsequent to the Closing, has or may have received additional amounts attributable to production from Calpine’s interest in the Petersen Properties.  Calpine hereby waives any and all rights and claims that it may have to recover from Rosetta any amounts owed or allegedly owed to Calpine for the Petersen Properties, including any such deferred portion of the Purchase Price, amounts attributable to post-Closing or post-Effective Date production revenue and joint interest billings in respect of the Petersen Properties, and all other amounts allocable or attributable to the Petersen Properties.  All such obligations have and will be discharged upon payment of the Settlement Payment.

(c)           From and after the Settlement Closing, Calpine shall take such actions as it deems, in its sole discretion, appropriate to deal with the Petersen Properties and all claims that have been or may be made by Petersen Production Co., LLC, its affiliates, successors and assigns and Petersen Family Trust, its heirs, successors and assigns, (collectively, “Petersen”) relating to Petersen’s “Preferential Right to Purchase” enumerated in Section 15.3 of the July 1998 Joint Development and Acquisition Agreement entered into by and between Petersen and Sheridan Energy, Inc.  For the avoidance of any doubt, Rosetta waives any rights it may have to seek, and agrees to release Calpine from and against, any amounts Rosetta may have paid on Calpine’s behalf attributable to the Petersen Properties, and all amounts received by Calpine attributable to production from Calpine’s interest in the Petersen Properties after the Effective Date.

(d)           At the request of Calpine, Rosetta shall execute, acknowledge and deliver to Calpine a quitclaim assigning to Calpine any and all rights, title or interest it has or may have in the Petersen Properties to the extent arising by, through or under the PSA.  Such quitclaim shall be without representation, warranty or recourse of any kind except that Rosetta shall warrant that such interests are free and clear of any claims or interests arising by, through or under Rosetta, but not otherwise.

(e)           At the Settlement Closing, to the extent Rosetta has any rights or obligations as interim operator of the Petersen Properties, Rosetta shall resign as interim operator of the Petersen Properties, transfer any such rights to Calpine or its designee and Calpine shall affirmatively assume all of Rosetta’s obligations and rights as operator of the Petersen Properties.

(f)           Rosetta represents and warrants to Calpine that, with respect to those Petersen Properties for which Rosetta served as the operator and for the period of time that Rosetta acted as operator, to its knowledge:  (i) Rosetta has operated such properties as a reasonably prudent operator according to accepted industry standards; (ii) Rosetta has paid all royalties due and owing for such properties; (iii) Rosetta has paid all working interest owners all net production revenue due and owing for such properties; and (iv) there are no material, unsatisfied liabilities arising from its operation of such properties.

(g)           Calpine agrees to indemnify, save and hold harmless Rosetta, together with Rosetta’s affiliates, successors and assigns, and their respective officers, directors, members, agents, representatives and employees (collectively, the “Rosetta Parties”) from and against any and all demands, claims, actions, causes of action, assessments, damages, liabilities, losses, expenses, fees, judgments or deficiencies of any nature whatsoever (including reasonable attorneys’ fees and other costs and expenses incident to any suit, action or proceeding or any appeal therefrom) (each, a “Loss” and collectively, the “Losses”) received, incurred or sustained by, or threatened against, a Rosetta Party by Petersen or any (i) operator, (ii) purchaser of production, (iii) lessor or (iv) governmental entity, relating to or arising from the Petersen Properties, except for any Losses addressed within Section 3(f) above -- for which Rosetta retains sole and exclusive responsibility, regardless of cause or amount, including without limitation, all Losses related to net revenues (taking into account production revenue and joint interest billings attributable to Calpine’s interest in the Petersen Properties) paid or to be paid to Rosetta since the Closing Date.

(h)           The provisions of this Section 3 pertaining to the Petersen Properties shall be effective and binding upon the Parties regardless of the disposition of any claims that Petersen has made or may make against Calpine or Rosetta, whether in the Chapter 11 Cases or otherwise.

4.           Resolution of Outstanding Property Issues.

(a)           At the Settlement Closing, each Party agrees to execute, acknowledge and deliver counterparts of all conveyance documents attached as or listed in Exhibit B(the “Conveyance Documents”).

(b)           In addition to the properties transferred by the Conveyance Documents, Calpine shall convey to Rosetta, at the Settlement Closing and from time to time thereafter at Rosetta’s request, all right, title and interest in and to all of Calpine’s oil and gas properties and oil and gas reserves that it owned on the Effective Date, including without limitation, all leases, fee property, mineral fee property, surface leases and easements, easements, rights-of-way, farm-out agreements, pooling and unitization agreements, area of mutual interest agreements, participation agreements and other interests of any kind in oil and gas properties, whether listed or not in the schedules or exhibits to the PSA, Calpine’s Section 365 Motion and Orders, excluding the Petersen Properties (such properties, including those described in the Conveyance Documents, collectively, the “Oil and Gas Properties”).  The Oil and Gas Properties (including those identified from time to time after the Settlement Closing and then conveyed to Rosetta, free and clear of all liens, claims and encumbrances) shall be deemed and considered to be part of the Properties for all purposes.

(c)           Rosetta represents and warrants to Calpine that as of the date of this Agreement it is not aware of any Oil and Gas Properties of any material value other than those listed in the schedules or exhibits to the PSA and/or Calpine’s Section 365 Motion and Orders, and those that are listed in, described in or are the subject of any of the Material Contracts, but excluding the Petersen Properties.

(d)           The Oil and Gas Properties are to be conveyed by Calpine to Rosetta effective as of the Effective Date, free and clear of any and all liens, claims and encumbrances, whether arising before or after July 7, 2005, arising by, through or under Calpine.

(e)           The Parties agree to take all reasonable steps necessary to obtain acknowledgments from various governmental agencies and authorities, including without limitation, California State Lands Commission (“CSLC”), U.S. Department of Interior, Minerals Management Service (“MMS”) or Bureau of Land Management (“BLM”) (collectively, “Agencies”) or Third Parties, as may be required, that such Agencies or Third Parties will recognize the applicable Rosetta entity as the record title owner and operator of each of the Oil and Gas Properties, including those conveyed by Calpine on July 7, 2005 and under the PTRA, as of the Effective Date.

(f)            In connection with the process of transferring title to the Oil and Gas Properties and, as applicable, the right to operate the same, Rosetta shall furnish to Agencies such bonds and other security that may be required in connection therewith.  Following receipt of all required governmental approvals of the transfer to Rosetta of legal title to the Oil and Gas Properties, Rosetta agrees to aid and assist Calpine to secure the release of any collateral security Calpine has posted with respect to the Oil and Gas Properties.

(g)           At the Settlement Closing, each Party agrees to execute, acknowledge and deliver counterparts of a Rio Vista office sublease, substantially in the form attached hereto as Exhibit D (the “Rio Vista Sublease”).

5.           Termination of Marketing Agreement.  Calpine acknowledges that Rosetta has timely provided notice of its intent not to renew the Marketing Agreement.  The Marketing Agreement shall therefore expire, by its terms, effective as of June 30, 2009, subject, however, to Rosetta’s right to request a transition period as is more fully set forth and subject to the terms in the Marketing Agreement.  As fully set forth in Section 9 (“Releases”) of this Agreement, as of the date of the Settlement Closing (the “Settlement Closing Date”), the Parties hereby release, discharge, acquit, and covenant not to sue one another for any and all claims, causes of action, suits or demands existing prior to the Settlement Closing Date, whether known or unknown, that they have or could have asserted against one another arising from or related to the Marketing Agreement, save and except current payment obligations for services or hydrocarbon production, including balancing payments or prior period adjustments attributable to the period before the Settlement Closing Date but which have not yet been invoiced or paid.

6.           Amendment of Gas Purchase Agreement.  At the Settlement Closing, each Partyshall execute, and deliver counterparts of, the Amended and Restated Base Contract for Sale and Purchase of Natural Gas, with Special Provisions pertaining thereto, and Amended and Restated Confirmations Nos. 1 and 2, originally dated July 7, 2005 issued thereunder, by and between Calpine and Rosetta, substantially in the form attached hereto as Exhibit C (the GPA, as so amended and restated, the “GPA Amendment”).  As fully set forth in Section 9 (“Releases”) of this Agreement, as of the Settlement Closing Date, the Parties hereby release, discharge, acquit, and covenant not to sue one another for any and all claims, causes of action, suits or demands existing prior to the Settlement Closing Date, whether known or unknown, that they have or could have asserted against one another arising from or related to the GPA, save and except current payment obligations for services or hydrocarbon production (but not including compression costs), including balancing payments or prior period adjustments attributable to the period before the Settlement Closing Date but which have not yet been invoiced or paid.

7.           Court Approval; Assumption and Assignment of Contracts and Leases and Related Liabilities.

(a)           The Parties’ respective rights and obligations under this Agreement, including the execution and delivery of the various documents to be executed and delivered by the Parties pursuant to this Agreement at the Settlement Closing or thereafter (collectively, the “Settlement Documents”), are expressly subject to and contingent upon the entry by the Bankruptcy Court of an order, in form and substance acceptable to Calpine and Rosetta (the “Approval Order”):

(i)            approving the terms of this Agreement pursuant to Bankruptcy Rule 9019 and authorizing and directing Calpine and Rosetta to perform their obligations hereunder,

(ii)           authorizing the sale and transfer by Calpine to the appropriate Rosetta entity of the Oil and Gas Properties identified in the exhibits to the Conveyance Documents (and any other Oil and Gas Properties, as applicable), pursuant to the terms of this Agreement and the PSA (as the same is modified and amended pursuant to this Agreement), the Plan, and the Bankruptcy Code, free and clear of any and all liens, claims and encumbrances and finding, in connection therewith, that Rosetta is a good faith purchaser, and

(iii)           authorizing Calpine to assume the PSA, as the same is modified and amended herein, pursuant to Section 365 of the Bankruptcy Code.

(b)           Notwithstanding the foregoing, neither the terms of this Agreement nor the entry of the Approval Order shall have an effect upon or otherwise waive or release any claims, causes of action or rights under the PSA or otherwise that are not expressly waived or released herein and approval of this Agreement shall not be conditioned upon any demands, claims, actions or causes of action of any nature whatsoever that Petersen or any other Third Party may have or exercise against Calpine and/or Rosetta with respect to the Petersen Properties, the PSA or otherwise.  Calpine shall have the right in its sole discretion, to seek an order from the Bankruptcy Court with respect to the Petersen Properties or any demands, claims, actions or causes of action made by Petersen with respect thereto; provided that, the Approval Order and the obligations of the Parties under this Agreement shall remain effective regardless of whether Calpine exercises such option or the outcome of any such action.

(c)            Calpine shall, promptly upon the execution of this Agreement by the Parties, file such motions and take such other action as reasonably may be required to obtain the entry of the Approval Order.  Rosetta agrees to assist Calpine in this regard.  Calpine shall provide notice of such motion to all persons entitled thereto.  If the Approval Order is not entered by the Bankruptcy Court on or before December 31, 2008, or if the Approval Order is overturned or modified on appeal, then this Agreement shall be of no further force and effect and, in such event, (i) neither this Agreement nor any negotiations and writings in connection with this Agreement shall in any way be construed as or deemed to be evidence of or an admission on behalf of any Party regarding any claim or right that such Party may have against the other Party, and (ii) the Parties shall otherwise be restored to the position in effect prior to the date of this Agreement.

(d)           With respect to any obligations due Third Parties, except as may be expressly allocated to or assumed by Calpine under the PSA, Rosetta agrees to assume, effective as of the Assumption Date (defined below), all other cure obligations (as provided in Section 365(b)(1)(A) of the Bankruptcy Code) in connection with any such assumption related to the Oil and Gas Properties, except to those already addressed and/or paid under the 365 Motion and Orders, and to pay such obligations which shall be set forth or, by agreement of the Parties, otherwise provided for in the Bankruptcy Court order approving such assumption.  To the extent Rosetta reasonably disputes any cure claims asserted by any counterparties, Calpine agrees to reasonably cooperate in Rosetta’s defending against and opposing such asserted cure claims, and the Parties agree to request that the Bankruptcy Court retain jurisdiction to resolve any such disputes.

(e)           The term “Assumption Date” shall mean: (i) for liabilities Rosetta assumed pursuant to the PSA, the effective date of such assumption as provided in the PSA; and (ii) for additional liabilities that Rosetta did not assume pursuant to the PSA but has expressly agreed to assume pursuant to this Agreement or the PTRA, the date of such agreement, or, if otherwise set forth, the effective date of such assumption set forth in the applicable agreement or in the applicable Settlement Document.  The Parties agree to use all reasonable efforts to include in such Approval Order any wording as may be reasonably requested by the Agencies, Third Parties, or either Party, as applicable, in order to effectuate the terms of this Agreement.

(f)            At or promptly after the Settlement Closing, the Parties shall file such other motions, pleadings and papers necessary to dismiss with prejudice the Lawsuit and the Calpine Objection and to withdraw Rosetta’s POCs.

(g)           The Bankruptcy Court shall retain jurisdiction to interpret and enforce this Agreement.

8.           Settlement Closing.

(a)           The Parties have exchanged executed copies of this Agreement.  The consummation of the transactions contemplated by this Agreement (the “Settlement Closing”) shall occur upon the expiration of ten days following the entry of the Approval Order, as to which no appeal or objection has been filed and not then dismissed.

(b)           At the Settlement Closing, the Parties shall do the following:

(i)            Calpine shall deliver original, executed counterparts of:

(1) The Conveyance Documents;

(2) The GPA Amendment;

(3) The Rio Vista Sublease;

(4) A receipt for the Settlement Payment;

(5) Unless previously delivered, resolutions of the boards of directors or similar bodies of each of the relevant Calpine entities signatories hereto, authorizing the execution, delivery and performance of into this Agreement and the other Settlement Documents;

(6) Agreed Motion(s) to Dismiss with Prejudice the Lawsuit, Calpine’s Claims Objection;

(7) An instrument implementing the resignation, transfer and assumption provided for in Section 3(e) of this Agreement;

(8) All Records pertaining to the Properties and the Oil and Gas Properties not previously delivered to Rosetta; and

(9) any other Settlement Documents reasonably requested by Rosetta.

(ii)           Rosetta shall deliver original, executed counterparts of:

(1) The Conveyance Documents;

(2) The GPA Amendment;

(3) The Rio Vista Sublease;

(4) Unless previously delivered, resolutions of the boards of directors or similar bodies of each of the relevant Rosetta entities signatories hereto, authorizing the execution, delivery and performance of into this Agreement and the other Settlement Documents;

(5) Motion(s) to Withdraw with Prejudice Rosetta’s POCs;

(6) An instrument implementing the resignation, transfer and assumption provided for in Section 3(e) of this Agreement; and

(7) any other Settlement Documents reasonably requested by Calpine.

(iii)          Rosetta shall deliver the Settlement Payment, by cashier’s check or wire transfer of immediately available funds to a bank account designated by Calpine to Rosetta in writing not less than three (3) business days prior to the Settlement Closing.

(c)           The Parties agree to work cooperatively with the Agencies toward the objective that, on or before the Settlement Closing, all Agencies will have confirmed to the Parties that their respective ministerial approvals will be granted upon receipt of the Bankruptcy Court order approving this Agreement and their receipt, respectively, of required documents.

9.           Releases.  The following releases shall be effective at and as of the Settlement Closing:

(a)           Except with respect to any Buyer Liabilities and any indemnities or other obligations expressly assumed or undertaken by Rosetta pursuant to the PSA, this Agreement or the Settlement Documents, unless otherwise released by Calpine, Calpine, for itself and the other Calpine Parties (defined below) hereby releases, discharges, acquits, covenants not to sue, and agrees to forever hold harmless the Rosetta Parties, from and against any and all claims, causes of action, suits or demands that Calpine or its estate may have or may have had against the Rosetta Parties up through and including the date of the Approval Order, including without limitation all such claims, causes of action, suits or demands that Calpine asserted, or should have or could have asserted (i) in the Lawsuit, (ii) in response to the POCs, (iii) in regard to Calpine’s Objection, or (iv) in any other action, of any kind or nature whatsoever, including without limitation (A) all claims Calpine could have asserted under state law, Bankruptcy Law or in equity, whether arising under fraudulent conveyance law or otherwise, against Rosetta in connection with the Sale Transaction; (B) Rosetta’s operation, management, or control of the Oil and Gas Properties (and all Properties previously conveyed to Rosetta); (C) Rosetta’s obligations under the PSA to convey, transfer or receive Oil and Gas Properties or to pay monies to Calpine under the PSA FSS or otherwise; (D) for periods prior to the Settlement Closing Date, Rosetta’s obligations under the Marketing Agreement or the GPA (except for current payment obligations for services or hydrocarbon production, including balancing payments or prior period adjustments under these agreements attributable to the period before the Settlement Closing Date but which have not yet been invoiced or paid); and (E) in connection with the Petersen Properties.

(b)           Except with respect to any Sellers’ Retained Liabilities of Sellers and Calpine under the PSA, indemnities or other obligations expressly assumed or undertaken by Calpine pursuant to the PSA, this Agreement or the Settlement Documents, unless otherwise released by Rosetta under the PTRA, Rosetta, for itself and the other Rosetta Parties, hereby releases, discharges, acquits, covenants not to sue, and agrees to forever hold harmless Calpine together with their affiliates, successors and assigns, and their respective officers, directors, members, agents, representatives and employees (collectively, the “Calpine Parties”), from and against any and all claims, causes of action, suits or demands that Rosetta or its estate may have or may have had against the Calpine Parties up through and including the date of the Approval Order, including without limitation all such claims, causes of action, suits or demands that Rosetta asserted, or should have or could have asserted (i) in the Lawsuit, (ii) in the POCs, (iii) in Calpine’s Objection, or (iv) in any other action, of any kind or nature whatsoever, including without limitation (A) all claims Rosetta could have asserted under state law, Bankruptcy Law or in equity, whether arising under breach of contract, fraud or otherwise, against Calpine in connection with the Sale Transaction; (B) Rosetta’s operation, management, or control of the Oil and Gas Properties (and all Properties previously conveyed to Rosetta); (C) Calpine’s obligations under the PSA to convey, transfer or receive Oil and Gas Properties or pay monies to Rosetta under the PSA FSS or otherwise; (D) for periods prior to the Settlement Closing Date, Calpine’s obligations under the Marketing Agreement or the GPA (except for current payment obligations for services or hydrocarbon production, including balancing payments or prior period adjustments under these agreements attributable to the period before the Settlement Closing Date but which have not yet been invoiced or paid); and (E) in connection with the Petersen Properties.

(c)           The Parties each acknowledge that they have been advised by their respective legal counsel and are familiar with the provisions of California Civil Code Section 1542, which provides as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”

Each of the Parties, being aware of Section 1542, hereby expressly waives any and all rights it may have thereunder, as well as under any other statutes or common law principles of similar effect, with respect to the releases set forth in this Agreement.

10.           Entire Agreement.

(a)           Except for the PSA (and the documents and agreements pertaining thereto), this Agreement and the Settlement Documents are the entire agreement between the Parties in respect of the subject matter hereof and shall not be modified, altered, amended or vacated without the prior written consent of all Parties hereto.  No statement made or action taken in the negotiation of this Agreement may be used by any Party for any purpose whatsoever.

(b)           Except as expressly set forth herein, nothing in this Agreement shall be deemed to waive or release the Parties’ indemnification rights under the PSA, or any rights, interests or claims that any of the Parties might have against any Third Party pursuant to the PSA.

(c)           Except in regard to Calpine’s assumption of the PSA under Section 365 and the releases and dismissal with prejudice of the Lawsuit as expressly provided in this Agreement, nothing in this Agreement or the Settlement Documents shall diminish or impair the Parties’ rights and interests under the PTRA.  The Parties agree that the releases made and given in this Agreement apply to the properties that were the subject of the PTRA.

11.           No Admissions; No Presumption Against Drafter.  This Agreement and its contents are the result of negotiations by the Parties in an effort to compromise on certain unresolved disputes.  Nothing herein shall be held to be an admission against the interests of either Party or form the basis for waiver or estoppel in connection with either Party’s legal rights, claims or defenses associated with the properties not addressed by this Agreement.  Each Party has cooperated in the drafting and preparation of this Agreement.  Hence, in any construction to be made of this Agreement, the same shall not be construed against any Party.

12.           Further Assurances.

(a)           Each Party shall provide to the other Party certified copies of resolutions duly adopted by its board of directors or other governing body authorizing the execution, delivery and performance of this Agreement and the documents and transactions contemplate by this Agreement, including the Conveyance Documents, the GPA Amendment, and the Limited Power of Attorney.

(b)           Following the execution of this Agreement, each Party is and shall be obligated to execute and deliver such other certificates, agreements and other documents and take such other actions as may be reasonably be requested, from time to time, by any of the other Parties in order to consummate or implement to the fullest degree possible the transactions and agreements contemplated by this Agreement.

(c)           To the extent that same relate to the Sale Transaction and are not included in the Bankruptcy Court’s order, pursuant to Section 365(d) of the Bankruptcy Code, dated July 12, 2006 (the “365 Order”), Rosetta agrees to assist Calpine, following the Settlement Closing, in Calpine’s efforts to secure release of the collateral security held to secure the performance by Calpine of various obligations related to the Oil and Gas Properties by providing records or copies of records and the use of the reasonable time of its employees in support of this objective.

13.           Notices.  Notices to the Parties under this Agreement shall be delivered to the following:

If to Calpine,   Calpine Corporation Attn.: Thad Miller 717 Texas, Suite 1000 Houston, Texas 77002 If to Rosetta,   Rosetta Resources Inc. Attn.: Michael H. Hickey 717 Texas, Suite 2800 Houston, Texas  77002

14.           Successors and Assigns.  This Agreement and all of the provisions hereof are binding upon and shall inure to the benefit of the Parties and their respective successors, assigns, agents, employees, representatives, officers, directors, partners, parent companies, subsidiaries, affiliates, assigns, predecessors-in-interest, successors-in interest, and shareholders.  Nothing in this Agreement, express or implied, is intended to confer upon any person other than the Parties, and their successors and assigns, any rights, remedies or obligations under or by reason of this Agreement.

15.           Governing Law.  The terms of this Agreement will be governed by, and interpreted in accordance with the internal laws of, the State of Texas, without regard to the rules regarding choice of laws or conflicts of laws.

16.           Counterparts.  This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed an original, but all of which together shall constitute one and the same instrument.

17.           No Waivers.  The failure of any Party to insist on performance of any of the terms and conditions of this Agreement shall not be construed as a waiver or relinquishment of any rights granted hereunder or of the future performance of any such term, covenant or condition, but the obligations of the Parties with respect thereto shall continue in full force and effect.

18.           Severability.  Subsequent to the Settlement Closing, if any part of this Agreement is found to be prohibited, unlawful, void or for any reason unenforceable, then it shall be deemed severable and separable from the remaining parts and it shall not invalidate or render unenforceable the remaining parts of this Agreement.

19.           Representations.  Each Party represents and warrants to, and agrees with, the other Party as follows:

(a)           Each Party has received or has been given full opportunity to receive independent legal advice from its attorneys with respect to the advisability of making the settlement provided for herein, and with respect to the advisability of executing this Agreement.

(b)           Neither Party (nor, without limitation, any officer, agent, employee, representative, or attorney of or for either Party) has made any statement or representation to the other Party regarding any fact relied upon in entering into this Agreement, and each Party warrants that it does not rely upon any statement, representation or promise of the other Party (or, without limitation, of any officer, agent, employee, representative, or attorney for the other Party) in executing this Agreement, or in making the settlement or granting the releases provided for herein, except as expressly stated in this Agreement.

(c)           Each Party has made such investigation of the facts pertaining to the settlement outlined above and to this Agreement, and of all the matters pertaining thereto, as it deems necessary.

(d)           No Party has heretofore assigned, transferred, or granted, or purported to assign, transfer, or grant, any of the claims, demands, causes of action or rights of appeal disposed of by this Agreement.

(e)           Each term of this Agreement is contractual and not merely a recital.

20.           Fees and Expenses.  Each Party shall pay its own costs, fees and expenses (including attorneys’ fees) incurred in connection with the preparation, negotiation, and execution of this Agreement, and the documents and agreements contemplated by this Agreement, and shall not seek reimbursement thereof from the other Party.

21.           Headings.  The headings in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

22.           Exhibits.  The exhibits attached to this Agreement are fully incorporated into and are made a part of this Agreement for all purposes.

[signatures begin on following page]

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date and year first above written.

ROSETTA RESOURCES INC.

By:	/s/ Michael J. Rosinski
Name:	Michael J. Rosinski
Date:	10/22/08

ROSETTA RESOURCES OPERATING LP,

formerly known as Calpine Natural Gas L.P., and

successor by merger to Rosetta Resources California, LLC,

Rosetta Resources Rockies, LLC, Rosetta Resources Texas, GP, LLC,

Rosetta Resources Texas LP, LLC, and Rosetta Resources Texas LP

By:	/s/ Michael J. Rosinski
Name:	Michael J. Rosinski
	Executive Vice President and Chief Financial Officer
Date:	10/22/08
ROSETTA RESOURCES OFFSHORE, LLC
By:	/s/ Michael J. Rosinski
Name:	Michael J. Rosinski
	Executive Vice President and Chief Financial Officer
Date:	10/22/08

CALPINE CORPORATION
By:	/s/ Jack A. Fusco
Name:	Jack A. Fusco, President and
	Chief Executive Officer
Date:	10/22/08
CALPINE PRODUCER SERVICES, L.P.
By:  CPN Energy Services GP, Inc.
By:	/s/ Jack A. Fusco
Name:	Jack A. Fusco, President
Date:	10/22/08
CALPINE FUELS CORPORATION
By:	/s/ Jack A. Fusco
Name:	Jack A. Fusco, President
Date:	10/22/08
CALPINE GAS HOLDINGS, LLC
By:	/s/ Jack A. Fusco
Name:	Jack A. Fusco, President
Date:	10/22/08
CPN PIPELINE COMPANY
By:	/s/ Jack A. Fusco
Name:	Jack A. Fusco, President
Date:	10/22/08

CALPINE ENERGY SERVICES, L.P.
By:	/s/ Larry B. Leverett
Name:	Larry B. Leverett, Vice President
Date:	10/22/08

EXHIBIT A

PETERSEN PROPERTIES

[See attached pages.]

A-

EXHIBIT B

CONVEYANCE DOCUMENTS

[NOTE:  There will be a general conveyance, similar to the 2005 and 2007 conveyances, substantially in the form of the attached document, in sufficient counterparts for recording in approximately 20 counties or parishes in 8 states, plus additional assignments of government-issued leases on appropriate government forms.]

B-

EXHIBIT C

AMENDED AND RESTATED GAS SALES AGREEMENT

FOR DEDICATED CALIFORNIA PRODUCTION

[See attached pages.]

C-

EXHIBIT D

RIO VISTA OFFICE SUBLEASE

[See attached pages.]

D-

EX-10.4

Exhibit 10.4

Amended and Restated Base Contract for Sale and Purchase of Natural Gas

This Base Contract is entered into as of the following date:   July 7, 2005  and is amended and restated effective October 22, 2008.  The parties to this Base Contract are the following:

CALPINE ENERGY SERVICES, L.P.		and	ROSETTA RESOURCES OPERATING LP successor in interest to Rosetta Resources California, LLC
717 Texas Avenue, Suite 1000, Houston, Texas 77002			717 Texas Avenue, Suite 2800, Houston, Texas  77002
Duns Number:	16-966-8212		Duns Number:	63-101-7545
Contract Number:			Contract Number:
U.S. Federal Tax ID Number:	77-0526913		U.S. Federal Tax ID Number:	71-0882453

Notices:
717 Texas Avenue, Suite 1000, Houston, Texas  77002				Rosetta Resources Operating LP
Attn:	Contract Administration			Attn:	Marketing Department
Phone:	(713) 830-8845	Fax:	(713) 830-8751	Phone:	713-335-4000	Fax:	713-335-4197
Confirmations:				Confirmations and Notices:
717 Texas Avenue, Suite 1000, Houston, Texas 77002				CPSLP, Agent, 717 Texas Ave., Ste 1000, Houston, TX  77002
Attn:	Gas Confirmations			Attn:	Gas Confirmations
Phone:	(713) 830-8723	Fax:	(713) 830-8868	Phone:	713-830-8333	Fax:	713-830-8868
Invoices and Payments:				c/o
717 Texas Avenue, Suite 1000, Houston, Texas 77002				CPSLP, Agent, 717 Texas Ave., Ste 1000, Houston, TX  77002
Attn:	Fuels Accounting			Attn:	Fuels Accounting
Phone:	(713) 830-2000	Fax:	(713) 830-8749	Phone:	713-830-2000	Fax:	713-830-8749

Wire Transfer or ACH Numbers (if applicable):
BANK:	Union Bank of California, Oakland, CA	BANK:	Amegy Bank of Texas
ABA:	122-000-496	ABA:	113011258
ACCT:	187-003-1951	ACCT:	51581694
Other Details:		Other Details:

This Base Contract incorporates by reference for all purposes the General Terms and Conditions for Sale and Purchase of Natural Gas published by the North American Energy Standards Board.  The parties hereby agree to the following provisions offered in said General Terms and Conditions.  In the event the parties fail to check a box, the specified default provision shall apply.  Select only one box from each section:

Section 1.2 Transaction Procedure	■      Oral (default)      Written	Section 7.2 Payment Date	■       25thDay of Month following Month of delivery (default)       _____ Day of Month following Month of delivery
Section 2.5 Confirm Deadline	■      2 Business Days after receipt (default)       _____ Business Days after receipt	Section 7.2 Method of Payment	■       Wire transfer (default)       Automated Clearinghouse Credit (ACH)       Check
Section 2.6 Confirming Party	■      Seller (default)       Buyer       __________________________	Section 7.7 Netting	■       Netting applies (default)       Netting does not apply
Section 3.2 Performance Obligation	■      Cover Standard (default)      Spot Price Standard	Section 10.3.1 Early Termination Damages	■       Early Termination DamagesApply (default)       Early Termination DamagesDo Not Apply
Note: The following Spot Price Publication applies to both of the immediately preceding.		Section 10.3.2 Other Agreement Setoffs	      Other Agreement Setoffs Apply (default) ■       Other Agreement Setoffs Do Not Apply
Section 2.26 Spot Price Publication	■      Gas Daily Midpoint (default)       __________________________	Section 14.5 Choice Of Law	Texas
Section 6 Taxes	■      Buyer Pays At and After Delivery Point (default)     Seller Pays Before and At Delivery Point	Section 14.10 Confidentiality	■       Confidentiality applies (default)       Confidentiality does not apply
■ Special Provisions Number of sheets attached: 5  Addendum(s):___________________________________________________________________________________________

IN WITNESS WHEREOF, the parties hereto have executed this Base Contract in duplicate.

CALPINE ENERGY SERVICES, L.P. (Buyer or Party “A”)		ROSETTA RESOURCES OPERATING LP (Seller or Party “B”)
Party Name		by its general partner Rosetta Resources Operating GP, LLC
		Party Name
By	/s/ Larry Leverett	By	/s/ Michael J. Rosinski
Name:	Larry Leverett	Name:	Michael J. Rosinski
Title:	Vice President	Title:	EVP, CFO and Treasurer

Copyright © 2002 North American Energy Standards Board, Inc.	NAESB Standard 6.3.1
All Rights Reserved	April 19, 2002

Page 1 of 10

General Terms and Conditions

Base Contract for Sale and Purchase of Natural Gas

SECTION 1. PURPOSE AND PROCEDURES

1.1.           These General Terms and Conditions are intended to facilitate purchase and sale transactions of Gas on a Firm or Interruptible basis.  "Buyer" refers to the party receiving Gas and "Seller" refers to the party delivering Gas.  The entire agreement between the parties shall be the Contract as defined in Section 2.7.

The parties have selected either the “Oral Transaction Procedure” or the “Written Transaction Procedure” as indicated on the Base Contract.

Oral Transaction Procedure:

1.2.           The parties will use the following Transaction Confirmation procedure.  Any Gas purchase and sale transaction may be effectuated in an EDI transmission or telephone conversation with the offer and acceptance constituting the agreement of the parties.  The parties shall be legally bound from the time they so agree to transaction terms and may each rely thereon.  Any such transaction shall be considered a “writing” and to have been “signed”.  Notwithstanding the foregoing sentence, the parties agree that Confirming Party shall, and the other party may, confirm a telephonic transaction by sending the other party a Transaction Confirmation by facsimile, EDI or mutually agreeable electronic means within three Business Days of a transaction covered by this Section 1.2 (Oral Transaction Procedure) provided that the failure to send a Transaction Confirmation shall not invalidate the oral agreement of the parties.  Confirming Party adopts its confirming letterhead, or the like, as its signature on any Transaction Confirmation as the identification and authentication of Confirming Party.  If the Transaction Confirmation contains any provisions other than those relating to the commercial terms of the transaction (i.e., price, quantity, performance obligation, delivery point, period of delivery and/or transportation conditions), which modify or supplement the Base Contract or General Terms and Conditions of this Contract (e.g., arbitration or additional representations and warranties), such provisions shall not be deemed to be accepted pursuant to Section 1.3 but must be expressly agreed to by both parties; provided that the foregoing shall not invalidate any transaction agreed to by the parties.

Written Transaction Procedure:

1.2.           The parties will use the following Transaction Confirmation procedure.  Should the parties come to an agreement regarding a Gas purchase and sale transaction for a particular Delivery Period, the Confirming Party shall, and the other party may, record that agreement on a Transaction Confirmation and communicate such Transaction Confirmation by facsimile, EDI or mutually agreeable electronic means, to the other party by the close of the Business Day following the date of agreement.  The parties acknowledge that their agreement will not be binding until the exchange of nonconflicting Transaction Confirmations or the passage of the Confirm Deadline without objection from the receiving party, as provided in Section 1.3.

1.3.           If a sending party's Transaction Confirmation is materially different from the receiving party's understanding of the agreement referred to in Section 1.2, such receiving party shall notify the sending party via facsimile, EDI or mutually agreeable electronic means by the Confirm Deadline, unless such receiving party has previously sent a Transaction Confirmation to the sending party.  The failure of the receiving party to so notify the sending party in writing by the Confirm Deadline constitutes the receiving party's agreement to the terms of the transaction described in the sending party's Transaction Confirmation.  If there are any material differences between timely sent Transaction Confirmations governing the same transaction, then neither Transaction Confirmation shall be binding until or unless such differences are resolved including the use of any evidence that clearly resolves the differences in the Transaction Confirmations.  In the event of a conflict among the terms of (i) a binding Transaction Confirmation pursuant to Section 1.2, (ii) the oral agreement of the parties which may be evidenced by a recorded conversation, where the parties have selected the Oral Transaction Procedure of the Base Contract, (iii) the Base Contract, and (iv) these General Terms and Conditions, the terms of the documents shall govern in the priority listed in this sentence.

1.4.           The parties agree that each party may electronically record all telephone conversations with respect to this Contract between their respective employees, without any special or further notice to the other party.  Each party shall obtain any necessary consent of its agents and employees to such recording.  Where the parties have selected the Oral Transaction Procedure in Section 1.2 of the Base Contract, the parties agree not to contest the validity or enforceability of telephonic recordings entered into in accordance with the requirements of this Base Contract.  However, nothing herein shall be construed as a waiver of any objection to the admissibility of such evidence.

SECTION 2. DEFINITIONS

The terms set forth below shall have the meaning ascribed to them below.  Other terms are also defined elsewhere in the Contract and shall have the meanings ascribed to them herein.

2.1.           “Alternative Damages” shall mean such damages, expressed in dollars or dollars per MMBtu, as the parties shall agree upon in the Transaction Confirmation, in the event either Seller or Buyer fails to perform a Firm obligation to deliver Gas in the case of Seller or to receive Gas in the case of Buyer.

2.2.           "Base Contract" shall mean a contract executed by the parties that incorporates these General Terms and Conditions by reference; that specifies the agreed selections of provisions contained herein; and that sets forth other information required herein and any Special Provisions and addendum(s) as identified on page one.

2.3.           "British thermal unit" or "Btu" shall mean the International BTU, which is also called the Btu (IT).

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2.4.           "Business Day" shall mean any day except Saturday, Sunday or Federal Reserve Bank holidays.

2.5.           "Confirm Deadline" shall mean 5:00 p.m. in the receiving party's time zone on the second Business Day following the Day a Transaction Confirmation is received or, if applicable, on the Business Day agreed to by the parties in the Base Contract; provided, if the Transaction Confirmation is time stamped after 5:00 p.m. in the receiving party's time zone, it shall be deemed received at the opening of the next Business Day.

2.6.           "Confirming Party" shall mean the party designated in the Base Contract to prepare and forward Transaction Confirmations to the other party.

2.7.           "Contract" shall mean the legally-binding relationship established by (i) the Base Contract, (ii) any and all binding Transaction Confirmations and (iii) where the parties have selected the Oral Transaction Procedure in Section 1.2 of the Base Contract, any and all transactions that the parties have entered into through an EDI transmission or by telephone, but that have not been confirmed in a binding Transaction Confirmation.

2.8.           "Contract Price" shall mean the amount expressed in U.S. Dollars per MMBtu to be paid by Buyer to Seller for the purchase of Gas as agreed to by the parties in a transaction.

2.9.           "Contract Quantity" shall mean the quantity of Gas to be delivered and taken as agreed to by the parties in a transaction.

2.10.         "Cover Standard", as referred to in Section 3.2, shall mean that if there is an unexcused failure to take or deliver any quantity of Gas pursuant to this Contract, then the performing party shall use commercially reasonable efforts to (i) if Buyer is the performing party, obtain Gas, (or an alternate fuel if elected by Buyer and replacement Gas is not available), or (ii) if Seller is the performing party, sell Gas, in either case, at a price reasonable for the delivery or production area, as applicable, consistent with:  the amount of notice provided by the nonperforming party; the immediacy of the Buyer's Gas consumption needs or Seller's Gas sales requirements, as applicable; the quantities involved; and the anticipated length of failure by the nonperforming party.

2.11.         "Credit Support Obligation(s)” shall mean any obligation(s) to provide or establish credit support for, or on behalf of, a party to this Contract such as an irrevocable standby letter of credit, a margin agreement, a prepayment, a security interest in an asset, a performance bond, guaranty, or other good and sufficient security of a continuing nature.

2.12.         "Day" shall mean a period of 24 consecutive hours, coextensive with a "day" as defined by the Receiving Transporter in a particular transaction.

2.13.         "Delivery Period" shall be the period during which deliveries are to be made as agreed to by the parties in a transaction.

2.14.         "Delivery Point(s)" shall mean such point(s) as are agreed to by the parties in a transaction.

2.15.         "EDI" shall mean an electronic data interchange pursuant to an agreement entered into by the parties, specifically relating to the communication of Transaction Confirmations under this Contract.

2.16.         "EFP" shall mean the purchase, sale or exchange of natural Gas as the "physical" side of an exchange for physical transaction involving gas futures contracts.  EFP shall incorporate the meaning and remedies of "Firm", provided that a party’s excuse for nonperformance of its obligations to deliver or receive Gas will be governed by the rules of the relevant futures exchange regulated under the Commodity Exchange Act.

2.17.         "Firm" shall mean that either party may interrupt its performance without liability only to the extent that such performance is prevented for reasons of Force Majeure; provided, however, that during Force Majeure interruptions, the party invoking Force Majeure may be responsible for any Imbalance Charges as set forth in Section 4.3 related to its interruption after the nomination is made to the Transporter and until the change in deliveries and/or receipts is confirmed by the Transporter.

2.18.         "Gas" shall mean any mixture of hydrocarbons and noncombustible gases in a gaseous state consisting primarily of methane.

2.19.         "Imbalance Charges" shall mean any fees, penalties, costs or charges (in cash or in kind) assessed by a Transporter for failure to satisfy the Transporter's balance and/or nomination requirements.

2.20.         "Interruptible" shall mean that either party may interrupt its performance at any time for any reason, whether or not caused by an event of Force Majeure, with no liability, except such interrupting party may be responsible for any Imbalance Charges as set forth in Section 4.3 related to its interruption after the nomination is made to the Transporter and until the change in deliveries and/or receipts is confirmed by Transporter.

2.21.         "MMBtu" shall mean one million British thermal units, which is equivalent to one dekatherm.

2.22.         "Month" shall mean the period beginning on the first Day of the calendar month and ending immediately prior to the commencement of the first Day of the next calendar month.

2.23.         "Payment Date" shall mean a date, as indicated on the Base Contract, on or before which payment is due Seller for Gas received by Buyer in the previous Month.

2.24.         "Receiving Transporter" shall mean the Transporter receiving Gas at a Delivery Point, or absent such receiving Transporter, the Transporter delivering Gas at a Delivery Point.

2.25.         "Scheduled Gas" shall mean the quantity of Gas confirmed by Transporter(s) for movement, transportation or management.

2.26.         "Spot Price " as referred to in Section 3.2 shall mean the price listed in the publication indicated on the Base Contract, under the listing applicable to the geographic location closest in proximity to the Delivery Point(s) for the relevant Day; provided, if there is no single price published for such location for such Day, but there is published a range of prices, then the Spot Price shall be the average of such high and low prices.  If no price or range of prices is published for such Day, then the Spot Price shall be the average of the following: (i) the price (determined as stated above) for the first Day for which a price or range of prices is published that next precedes the relevant Day; and (ii) the price (determined as stated above) for the first Day for which a price or range of prices is published that next follows the relevant Day.

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All Rights Reserved	April 19, 2002

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2.27.         "Transaction Confirmation" shall mean a document, similar to the form of Exhibit A, setting forth the terms of a transaction formed pursuant to Section 1 for a particular Delivery Period.

2.28.         “Termination Option” shall mean the option of either party to terminate a transaction in the event that the other party fails to perform a Firm obligation to deliver Gas in the case of Seller or to receive Gas in the case of Buyer for a designated number of days during a period as specified on the applicable Transaction Confirmation.

2.29.         "Transporter(s)" shall mean all Gas gathering or pipeline companies, or local distribution companies, acting in the capacity of a transporter, transporting Gas for Seller or Buyer upstream or downstream, respectively, of the Delivery Point pursuant to a particular transaction.

SECTION 3. PERFORMANCE OBLIGATION

3.1.           Seller agrees to sell and deliver, and Buyer agrees to receive and purchase, the Contract Quantity for a particular transaction in accordance with the terms of the Contract.  Sales and purchases will be on a Firm or Interruptible basis, as agreed to by the parties in a transaction.

The parties have selected either the “Cover Standard” or the “Spot Price Standard” as indicated on the Base Contract.

Cover Standard:

3.2.           The sole and exclusive remedy of the parties in the event of a breach of a Firm obligation to deliver or receive Gas shall be recovery of the following: (i) in the event of a breach by Seller on any Day(s), payment by Seller to Buyer in an amount equal to the positive difference, if any, between the purchase price paid by Buyer utilizing the Cover Standard and the Contract Price, adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s), multiplied by the difference between the Contract Quantity and the quantity actually delivered by Seller for such Day(s); or (ii) in the event of a breach by Buyer on any Day(s), payment by Buyer to Seller in the amount equal to the positive difference, if any, between the Contract Price and the price received by Seller utilizing the Cover Standard for the resale of such Gas, adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s), multiplied by the difference between the Contract Quantity and the quantity actually taken by Buyer for such Day(s); or (iii) in the event that Buyer has used commercially reasonable efforts to replace the Gas or Seller has used commercially reasonable efforts to sell the Gas to a third party, and no such replacement or sale is available, then the sole and exclusive remedy of the performing party shall be any unfavorable difference between the Contract Price and the Spot Price, adjusted for such transportation to the applicable Delivery Point, multiplied by the difference between the Contract Quantity and the quantity actually delivered by Seller and received by Buyer for such Day(s).  Imbalance Charges shall not be recovered under this Section 3.2, but Seller and/or Buyer shall be responsible for Imbalance Charges, if any, as provided in Section 4.3.  The amount of such unfavorable difference shall be payable five Business Days after presentation of the performing party’s invoice, which shall set forth the basis upon which such amount was calculated.

Spot Price Standard:

3.2.           The sole and exclusive remedy of the parties in the event of a breach of a Firm obligation to deliver or receive Gas shall be recovery of the following: (i) in the event of a breach by Seller on any Day(s), payment by Seller to Buyer in an amount equal to the difference between the Contract Quantity and the actual quantity delivered by Seller and received by Buyer for such Day(s), multiplied by the positive difference, if any, obtained by subtracting the Contract Price from the Spot Price; or (ii) in the event of a breach by Buyer on any Day(s), payment by Buyer to Seller in an amount equal to the difference between the Contract Quantity and the actual quantity delivered by Seller and received by Buyer for such Day(s), multiplied by the positive difference, if any, obtained by subtracting the applicable Spot Price from the Contract Price.  Imbalance Charges shall not be recovered under this Section 3.2, but Seller and/or Buyer shall be responsible for Imbalance Charges, if any, as provided in Section 4.3.  The amount of such unfavorable difference shall be payable five Business Days after presentation of the performing party’s invoice, which shall set forth the basis upon which such amount was calculated.

3.3.           Notwithstanding Section 3.2, the parties may agree to Alternative Damages in a Transaction Confirmation executed in writing by both parties.

3.4.           In addition to Sections 3.2 and 3.3, the parties may provide for a Termination Option in a Transaction Confirmation executed in writing by both parties.  The Transaction Confirmation containing the Termination Option will designate the length of nonperformance triggering the Termination Option and the procedures for exercise thereof, how damages for nonperformance will be compensated, and how liquidation costs will be calculated.

SECTION 4. TRANSPORTATION, NOMINATIONS, AND IMBALANCES

4.1.           Seller shall have the sole responsibility for transporting the Gas to the Delivery Point(s).  Buyer shall have the sole responsibility for transporting the Gas from the Delivery Point(s).

4.2.           The parties shall coordinate their nomination activities, giving sufficient time to meet the deadlines of the affected Transporter(s).  Each party shall give the other party timely prior Notice, sufficient to meet the requirements of all Transporter(s) involved in the transaction, of the quantities of Gas to be delivered and purchased each Day.  Should either party become aware that actual deliveries at the Delivery Point(s) are greater or lesser than the Scheduled Gas, such party shall promptly notify the other party.

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4.3.           The parties shall use commercially reasonable efforts to avoid imposition of any Imbalance Charges.  If Buyer or Seller receives an invoice from a Transporter that includes Imbalance Charges, the parties shall determine the validity as well as the cause of such Imbalance Charges.  If the Imbalance Charges were incurred as a result of Buyer’s receipt of quantities of Gas greater than or less than the Scheduled Gas, then Buyer shall pay for such Imbalance Charges or reimburse Seller for such Imbalance Charges paid by Seller.  If the Imbalance Charges were incurred as a result of Seller’s delivery of quantities of Gas greater than or less than the Scheduled Gas, then Seller shall pay for such Imbalance Charges or reimburse Buyer for such Imbalance Charges paid by Buyer.

SECTION 5. QUALITY AND MEASUREMENT

All Gas delivered by Seller shall meet the pressure, quality and heat content requirements of the Receiving Transporter.  The unit of quantity measurement for purposes of this Contract shall be one MMBtu dry.  Measurement of Gas quantities hereunder shall be in accordance with the established procedures of the Receiving Transporter.

SECTION 6. TAXES

The parties have selected either “Buyer Pays At and After Delivery Point” or “Seller Pays Before and At Delivery Point” as indicated on the Base Contract.

Buyer Pays At and After Delivery Point:

Seller shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges imposed by any government authority (“Taxes”) on or with respect to the Gas prior to the Delivery Point(s).  Buyer shall pay or cause to be paid all Taxes on or with respect to the Gas at the Delivery Point(s) and all Taxes after the Delivery Point(s).  If a party is required to remit or pay Taxes that are the other party’s responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes.  Any party entitled to an exemption from any such Taxes or charges shall furnish the other party any necessary documentation thereof.

Seller Pays Before and At Delivery Point:

Seller shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges imposed by any government authority (“Taxes”) on or with respect to the Gas prior to the Delivery Point(s) and all Taxes at the Delivery Point(s).  Buyer shall pay or cause to be paid all Taxes on or with respect to the Gas after the Delivery Point(s).  If a party is required to remit or pay Taxes that are the other party’s responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes.  Any party entitled to an exemption from any such Taxes or charges shall furnish the other party any necessary documentation thereof.

SECTION 7. BILLING, PAYMENT, AND AUDIT

7.1.           Seller shall invoice Buyer for Gas delivered and received in the preceding Month and for any other applicable charges, providing supporting documentation acceptable in industry practice to support the amount charged.  If the actual quantity delivered is not known by the billing date, billing will be prepared based on the quantity of Scheduled Gas.  The invoiced quantity will then be adjusted to the actual quantity on the following Month's billing or as soon thereafter as actual delivery information is available.

7.2.           Buyer shall remit the amount due under Section 7.1 in the manner specified in the Base Contract, in immediately available funds, on or before the later of the Payment Date or 10 Days after receipt of the invoice by Buyer; provided that if the Payment Date is not a Business Day, payment is due on the next Business Day following that date.  In the event any payments are due Buyer hereunder, payment to Buyer shall be made in accordance with this Section 7.2.

7.3.           In the event payments become due pursuant to Sections 3.2 or 3.3, the performing party may submit an invoice to the nonperforming party for an accelerated payment setting forth the basis upon which the invoiced amount was calculated.  Payment from the nonperforming party will be due five Business Days after receipt of invoice.

7.4.           If the invoiced party, in good faith, disputes the amount of any such invoice or any part thereof, such invoiced party will pay such amount as it concedes to be correct; provided, however, if the invoiced party disputes the amount due, it must provide supporting documentation acceptable in industry practice to support the amount paid or disputed.  In the event the parties are unable to resolve such dispute, either party may pursue any remedy available at law or in equity to enforce its rights pursuant to this Section.

7.5.           If the invoiced party fails to remit the full amount payable when due, interest on the unpaid portion shall accrue from the date due until the date of payment at a rate equal to the lower of (i) the then-effective prime rate of interest published under "Money Rates" by The Wall Street Journal, plus two percent per annum; or (ii) the maximum applicable lawful interest rate.

7.6.           A party shall have the right, at its own expense, upon reasonable Notice and at reasonable times, to examine and audit and to obtain copies of the relevant portion of the books, records, and telephone recordings of the other party only to the extent reasonably necessary to verify the accuracy of any statement, charge, payment, or computation made under the Contract.  This right to examine, audit, and to obtain copies shall not be available with respect to proprietary information not directly relevant to transactions under this Contract.  All invoices and billings shall be conclusively presumed final and accurate and all associated claims for under- or overpayments shall be deemed waived unless such invoices or billings are objected to in writing, with adequate explanation and/or documentation, within two years after the Month of Gas delivery.  All retroactive adjustments under Section 7 shall be paid in full by the party owing payment within 30 Days of Notice and substantiation of such inaccuracy.

7.7.           Unless the parties have elected on the Base Contract not to make this Section 7.7 applicable to this Contract, the parties shall net all undisputed amounts due and owing, and/or past due, arising under the Contract such that the party owing the greater amount shall make a single payment of the net amount to the other party in accordance with Section 7; provided that no payment required to be made pursuant to the terms of any Credit Support Obligation or pursuant to Section 7.3 shall be subject to netting under this Section.  If the parties have executed a separate netting agreement, the terms and conditions therein shall prevail to the extent inconsistent herewith.

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All Rights Reserved	April 19, 2002

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SECTION 8. TITLE, WARRANTY, AND INDEMNITY

8.1.           Unless otherwise specifically agreed, title to the Gas shall pass from Seller to Buyer at the Delivery Point(s).  Seller shall have responsibility for and assume any liability with respect to the Gas prior to its delivery to Buyer at the specified Delivery Point(s).  Buyer shall have responsibility for and any liability with respect to said Gas after its delivery to Buyer at the Delivery Point(s).

8.2.           Seller warrants that it will have the right to convey and will transfer good and merchantable title to all Gas sold hereunder and delivered by it to Buyer, free and clear of all liens, encumbrances, and claims.  EXCEPT AS PROVIDED IN THIS SECTION 8.2 AND IN SECTION 14.8, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE, ARE DISCLAIMED.

8.3.           Seller agrees to indemnify Buyer and save it harmless from all losses, liabilities or claims including reasonable attorneys' fees and costs of court ("Claims"), from any and all persons, arising from or out of claims of title, personal injury or property damage from said Gas or other charges thereon which attach before title passes to Buyer.  Buyer agrees to indemnify Seller and save it harmless from all Claims, from any and all persons, arising from or out of claims regarding payment, personal injury or property damage from said Gas or other charges thereon which attach after title passes to Buyer.

8.4.           Notwithstanding the other provisions of this Section 8, as between Seller and Buyer, Seller will be liable for all Claims to the extent that such arise from the failure of Gas delivered by Seller to meet the quality requirements of Section 5.

SECTION 9. NOTICES

9.1.           All Transaction Confirmations, invoices, payments and other communications made pursuant to the Base Contract ("Notices") shall be made to the addresses specified in writing by the respective parties from time to time.

9.2.           All Notices required hereunder may be sent by facsimile or mutually acceptable electronic means, a nationally recognized overnight courier service, first class mail or hand delivered.

9.3.           Notice shall be given when received on a Business Day by the addressee.  In the absence of proof of the actual receipt date, the following presumptions will apply.  Notices sent by facsimile shall be deemed to have been received upon the sending party's receipt of its facsimile machine's confirmation of successful transmission.  If the day on which such facsimile is received is not a Business Day or is after five p.m. on a Business Day, then such facsimile shall be deemed to have been received on the next following Business Day.  Notice by overnight mail or courier shall be deemed to have been received on the next Business Day after it was sent or such earlier time as is confirmed by the receiving party.  Notice via first class mail shall be considered delivered five Business Days after mailing.

SECTION 10. FINANCIAL RESPONSIBILITY

10.1.         If either party (“X”) has reasonable grounds for insecurity regarding the performance of any obligation under this Contract (whether or not then due) by the other party (“Y”) (including, without limitation, the occurrence of a material change in the creditworthiness of Y), X may demand Adequate Assurance of Performance.  “Adequate Assurance of Performance” shall mean sufficient security in the form, amount and for the term reasonably acceptable to X, including, but not limited to, a standby irrevocable letter of credit, a prepayment, a security interest in an asset or a performance bond or guaranty (including the issuer of any such security).

10.2.         In the event (each an "Event of Default") either party (the "Defaulting Party") or its guarantor shall: (i) make an assignment or any general arrangement for the benefit of creditors; (ii) file a petition or otherwise commence, authorize, or acquiesce in the commencement of a proceeding or case under any bankruptcy or similar law for the protection of creditors or have such petition filed or proceeding commenced against it; (iii) otherwise become bankrupt or insolvent (however evidenced); (iv) be unable to pay its debts as they fall due; (v) have a receiver, provisional liquidator, conservator, custodian, trustee or other similar official appointed with respect to it or substantially all of its assets; (vi) fail to perform any obligation to the other party with respect to any Credit Support Obligations relating to the Contract; (vii) fail to give Adequate Assurance of Performance under Section 10.1 within 48 hours but at least one  Business Day of a written request by the other party; or (viii) not have paid any amount due the other party hereunder on or before the second Business Day following written Notice that such payment is due; then the other party (the "Non-Defaulting Party") shall have the right, at its sole election, to immediately withhold and/or suspend deliveries or payments upon Notice and/or to terminate and liquidate the transactions under the Contract, in the manner provided in Section 10.3, in addition to any and all other remedies available hereunder.

10.3.         If an Event of Default has occurred and is continuing, the Non-Defaulting Party shall have the right, by Notice to the Defaulting Party, to designate a Day, no earlier than the Day such Notice is given and no later than 20 Days after such Notice is given, as an early termination date (the “Early Termination Date”) for the liquidation and termination pursuant to Section 10.3.1 of all transactions under the Contract, each a “Terminated Transaction”.  On the Early Termination Date, all transactions will terminate, other than those transactions, if any, that may not be liquidated and terminated under applicable law or that are, in the reasonable opinion of the Non-Defaulting Party, commercially impracticable to liquidate and terminate (“Excluded Transactions”), which Excluded Transactions must be liquidated and terminated as soon thereafter as is reasonably practicable, and upon termination shall be a Terminated Transaction and be valued consistent with Section 10.3.1 below.  With respect to each Excluded Transaction, its actual termination date shall be the Early Termination Date for purposes of Section 10.3.1.

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The parties have selected either “Early Termination Damages Apply” or “Early Termination Damages Do Not Apply” as indicated on the Base Contract.

Early Termination Damages Apply:

10.3.1.    As of the Early Termination Date, the Non-Defaulting Party shall determine, in good faith and in a commercially reasonable manner, (i) the amount owed (whether or not then due) by each party with respect to all Gas delivered and received between the parties under Terminated Transactions and Excluded Transactions on and before the Early Termination Date and all other applicable charges relating to such deliveries and receipts (including without limitation any amounts owed under Section 3.2), for which payment has not yet been made by the party that owes such payment under this Contract and (ii) the Market Value, as defined below, of each Terminated Transaction.  The Non-Defaulting Party shall (x) liquidate and accelerate each Terminated Transaction at its Market Value, so that each amount equal to the difference between such Market Value and the Contract Value, as defined below, of such Terminated Transaction(s) shall be due to the Buyer under the Terminated Transaction(s) if such Market Value exceeds the Contract Value and to the Seller if the opposite is the case; and (y) where appropriate, discount each amount then due under clause (x) above to present value in a commercially reasonable manner as of the Early Termination Date (to take account of the period between the date of liquidation and the date on which such amount would have otherwise been due pursuant to the relevant Terminated Transactions).

For purposes of this Section 10.3.1, “Contract Value” means the amount of Gas remaining to be delivered or purchased under a transaction multiplied by the Contract Price, and “Market Value” means the amount of Gas remaining to be delivered or purchased under a transaction multiplied by the market price for a similar transaction at the Delivery Point determined by the Non-Defaulting Party in a commercially reasonable manner.  To ascertain the Market Value, the Non-Defaulting Party may consider, among other valuations, any or all of the settlement prices of NYMEX Gas futures contracts, quotations from leading dealers in energy swap contracts or physical gas trading markets, similar sales or purchases and any other bona fide third-party offers, all adjusted for the length of the term and differences in transportation costs.  A party shall not be required to enter into a replacement transaction(s) in order to determine the Market Value.  Any extension(s) of the term of a transaction to which parties are not bound as of the Early Termination Date (including but not limited to “evergreen provisions”) shall not be considered in determining Contract Values and Market Values.  For the avoidance of doubt, any option pursuant to which one party has the right to extend the term of a transaction shall be considered in determining Contract Values and Market Values.  The rate of interest used in calculating net present value shall be determined by the Non-Defaulting Party in a commercially reasonable manner.

Early Termination Damages Do Not Apply:

10.3.1.    As of the Early Termination Date, the Non-Defaulting Party shall determine, in good faith and in a commercially reasonable manner, the amount owed (whether or not then due) by each party with respect to all Gas delivered and received between the parties under Terminated Transactions and Excluded Transactions on and before the Early Termination Date and all other applicable charges relating to such deliveries and receipts (including without limitation any amounts owed under Section 3.2), for which payment has not yet been made by the party that owes such payment under this Contract.

The parties have selected either “Other Agreement Setoffs Apply” or “Other Agreement Setoffs Do Not Apply” as indicated on the Base Contract.

Other Agreement Setoffs Apply:

10.3.2.    The Non-Defaulting Party shall net or aggregate, as appropriate, any and all amounts owing between the parties under Section 10.3.1, so that all such amounts are netted or aggregated to a single liquidated amount payable by one party to the other (the “Net Settlement Amount”).  At its sole option and without prior Notice to the Defaulting Party, the Non-Defaulting Party may setoff (i) any Net Settlement Amount owed to the Non-Defaulting Party against any margin or other collateral held by it in connection with any Credit Support Obligation relating to the Contract; or (ii) any Net Settlement Amount payable to the Defaulting Party against any amount(s) payable by the Defaulting Party to the Non-Defaulting Party under any other agreement or arrangement between the parties.

Other Agreement Setoffs Do Not Apply:

10.3.2.    The Non-Defaulting Party shall net or aggregate, as appropriate, any and all amounts owing between the parties under Section 10.3.1, so that all such amounts are netted or aggregated to a single liquidated amount payable by one party to the other (the “Net Settlement Amount”).  At its sole option and without prior Notice to the Defaulting Party, the Non-Defaulting Party may setoff any Net Settlement Amount owed to the Non-Defaulting Party against any margin or other collateral held by it in connection with any Credit Support Obligation relating to the Contract.

10.3.3.    If any obligation that is to be included in any netting, aggregation or setoff pursuant to Section 10.3.2 is unascertained, the Non-Defaulting Party may in good faith estimate that obligation and net, aggregate or setoff, as applicable, in respect of the estimate, subject to the Non-Defaulting Party accounting to the Defaulting Party when the obligation is ascertained.  Any amount not then due which is included in any netting, aggregation or setoff pursuant to Section 10.3.2 shall be discounted to net present value in a commercially reasonable manner determined by the Non-Defaulting Party.

10.4.         As soon as practicable after a liquidation, Notice shall be given by the Non-Defaulting Party to the Defaulting Party of the Net Settlement Amount, and whether the Net Settlement Amount is due to or due from the Non-Defaulting Party.  The Notice shall include a written statement explaining in reasonable detail the calculation of such amount, provided that failure to give such Notice shall not affect the validity or enforceability of the liquidation or give rise to any claim by the Defaulting Party against the Non-Defaulting Party.  The Net Settlement Amount shall be paid by the close of business on the second Business Day following such Notice, which date shall not be earlier than the Early Termination Date.  Interest on any unpaid portion of the Net Settlement Amount shall accrue from the date due until the date of payment at a rate equal to the lower of (i) the then-effective prime rate of interest published under "Money Rates" by The Wall Street Journal, plus two percent per annum; or (ii) the maximum applicable lawful interest rate.

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All Rights Reserved	April 19, 2002

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10.5.         The parties agree that the transactions hereunder constitute a "forward contract" within the meaning of the United States Bankruptcy Code and that Buyer and Seller are each "forward contract merchants" within the meaning of the United States Bankruptcy Code.

10.6.         The Non-Defaulting Party's remedies under this Section 10 are the sole and exclusive remedies of the Non-Defaulting Party with respect to the occurrence of any Early Termination Date.  Each party reserves to itself all other rights, setoffs, counterclaims and other defenses that it is or may be entitled to arising from the Contract.

10.7.         With respect to this Section 10, if the parties have executed a separate netting agreement with close-out netting provisions, the terms and conditions therein shall prevail to the extent inconsistent herewith.

SECTION 11. FORCE MAJEURE

11.1.         Except with regard to a party's obligation to make payment(s) due under Section 7, Section 10.4, and Imbalance Charges under Section 4, neither party shall be liable to the other for failure to perform a Firm obligation, to the extent such failure was caused by Force Majeure.  The term "Force Majeure" as employed herein means any cause not reasonably within the control of the party claiming suspension, as further defined in Section 11.2.

11.2.         Force Majeure shall include, but not be limited to, the following: (i) physical events such as acts of God, landslides, lightning, earthquakes, fires, storms or storm warnings, such as hurricanes, which result in evacuation of the affected area, floods, washouts, explosions, breakage or accident or necessity of repairs to machinery or equipment or lines of pipe; (ii) weather related events affecting an entire geographic region, such as low temperatures which cause freezing or failure of wells or lines of pipe; (iii) interruption and/or curtailment of Firm transportation and/or storage by Transporters; (iv) acts of others such as strikes, lockouts or other industrial disturbances, riots, sabotage, insurrections or wars; and (v) governmental actions such as necessity for compliance with any court order, law, statute, ordinance, regulation, or policy having the effect of law promulgated by a governmental authority having jurisdiction.  Seller and Buyer shall make reasonable efforts to avoid the adverse impacts of a Force Majeure and to resolve the event or occurrence once it has occurred in order to resume performance.

11.3.         Neither party shall be entitled to the benefit of the provisions of Force Majeure to the extent performance is affected by any or all of the following circumstances: (i) the curtailment of interruptible or secondary Firm transportation unless primary, in-path, Firm transportation is also curtailed; (ii) the party claiming excuse failed to remedy the condition and to resume the performance of such covenants or obligations with reasonable dispatch; or (iii) economic hardship, to include, without limitation, Seller’s ability to sell Gas at a higher or more advantageous price than the Contract Price, Buyer’s ability to purchase Gas at a lower or more advantageous price than the Contract Price, or a regulatory agency disallowing, in whole or in part, the pass through of costs resulting from this Agreement; (iv) the loss of Buyer’s market(s) or Buyer’s inability to use or resell Gas purchased hereunder, except, in either case, as provided in Section 11.2; or (v) the loss or failure of Seller’s gas supply or depletion of reserves, except, in either case, as provided in Section 11.2.  The party claiming Force Majeure shall not be excused from its responsibility for Imbalance Charges.

11.4.         Notwithstanding anything to the contrary herein, the parties agree that the settlement of strikes, lockouts or other industrial disturbances shall be within the sole discretion of the party experiencing such disturbance.

11.5.         The party whose performance is prevented by Force Majeure must provide Notice to the other party.  Initial Notice may be given orally; however, written Notice with reasonably full particulars of the event or occurrence is required as soon as reasonably possible.  Upon providing written Notice of Force Majeure to the other party, the affected party will be relieved of its obligation, from the onset of the Force Majeure event, to make or accept delivery of Gas, as applicable, to the extent and for the duration of Force Majeure, and neither party shall be deemed to have failed in such obligations to the other during such occurrence or event.

11.6.         Notwithstanding Sections 11.2 and 11.3, the parties may agree to alternative Force Majeure provisions in a Transaction Confirmation executed in writing by both parties.

SECTION 12. TERM

This Contract may be terminated on 30 Day’s written Notice, but shall remain in effect until the expiration of the latest Delivery Period of any transaction(s).  The rights of either party pursuant to Section 7.6 and Section 10, the obligations to make payment hereunder, and the obligation of either party to indemnify the other, pursuant hereto shall survive the termination of the Base Contract or any transaction.

SECTION 13. LIMITATIONS

FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY.  A PARTY’S LIABILITY HEREUNDER SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED.  IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY PROVIDED HEREIN OR IN A TRANSACTION, A PARTY’S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY.  SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED.  UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE.  IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE.  TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OR OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND THE DAMAGES CALCULATED HEREUNDER CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS.

Copyright © 2002 North American Energy Standards Board, Inc.	NAESB Standard 6.3.1
All Rights Reserved	April 19, 2002

 

Page 8 of 10

SECTION 14. MISCELLANEOUS

14.1.         This Contract shall be binding upon and inure to the benefit of the successors, assigns, personal representatives, and heirs of the respective parties hereto, and the covenants, conditions, rights and obligations of this Contract shall run for the full term of this Contract.  No assignment of this Contract, in whole or in part, will be made without the prior written consent of the non-assigning party (and shall not relieve the assigning party from liability hereunder), which consent will not be unreasonably withheld or delayed; provided, either party may (i) transfer, sell, pledge, encumber, or assign this Contract or the accounts, revenues, or proceeds hereof in connection with any financing or other financial arrangements, or (ii) transfer its interest to any parent or affiliate by assignment, merger or otherwise without the prior approval of the other party.  Upon any such assignment, transfer and assumption, the transferor shall remain principally liable for and shall not be relieved of or discharged from any obligations hereunder.

14.2.         If any provision in this Contract is determined to be invalid, void or unenforceable by any court having jurisdiction, such determination shall not invalidate, void, or make unenforceable any other provision, agreement or covenant of this Contract.

14.3.         No waiver of any breach of this Contract shall be held to be a waiver of any other or subsequent breach.

14.4.         This Contract sets forth all understandings between the parties respecting each transaction subject hereto, and any prior contracts, understandings and representations, whether oral or written, relating to such transactions are merged into and superseded by this Contract and any effective transaction(s).  This Contract may be amended only by a writing executed by both parties.

14.5.         The interpretation and performance of this Contract shall be governed by the laws of the jurisdiction as indicated on the Base Contract, excluding, however, any conflict of laws rule which would apply the law of another jurisdiction.

14.6.         This Contract and all provisions herein will be subject to all applicable and valid statutes, rules, orders and regulations of any governmental authority having jurisdiction over the parties, their facilities, or Gas supply, this Contract or transaction or any provisions thereof.

14.7.         There is no third party beneficiary to this Contract.

14.8.         Each party to this Contract represents and warrants that it has full and complete authority to enter into and perform this Contract.  Each person who executes this Contract on behalf of either party represents and warrants that it has full and complete authority to do so and that such party will be bound thereby.

14.9.         The headings and subheadings contained in this Contract are used solely for convenience and do not constitute a part of this Contract between the parties and shall not be used to construe or interpret the provisions of this Contract.

14.10.       Unless the parties have elected on the Base Contract not to make this Section 14.10 applicable to this Contract, neither party shall disclose directly or indirectly without the prior written consent of the other party the terms of any transaction to a third party (other than the employees, lenders, royalty owners, counsel, accountants and other agents of the party, or prospective purchasers of all or substantially all of a party’s assets or of any rights under this Contract, provided such persons shall have agreed to keep such terms confidential) except (i) in order to comply with any applicable law, order, regulation, or exchange rule, (ii) to the extent necessary for the enforcement of this Contract , (iii) to the extent necessary to implement any transaction, or (iv) to the extent such information is delivered to such third party for the sole purpose of calculating a published index.  Each party shall notify the other party of any proceeding of which it is aware which may result in disclosure of the terms of any transaction (other than as permitted hereunder) and use reasonable efforts to prevent or limit the disclosure.  The existence of this Contract is not subject to this confidentiality obligation.  Subject to Section 13, the parties shall be entitled to all remedies available at law or in equity to enforce, or seek relief in connection with this confidentiality obligation.  The terms of any transaction hereunder shall be kept confidential by the parties hereto for one year from the expiration of the transaction.

In the event that disclosure is required by a governmental body or applicable law, the party subject to such requirement may disclose the material terms of this Contract to the extent so required, but shall promptly notify the other party, prior to disclosure, and shall cooperate (consistent with the disclosing party’s legal obligations) with the other party’s efforts to obtain protective orders or similar restraints with respect to such disclosure at the expense of the other party.

14.11        The parties may agree to dispute resolution procedures in Special Provisions attached to the Base Contract or in a Transaction Confirmation executed in writing by both parties.

DISCLAIMER:  The purposes of this Contract are to facilitate trade, avoid misunderstandings and make more definite the terms of contracts of purchase and sale of natural gas.  Further, NAESB does not mandate the use of this Contract by any party.  NAESB DISCLAIMS AND EXCLUDES, AND ANY USER OF THIS CONTRACT ACKNOWLEDGES AND AGREES TO NAESB'S DISCLAIMER OF, ANY AND ALL WARRANTIES, CONDITIONS OR REPRESENTATIONS, EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THIS CONTRACT OR ANY PART THEREOF, INCLUDING ANY AND ALL IMPLIED WARRANTIES OR CONDITIONS OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY, OR FITNESS OR SUITABILITY FOR ANY PARTICULAR PURPOSE (WHETHER OR NOT NAESB KNOWS, HAS REASON TO KNOW, HAS BEEN ADVISED, OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE), WHETHER ALLEGED TO ARISE BY LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE, OR BY COURSE OF DEALING.  EACH USER OF THIS CONTRACT ALSO AGREES THAT UNDER NO CIRCUMSTANCES WILL NAESB BE LIABLE FOR ANY DIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF ANY USE OF THIS CONTRACT.

   

Copyright © 2002 North American Energy Standards Board, Inc.	NAESB Standard 6.3.1
All Rights Reserved	April 19, 2002

Page 9 of 10

TRANSACTION CONFIRMATION	EXHIBIT A
FOR IMMEDIATE DELIVERY

 

Letterhead/Logo	Date: ____________________________, _____ Transaction Confirmation #: _______________
This Transaction Confirmation is subject to the Base Contract between Seller and Buyer dated  ______________________.  The terms of this Transaction Confirmation are binding unless disputed in writing within 2 Business Days of receipt unless otherwise specified in the Base Contract.

SELLER:	BUYER:
Attn:	Attn:
Phone:	Phone:
Fax:	Fax:
Base Contract No.	Base Contract No.
Transporter:	Transporter:
Transporter Contract Number:	Transporter Contract Number:

Contract Price:  $/MMBtu or ___________________________________________
Delivery Period:  Begin: , ___                           End: , ___
Performance Obligation and Contract Quantity:  (Select One)
Firm (Fixed Quantity): MMBtus/day o EFP	Firm (Variable Quantity): MMBtus/day Minimum MMBtus/day Maximum subject to Section 4.2. at election of o Buyer or o Seller	Interruptible: Up to MMBtus/day
Delivery Point(s): ________________________ (If a pooling point is used, list a specific geographic and pipeline location):
Special Conditions:

Seller:	Buyer:
By:	By:
Title:	Title:
Date:	Date:

Copyright © 2002 North American Energy Standards Board, Inc.	NAESB Standard 6.3.1
All Rights Reserved	April 19, 2002

Page 10 of 10

EX-10.9

Exhibit 10.9

AMENDED AND RESTATED

ROSETTA RESOURCES INC.

2005 LONG-TERM INCENTIVE PLAN

ARTICLE I.  ESTABLISHMENT AND PURPOSE

1.1            Establishment and Purpose.  Rosetta Resources Inc. (“Rosetta”) hereby establishes the Amended and Restated Rosetta Resources Inc. 2005 Long-Term Incentive Plan, as set forth in this document. The purpose of the Plan is to attract and retain highly qualified individuals and service providers, to further align the interests of Company employees and other service providers with those of the stockholders of Rosetta, and closely link compensation with Company performance. Rosetta is committed to creating long-term stockholder value. Rosetta’s compensation philosophy is based on a belief that Rosetta can best create stockholder value if key employees, directors, and certain others providing services to the Company act and are rewarded as business owners. Rosetta believes that an equity stake through equity compensation programs effectively aligns employee and stockholder interests by motivating and rewarding long-term performance that will enhance stockholder value.

1.2            Effectiveness and Term.  This Plan originally became effective as of July 7, 2005 (the “Effective Date”), contingent on the closing of the Acquisition and the Offering, provided that prior to the Effective Date the Plan was duly approved by the holders of at least a majority of the shares of Common Stock either (i) present or represented and entitled to vote at a special meeting of the stockholders of Rosetta duly held in accordance with applicable law or (ii) by written action in lieu of a meeting in accordance with applicable law. Unless terminated earlier by the Board pursuant to Section 14.1, this Plan shall terminate on the day prior to the tenth anniversary of the Effective Date.

ARTICLE II.  DEFINITIONS

2.1             “Acquisition” means the closing of the transactions contemplated by the Purchase and Sale Agreement.

2.2             “Affiliate” means (i) with respect to Incentive Stock Options, a “parent corporation” or a “subsidiary corporation” of Rosetta, as those terms are defined in Sections 424(e) and (f) of the Code, respectively, and (ii) with respect to other Awards, (A) a “parent corporation” or a subsidiary corporation” of Rosetta as defined in (i) above, (B) a limited liability company, partnership or other entity in which Rosetta controls 50% or more of the voting power or equity interests.

2.3             “Award” means an award granted to a Participant in the form of Options, SARs, Restricted Stock, Restricted Stock Units, Performance Awards, Stock Awards or Other Incentive Awards, whether granted singly or in combination.

2.4             “Award Agreement” means a written agreement between Rosetta and a Participant that sets forth the terms, conditions, restrictions and limitations applicable to an Award.

2.5             “Board” means the Board of Directors of Rosetta.

2.6            “Cash Dividend Right”means a contingent right, granted in tandem with a specific Restricted Stock Unit Award, to receive an amount in cash equal to the cash distributions made by Rosetta with respect to a share of Common Stock during the period such Award is outstanding.

2.7             “Cause” means a finding by the Committee of acts or omissions constituting, in the Committee’s reasonable judgment, (i) a breach of duty by the Participant in the course of his employment or service involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty to the Company, or moral turpitude constituting criminal felony; (ii) conduct by the Participant that is materially detrimental to the Company, monetarily or otherwise, or reflects unfavorably on the Company or the Participant to such an extent that the Company’s best interests reasonably require the termination of the Participant’s employment or service; (iii) acts or omissions of the Participant materially in violation of his obligations under any written employment or other agreement between the Participant and the Company or at law; (iv) the Participant’s failure to comply with or enforce Company policies concerning equal employment opportunity, including engaging in sexually or otherwise harassing conduct; (v) the Participant’s repeated insubordination; (vi) the Participant’s failure to comply with or enforce, in any material respect, all other personnel policies of the Company; (vii) the Participant’s failure to devote his full (or other required) working time and best efforts to the performance of his responsibilities to the Company; or (viii) the Participant’s conviction of, or entry of a plea agreement or consent decree or similar arrangement with respect to a felony or any violation of federal or state securities laws.

2.8             “Code” means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations.

2.9             “Committee”means the Compensation Committee of the Board or such other committee of the Board as may be designated by the Board to administer the Plan, which committee shall consist of two or more members of the Board; provided, however, that with respect to the application of the Plan to Awards made to Outside Directors, the “Committee” shall be the Board. During such time as the Common Stock is registered under Section 12 of the Exchange Act, each member of the Committee shall be an Outside Director. To the extent that no Committee exists that has the authority to administer the Plan, the functions of the Committee shall be exercised by the Board.

2.10           “Common Stock” means the common stock of Rosetta, $0.001 par value per share, or any stock or other securities of hereafter issued or issuable in substitution or exchange for the Common Stock.

2.11           “Company” means Rosetta and any Affiliate.

2.12           “Corporate Change” means (i) the dissolution or liquidation of Rosetta; (ii) a reorganization, merger or consolidation of Rosetta with one or more corporations (other than a merger or consolidation effecting a reincorporation of Rosetta in another state or any other merger or consolidation in which the stockholders of the surviving corporation and their proportionate interests therein immediately after the merger or consolidation are substantially identical to the stockholders of Rosetta and their proportionate interests therein immediately prior to the merger or consolidation) (collectively, a “Corporate Change Merger”); (iii) the sale of all or substantially all of the assets of the Company; or (iv) the occurrence of a Change in Control. A “Change in Control” shall be deemed to have occurred if (x) individuals who were directors of Rosetta immediately prior to a Control Transaction shall cease, within two years of such Control Transaction to constitute a majority of the Board (or of the Board of Directors of any successor to Rosetta or to a company which has acquired all or substantially all its assets) other than by reason of an increase in the size of the membership of the applicable Board that is approved by at least a majority of the individuals who were directors of Rosetta immediately prior to such Control Transaction or (y) any entity, person or Group acquires shares of Rosetta in a transaction or series of transactions that result in such entity, person or Group directly or indirectly owning beneficially 50% or more of the outstanding shares of Common Stock. As used herein, “Control Transaction” means (A) any tender offer for or acquisition of capital stock of Rosetta pursuant to which any person, entity, or Group directly or indirectly acquires beneficial ownership of 20% or more of the outstanding shares of Common Stock; (B) any Corporate Change Merger of Rosetta; (C) any contested election of directors of Rosetta; or (D) any combination of the foregoing, any one of which results in a change in voting power sufficient to elect a majority of the Board. As used herein, “Group” means persons who act “in concert” as described in Sections 13(d)(3) and/or 14(d)(2) of the Exchange Act. Notwithstanding the foregoing, “Corporate Change” shall not include the Acquisition, the Offering, or any public offering of equity of Rosetta pursuant to a registration that is effective under the Securities Act.

2.13           “Dividend Unit Right” means a contingent right, granted in tandem with a specific Restricted Stock Unit Award, to have an additional number of Restricted Stock Units credited to a Participant in respect of the Award equal to the number of shares of Common Stock that could be purchased at Fair Market Value with the amount of each cash distribution made by Rosetta with respect to a share of Common Stock during the period such Award is outstanding.

2.14           “Effective Date” means the date this Plan becomes effective as provided in Section 1.2.

2.15           “Employee” means an employee of the Company; provided, however, that the term “Employee” does not include an Outside Director or an individual performing services for the Company who is treated for tax purposes as an independent contractor at the time of performance of the services.

2.16           “Exchange Act” means the Securities Exchange Act of 1934, as amended.

2.17           “Fair Market Value” means the fair market value of the Common Stock, as determined in good faith by the Committee or (i) if the Common Stock is traded in the over-the-counter market, the average of the representative closing bid and asked prices as reported by NASDAQ for the date the Award is granted (or if there was no quoted price for such date of grant, then for the last preceding business day on which there was a quoted price), or (ii) if the Common Stock is traded in the NASDAQ National Market System, the average of the highest and lowest selling prices for such stock as quoted on the NASDAQ National Market System for the date the Award is granted (or if there are no sales for such date of grant, then for the last preceding business day on which there were sales), or (iii) if the Common Stock is listed on any national stock exchange, the average of the highest and lowest selling prices for such stock as quoted on such exchange for the date the Award is granted (or if there are no sales for such date of grant, then for the last preceding business day on which there were sales).

2.18           “Good Reason” means any of the following actions if taken without the Participant’s prior written consent: (i) any material failure by the Company to comply with its obligations under the terms of a written employment agreement; (ii) any demotion of the Participant as evidenced by a material reduction in the Participant’s responsibilities, duties, compensation, or benefits; or (iii) any permanent relocation of the Participant’s place of business to a location 50 miles or more from the then-current location. Neither a transfer of employment among Rosetta and any of its Affiliates, a change in the co-employment relationship, nor a mere change in job title or reporting structure constitutes “Good Reason.”

2.19           “Grant Date” means the date an Award is determined to be effective by the Committee upon the grant of such Award.

2.20           “Inability to Perform” means and shall be deemed to have occurred if the Participant has been determined under the Company’s or any co-employer’s long-term disability plan to be eligible for long-term disability benefits. In the absence of the Participant’s participation in, application for benefits under, or existence of such a plan, “Inability to Perform” means a finding by the Committee in its sole judgment that the Participant is, despite any reasonable accommodation required by law, unable to perform the essential functions of his position because of an illness or injury for (i) 60% or more of the normal working days during six consecutive calendar months or (ii) 40% or more of the normal working days during twelve consecutive calendar months.

2.21           “Incentive Stock Option” means an Option that is intended to meet the requirements of Section 422(b) of the Code.

2.22           “NASDAQ” means The NASDAQ Stock Market, Inc.

2.23           “Nonqualified Stock Option” means an Option that is not an Incentive Stock Option.

2.24           “Offering” means the offering, sale and issuance by Rosetta of Common Stock as set forth that certain offering memorandum initially dated June 9, 2005.

2.25           “Option” means an option to purchase shares of Common Stock granted to a Participant pursuant to Article VII. An Option may be either an Incentive Stock Option or a Nonqualified Stock Option, as determined by the Committee.

2.26           “Other Incentive Award” means an incentive award granted to a Participant pursuant to Article XII.

2.27           “Outside Director” means a member of the Board who: (i) meets the independence requirements of the principal exchange or quotation system upon which the shares of Common Stock are listed or quoted, (ii) from and after the date on which the remuneration paid pursuant to the Plan becomes subject to the deduction limitation under Section 162(m) of the Code, qualifies as an “outside director” under Section 162(m) of the Code, (iii) qualifies as a “non-employee director” of Rosetta under Rule 16b-3, and (iv) satisfies independence criteria under any other applicable laws or regulations relating to the issuance of shares of Common Stock to Employees.

2.28           “Participant” means an Employee, director, or other individual or entity who performs services for the Company that has been granted an Award; provided, however, that no Award that may be settled in Common Stock may be issued to a Participant that is not a natural person.

2.29           “Performance Award” means an Award granted to a Participant pursuant to Article XI to receive cash or Common Stock conditioned in whole or in part upon the satisfaction of performance goals based on specified performance criteria.

2.30           “Permitted Transferee” shall have the meaning given such term in Section 15.4.

2.31           “Plan” means the Amended and Restated Rosetta Resources Inc. 2005 Long-Term Incentive Plan, as in effect and as amended from time to time.

2.32           “Purchase and Sale Agreement” means that certain Purchase and Sale Agreement by and among Calpine Gas Holdings LLC, Calpine Fuels Corporation, Calpine Corporation and Rosetta dated July 7, 2005.

2.33           “Purchased Restricted Stock” shall have the meaning given such term in Section 9.2.

2.34           “Restricted Period” means the period established by the Committee with respect to an Award of Restricted Stock or Restricted Stock Units during which the Award remains subject to forfeiture.

2.35           “Restricted Stock” means a share of Common Stock granted to a Participant pursuant to Article IX that is subject to such terms, conditions, and restrictions as may be determined by the Committee.

2.36           “Restricted Stock Unit” means a fictional share of Common Stock granted to a Participant pursuant to Article X that is subject to such terms, conditions, and restrictions as may be determined by the Committee.

2.37           “Rosetta” means Rosetta Resources Inc., a Delaware corporation, or any successor thereto.

2.38           “Rule 16b-3” means Rule 16b-3 promulgated by the SEC under the Exchange Act, or any successor rule or regulation that may be in effect from time to time.

2.39           “SEC” means the United States Securities and Exchange Commission, or any successor agency or organization.

2.40           “Securities Act” means the Securities Act of 1933, as amended.

2.41           “Stock Appreciation Right” or“SAR” means a right granted to a Participant pursuant to Article VIII with respect to a share of Common Stock to receive upon exercise cash, Common Stock or a combination of cash and Common Stock, equal to the appreciation in value of a share of Common Stock.

ARTICLE III.  PLAN ADMINISTRATION

3.1           Plan Administrator and Discretionary Authority.  The Plan shall be administered by the Committee. The Committee shall have total and exclusive responsibility to control, operate, manage and administer the Plan in accordance with its terms. The Committee shall have all the authority that may be necessary or helpful to enable it to discharge its responsibilities with respect to the Plan. Without limiting the generality of the preceding sentence, the Committee shall have the exclusive right to:  (i) interpret the Plan and the Award Agreements executed hereunder; (ii) decide all questions concerning eligibility for, and the amount of, Awards granted under the Plan; (iii) construe any ambiguous provision of the Plan or any Award Agreement; (iv) prescribe the form of Award Agreements; (v) correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award Agreement; (vi) issue administrative guidelines as an aid to administering the Plan and make changes in such guidelines as the Committee from time to time deems proper; (vii) make regulations for carrying out the Plan and make changes in such regulations as the Committee from time to time deems proper; (viii) determine whether Awards should be granted singly or in combination; (ix) to the extent permitted under the Plan, grant waivers of Plan terms, conditions, restrictions and limitations; (x) accelerate the exercise, vesting or payment of an Award when such action or actions would be in the best interests of the Company; (xi) require Participants to hold a stated number or percentage of shares of Common Stock acquired pursuant to an Award for a stated period; and (xii) take any and all other actions the Committee deems necessary or advisable for the proper operation or administration of the Plan. The Committee shall have authority in its sole discretion with respect to all matters related to the discharge of its responsibilities and the exercise of its authority under the Plan, including without limitation its construction of the terms of the Plan and its determination of eligibility for participation in, and the terms of Awards granted under, the Plan. The decisions of the Committee and its actions with respect to the Plan shall be final, conclusive and binding on all persons having or claiming to have any right or interest in or under the Plan, including without limitation Participants and their respective Permitted Transferees, estates, beneficiaries and legal representatives.

3.2           Delegation of Authority.  The Committee may delegate to one or more officers of the Company the authority to act on behalf of the Committee with respect to any matter, right, obligation, or election that is the responsibility of or that is allocated to the Committee herein, and that may be so delegated as a matter of law, except for grants of Awards to persons (i) subject to Section 16 of the Exchange Act or (ii) who are, or who are reasonably expected to be, “covered employees” for purposes of Section 162(m) of the Code.

3.3           Liability; Indemnification.  No member of the Committee, nor any person to whom it has delegated authority, shall be personally liable for any action, interpretation or determination made in good faith with respect to the Plan or Awards granted hereunder, and each member of the Committee (or delegatee of the Committee) shall be fully indemnified and protected by Rosetta with respect to any liability he may incur with respect to any such action, interpretation or determination, to the maximum extent permitted by applicable law.

ARTICLE IV.  SHARES SUBJECT TO THE PLAN

4.1           Available Shares.

(a)           Subject to adjustment as provided in Section 4.2, the maximum number of shares of Common Stock that shall be available for grant of Awards under the Plan shall be 4,950,000 shares of Common Stock.

(b)           The maximum number of shares of Common Stock that may be subject to Incentive Stock Options granted under the Plan is 4,950,000. The maximum number of shares of Common Stock that may be subject to all Awards granted under the Plan to any one Participant (i) during the fiscal year of Rosetta in which the Participant is first hired by the Company is 300,000 shares and (ii) during each subsequent fiscal year is 200,000 shares. The limitations provided in this Section 4.1(b) shall be subject to adjustment as provided in Section 4.2.

(c)           Shares of Common Stock issued pursuant to the Plan may be original issue or treasury shares or a combination of the foregoing, as the Committee, in its sole discretion, shall from time to time determine. During the term of this Plan, Rosetta will at all times reserve and keep available such number of shares of Common Stock as shall be sufficient to satisfy the requirements of the Plan.

4.2           Adjustments for Recapitalizations and Reorganizations.  Subject to Article XIII, if there is any change in the number or kind of shares of Common Stock outstanding (i) by reason of a stock dividend, spin-off, recapitalization, stock split, or combination or exchange of shares, (ii) by reason of a merger, reorganization, or consolidation, (iii) by reason of a reclassification or change in par value, or (iv) by reason of any other extraordinary or unusual event affecting the outstanding Common Stock as a class without Rosetta’s receipt of consideration, or if the value of outstanding shares of Common Stock is reduced as a result of a spin-off or Rosetta’s payment of an extraordinary cash dividend, or distribution or dividend or distribution consisting of any assets of Rosetta other than cash, the maximum number and kind of shares of Common Stock available for issuance under the Plan, the maximum number and kind of shares of Common Stock for which any individual may receive Awards in any fiscal year, the number and kind of shares of Common Stock covered by outstanding Awards, and the price per share or the applicable market value or performance target of such Awards shall be equitably and proportionately adjusted by the Committee to reflect any increase or decrease in the number of, or change in the kind or value of, issued shares of Common Stock to preclude, to the extent practicable, the enlargement or dilution of rights under such Awards; provided, however, that any fractional shares resulting from such adjustment shall be eliminated.

4.3           Adjustments for Awards.  The Committee shall have sole discretion to determine the manner in which shares of Common Stock available for grant of Awards under the Plan are counted. Without limiting the discretion of the Committee under this Section 4.3, unless otherwise determined by the Committee, the following rules shall apply for the purpose of determining the number of shares of Common Stock available for grant of Awards under the Plan:

(a)           Options, Restricted Stock and Stock Awards. The grant of Options, Restricted Stock or Stock Awards shall reduce the number of shares of Common Stock available for grant of Awards under the Plan by the number of shares of Common Stock subject to such an Award.

(b)           SARs. The grant of SARs that may be paid or settled (i) only in Common Stock or (ii) in either cash or Common Stock shall reduce the number of shares available for grant of Awards under the Plan by the number of shares subject to such an Award; provided, however, that upon the exercise of SARs, the excess of the number of shares of Common Stock with respect to which the Award is exercised over the number of shares of Common Stock issued upon exercise of the Award shall again be available for grant of Awards under the Plan. The grant of SARs that may be paid or settled only for cash shall not affect the number of shares available for grant of Awards under the Plan.

(c)           Restricted Stock Units. The grant of Restricted Stock Units (including those credited to a Participant in respect of a Dividend Unit Right) that may be paid or settled (i) only in Common Stock or (ii) in either cash or Common Stock shall reduce the number of shares available for grant of Awards under the Plan by the number of shares subject to such an Award; provided, however, that upon settlement of the Award, the excess, if any, of the number of shares of Common Stock that had been subject to such Award over the number of shares of Common Stock issued upon its settlement shall again be available for grant of Awards under the Plan. The grant of Restricted Stock Units that may be paid or settled only for cash shall not affect the number of shares available for grant of Awards under the Plan.

(d)           Other Incentive Awards. The grant of a Performance Award or Other Incentive Award in the form of Common Stock or that may be paid or settled (i) only in Common Stock or (ii) in either Common Stock or cash shall reduce the number of shares available for grant of Awards under the Plan by the number of shares subject to such an Award; provided, however, that upon settlement of the Award, the excess, if any, of the number of shares of Common Stock that had been subject to such Award over the number of shares of Common Stock issued upon its settlement shall again be available for grant of Awards under the Plan. The grant of a Performance Award or Other Incentive Award that may be paid or settled only for cash shall not affect the number of shares available for grant of Awards under the Plan.

(e)           Cancellation, Forfeiture and Termination. If any Award referred to in Sections 4.3(a), (b), (c), or (d) (other than an Award that may be paid or settled only for cash) is canceled or forfeited, or terminates, expires or lapses, for any reason, the shares then subject to such Award shall again be available for grant of Awards under the Plan.

(f)           Payment of Exercise Price and Withholding Taxes. If previously acquired shares of Common Stock are used to pay the exercise price of an Award, the number of shares available for grant of Awards under the Plan shall be increased by the number of shares delivered as payment of such exercise price. If previously acquired shares of Common Stock are used to pay withholding taxes payable upon exercise, vesting or payment of an Award, or shares of Common Stock that would be acquired upon exercise, vesting or payment of an Award are withheld to pay withholding taxes payable upon exercise, vesting or payment of such Award, the number of shares available for grant of Awards under the Plan shall be increased by the number of shares delivered or withheld as payment of such withholding taxes.

ARTICLE V.  ELIGIBILITY

5.1           The Committee shall select Participants from those Employees, Outside Directors and other individuals or entities providing services to the Company that, in the opinion of the Committee, are in a position to make a significant contribution to the success of the Company. Once a Participant has been selected for an Award by the Committee, the Committee shall determine the type and size of Award to be granted to the Participant and shall establish in the related Award Agreement the terms, conditions, restrictions and limitations applicable to the Award, in addition to those set forth in the Plan and the administrative guidelines and regulations, if any, established by the Committee.

ARTICLE VI.  FORM OF AWARDS

6.1           Form of Awards.  Awards may be granted under the Plan, in the Committee’s sole discretion, in the form of Options pursuant to Article VII, SARs pursuant to Article VIII, Restricted Stock pursuant to Article IX, Restricted Stock Units pursuant to Article X, Performance Awards pursuant to Article XI, and Stock Awards and Other Incentive Awards pursuant to Article XII, or a combination thereof. All Awards shall be subject to the terms, conditions, restrictions and limitations of the Plan. The Committee may, in its sole discretion, subject any Award to such other terms, conditions, restrictions and/or limitations (including without limitation the time and conditions of exercise, vesting or payment of an Award and restrictions on transferability of any shares of Common Stock issued or delivered pursuant to an Award), provided they are not inconsistent with the terms of the Plan. The Committee may, but is not required to, subject an Award to such conditions as it determines are necessary or appropriate to ensure that an Award constitutes “qualified performance based compensation” within the meaning of Section 162(m) of the Code and the regulations thereunder. Awards under a particular Article of the Plan need not be uniform, and Awards under more than one Article of the Plan may be combined in a single Award Agreement. Any combination of Awards may be granted at one time and on more than one occasion to the same Participant. Subject to compliance with applicable tax law, an Award Agreement may provide that a Participant may elect to defer receipt of income attributable to the exercise or vesting of an Award.

6.2           No Repricing or Reload Rights.  Except for adjustments made pursuant to Section 4.2, no Award may be repriced, replaced, regranted through cancellation or otherwise modified without stockholder approval, if the effect would be to reduce the exercise price for the shares underlying such Award. The Committee may not cancel an outstanding Option that is under water for the purpose of granting a replacement Award of a different type.

6.3           Loans.  The Committee may, in its sole discretion, approve the extension of a loan by the Company to a Participant who is an Employee to assist the Participant in paying the exercise price or purchase price of an Award; provided, however, that no loan shall be permitted if the extension of such loan would violate any provision of applicable law. Any loan will be made upon such terms and conditions as the Committee shall determine.

ARTICLE VII.  OPTIONS

7.1           General.  Awards may be granted in the form of Options that may be Incentive Stock Options or Nonqualified Stock Options, or a combination of both; provided, however, that Incentive Stock Options may be granted only to Employees.

7.2           Terms and Conditions of Options.  An Option shall be exercisable in whole or in such installments and at such times as may be determined by the Committee. The price at which a share of Common Stock may be purchased upon exercise of an Option shall be determined by the Committee, but such exercise price shall not be less than 100% of the Fair Market Value per share of Common Stock on the Grant Date unless the Option was granted through the assumption of, or in substitution for, outstanding awards previously granted to individuals who became Employees as a result of a merger, consolidation, acquisition, or other corporate transaction involving the Company and complies with Section 409A of the Code. Except as otherwise provided in Section 7.3, the term of each Option shall be as specified by the Committee; provided, however, that no Options shall be exercisable later than ten years after the Grant Date. Options may be granted with respect to Restricted Stock or shares of Common Stock that are not Restricted Stock, as determined by the Committee in its sole discretion.

7.3           Restrictions Relating to Incentive Stock Options.

(a)           Options granted in the form of Incentive Stock Options shall, in addition to being subject to the terms and conditions of Section 7.2, comply with Section 422(b) of the Code. To the extent the aggregate Fair Market Value (determined as of the times the respective Incentive Stock Options are granted) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year under all incentive stock option plans of the Company exceeds $100,000, such excess Incentive Stock Options shall be treated as options that do not constitute Incentive Stock Options. The Committee shall determine, in accordance with the applicable provisions of the Code, which of a Participant’s Incentive Stock Options will not constitute Incentive Stock Options because of such limitation and shall notify the Participant of such determination as soon as practicable after such determination. The price at which a share of Common Stock may be purchased upon exercise of an Incentive Stock Option shall be determined by the Committee, but such exercise price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the Grant Date. No Incentive Stock Option shall be granted to an Employee under the Plan if, at the time such Option is granted, such Employee owns stock possessing more than 10% of the total combined voting power of all classes of stock of Rosetta or an Affiliate, within the meaning of Section 422(b)(6) of the Code, unless (i) on the Grant Date of such Option, the exercise price of such Option is at least 110% of the Fair Market Value of the Common Stock subject to the Option and (ii) such Option by its terms is not exercisable after the expiration of five years from the Grant Date of the Option.

(b)           Each Participant awarded an Incentive Stock Option shall notify Rosetta in writing immediately after the date he or she makes a disqualifying disposition of any shares of Common Stock acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including any sale) of such Common Stock before the later of (i) two years after the Grant Date of the Incentive Stock Option or (ii) one year after the date of exercise of the Incentive Stock Option.

7.4           Exercise of Options.

(a)           Subject to the terms and conditions of the Plan, Options shall be exercised by the delivery of a written notice of exercise to Rosetta, setting forth the number of whole shares of Common Stock with respect to which the Option is to be exercised, accompanied by full payment for such shares.

(b)           Upon exercise of an Option, the exercise price of the Option shall be payable to Rosetta in full either: (i) in cash or an equivalent acceptable to the Committee, or (ii) in the sole discretion of the Committee and in accordance with any applicable administrative guidelines established by the Committee, by tendering one or more previously acquired nonforfeitable, unrestricted shares of Common Stock that have been held by the Participant for at least six months having an aggregate Fair Market Value at the time of exercise equal to the total exercise price, or (iii) in a combination of the forms of payment specified in clauses (i) and (ii) above.

(c)           During such time as the Common Stock is registered under Section 12 of the Exchange Act, to the extent permissible under applicable law, payment of the exercise price of an Option may also be made, in the absolute discretion of the Committee, by delivery to Rosetta or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the shares with respect to which the Option is exercised and deliver the sale or margin loan proceeds directly to Rosetta to pay the exercise price and any required withholding taxes.

(d)           As soon as reasonably practicable after receipt of written notification of exercise of an Option and full payment of the exercise price and any required withholding taxes, Rosetta shall (i) deliver to the Participant, in the Participant’s name or the name of the Participant’s designee, a stock certificate or certificates in an appropriate aggregate amount based upon the number of shares of Common Stock purchased under the Option, or (ii) cause to be issued in the Participant’s name or the name of the Participant’s designee, in book-entry form, an appropriate number of shares of Common Stock based upon the number of shares purchased under the Option.

7.5           Termination of Employment or Service.  Each Award Agreement embodying the Award of an Option shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant’s employment or service with the Company. Such provisions shall be determined by the Committee in its absolute discretion, need not be uniform among all Options granted under the Plan and may reflect distinctions based on the reasons for termination of employment or service. In the event a Participant’s Award Agreement embodying the award of an Option does not set forth such termination provisions, the following termination provisions shall apply with respect to such Award:

(a)           Termination Other Than For Cause. If the employment or service of a Participant shall terminate for any reason other than Cause, each outstanding Option held by the Participant may be exercised, to the extent then vested, until the earlier of (i) the expiration of one year from the date of such termination of employment or service or (ii) the expiration of the term of such Option.

(b)           Termination for Cause.  Notwithstanding subsection (a) above, if the employment or service of a Participant shall terminate for Cause, each outstanding Option held by the Participant may be exercised, to the extent then vested, until the earlier of (i) the expiration of 30 days from the date of such termination of employment or service or (ii) the expiration of the terms of such Option.

Notwithstanding the foregoing, an Option will not be treated as an Incentive Stock Option unless at all times beginning on the Grant Date and ending on the day three months (one year in the case of a Participant who is “disabled” within the meaning of Section 22(e)(3) of the Code) before the date of exercise of the Option, the Participant is an employee of Rosetta or an Affiliate (or a corporation or a parent or subsidiary corporation of such corporation issuing or assuming an option in a transaction to which Section 424(a) of the Code applies).

ARTICLE VIII.  STOCK APPRECIATION RIGHTS

8.1           General.  The Committee may grant Awards in the form of SARs in such numbers and at such times as it shall determine. SARs shall vest and be exercisable in whole or in such installments and at such times as may be determined by the Committee. The price at which SARs may be exercised shall be determined by the Committee but shall not be less than 100% of the Fair Market Value per share of Common Stock on the Grant Date unless the SARs were granted through the assumption of, or in substitution for, outstanding awards previously granted to individuals who became Employees as a result of a merger, consolidation, acquisition, or other corporate transaction involving the Company and comply with Section 409A of the Code. The term of each SAR shall be as specified by the Committee; provided, however, that no SARs shall be exercisable later than ten years after the Grant Date. At the time of an Award of SARs, the Committee may, in its sole discretion, prescribe additional terms, conditions, restrictions and limitations applicable to the SARs, including without limitation rules pertaining to the termination of employment or service (by reason of death, permanent and total disability, or otherwise) of a Participant prior to exercise of the SARs, as it determines are necessary or appropriate, provided they are not inconsistent with the Plan.

8.2           Exercise of SARs.  SARs shall be exercised by the delivery of a written notice of exercise to Rosetta, setting forth the number of whole shares of Common Stock with respect to which the Award is being exercised. Upon the exercise of SARs, the Participant shall be entitled to receive an amount equal to the excess of the aggregate Fair Market Value of the shares of Common Stock with respect to which the Award is exercised (determined as of the date of such exercise) over the aggregate exercise price of such shares. Such amount shall be payable to the Participant in cash or in shares of Common Stock, as provided in the Award Agreement; provided, however, that if SARs are to be settled in cash, the SARs shall be structured to avoid negative tax consequences to the Participant under Section 409A of the Code.

ARTICLE IX.  RESTRICTED STOCK

9.1           General.  Awards may be granted in the form of Restricted Stock in such numbers and at such times as the Committee shall determine. The Committee shall impose such terms, conditions and restrictions on Restricted Stock as it may deem advisable, including without limitation providing for vesting upon the achievement of specified performance goals pursuant to a Performance Award and restrictions under applicable Federal or state securities laws. A Participant shall not be required to make any payment for Restricted Stock unless required by the Committee pursuant to Section 9.2.

9.2           Purchased Restricted Stock.  The Committee may in its sole discretion require a Participant to pay a stipulated purchase price for each share of Restricted Stock (“Purchased Restricted Stock”).

9.3           Restricted Period.  At the time an Award of Restricted Stock is granted, the Committee shall establish a Restricted Period applicable to such Restricted Stock. Each Award of Restricted Stock may have a different Restricted Period in the sole discretion of the Committee.

9.4           Other Terms and Conditions.  Restricted Stock shall constitute issued and outstanding shares of Common Stock for all corporate purposes. Restricted Stock awarded to a Participant under the Plan shall be registered in the name of the Participant or, at the option of Rosetta, in the name of a nominee of Rosetta, and shall be issued in book-entry form or represented by a stock certificate. Subject to the terms and conditions of the Award Agreement, a Participant to whom Restricted Stock has been awarded shall have the right to receive dividends thereon during the Restricted Period, to vote the Restricted Stock and to enjoy all other stockholder rights with respect thereto, except that (i) Rosetta shall retain custody of any certificates evidencing the Restricted Stock during the Restricted Period, and (ii) the Participant may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the Restricted Stock during the Restricted Period. A breach of the terms and conditions established by the Committee pursuant to the Award of the Restricted Stock may result in a forfeiture of the Restricted Stock. At the time of an Award of Restricted Stock, the Committee may, in its sole discretion, prescribe additional terms, conditions, restrictions and limitations applicable to the Restricted Stock, including without limitation rules pertaining to the termination of employment or service (by reason of death, permanent and total disability, retirement, cause or otherwise) of a Participant prior to expiration of the Restricted Period.

9.5           Miscellaneous.  Nothing in this Article shall prohibit the exchange of shares of Restricted Stock pursuant to a plan of merger or reorganization for stock or other securities of Rosetta or another corporation that is a party to the reorganization, provided that the stock or securities so received in exchange for shares of Restricted Stock shall, except as provided in Article XIII, become subject to the restrictions applicable to such Restricted Stock. Any shares of Common Stock received as a result of a stock split or stock dividend with respect to shares of Restricted Stock shall also become subject to the restrictions applicable to such Restricted Stock.

ARTICLE X.  RESTRICTED STOCK UNITS

10.1           General.  Awards may be granted in the form of Restricted Stock Units in such numbers and at such times as the Committee shall determine. The Committee shall impose such terms, conditions and restrictions on Restricted Stock Units as it may deem advisable, including without limitation prescribing the period over which and the conditions upon which a Restricted Stock Unit may become vested or be forfeited, and providing for vesting upon the achievement of specified performance goals pursuant to a Performance Award. Upon the lapse of restrictions with respect to each Restricted Stock Unit, the Participant shall be entitled to receive from the Company one share of Common Stock or an amount of cash equal to the Fair Market Value of one share of Common Stock, as provided in the Award Agreement. A Participant shall not be required to make any payment for Restricted Stock Units.

10.2           Restricted Period.  At the time an Award of Restricted Stock Units is granted, the Committee shall establish a Restricted Period applicable to such Restricted Stock Units. Each Award of Restricted Stock Units may have a different Restricted Period in the sole discretion of the Committee.

10.3           Cash Dividend Rights and Dividend Unit Rights. To the extent provided by the Committee in its sole discretion, a grant of Restricted Stock Units may include a tandem Cash Dividend Right or Dividend Unit Right grant. A grant of Cash Dividend Rights may provide that such Cash Dividend Rights shall be paid directly to the Participant at the time of payment of related dividend, be credited to a bookkeeping account subject to the same vesting and payment provisions as the tandem Award (with or without interest in the sole discretion of the Committee), or be subject to such other provisions or restrictions as determined by the Committee in its sole discretion. A grant of Dividend Unit Rights may provide that such Dividend Unit Rights shall be subject to the same vesting and payment provisions as the tandem Award or be subject to such other provisions and restrictions as determined by the Committee in its sole discretion.

10.4           Other Terms and Conditions.  At the time of an Award of Restricted Stock Units, the Committee may, in its sole discretion, prescribe additional terms, conditions, restrictions and limitations applicable to the Restricted Stock Units, including without limitation rules pertaining to the termination of employment or service (by reason of death, permanent and total disability, retirement, cause or otherwise) of a Participant prior to expiration of the Restricted Period. Awards of Restricted Stock Units are considered nonqualified deferred compensation subject to Section 409A of the Code and will be designed to comply with that section.

ARTICLE XI.  PERFORMANCE AWARDS

11.1           General.  Awards may be granted in the form of Performance Awards that may be payable in the form of cash, shares of Common Stock, or a combination of both, in such amounts and at such times as the Committee shall determine. Performance Awards shall be conditioned upon the level of achievement of one or more stated performance goals over a specified performance period that shall not be shorter than one year. Performance Awards may be combined with other Awards to impose performance criteria as part of the terms of such other Awards.

11.2           Terms and Conditions.  Each Award Agreement embodying a Performance Award shall set forth (i) the amount, including a target and maximum amount if applicable, a Participant may earn in the form of cash or shares of Common Stock or a formula for determining such amount, (ii) the performance criteria and level of achievement versus such criteria that shall determine the amount payable or number of shares of Common Stock to be granted, issued, retained and/or vested, (iii) the performance period over which performance is to be measured, (iv) the timing of any payments to be made, (v) restrictions on the transferability of the Award, and (vi) such other terms and conditions as the Committee may determine that are not inconsistent with the Plan.

11.3           Code Section 162(m) Requirements.  From and after the date on which remuneration paid pursuant to the Plan becomes subject to the deduction limitation of Section 162(m) of the Code, the Committee shall determine in its sole discretion whether all or any portion of a Performance Award shall be intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code (the “162(m) Requirements”). The performance goals for any Performance Award that are intended to satisfy the 162(m) Requirements shall be established in writing by the Committee based on one or more performance criteria as set forth in Section 11.4 not later than 90 days after commencement of the performance period with respect to such Award (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code), provided that the outcome of the performance in respect of the goals remains substantially uncertain as of such time. The maximum amount that may be paid in cash pursuant to Performance Awards granted to a Participant with respect to a fiscal year that are intended to satisfy the 162(m) Requirements is $1,000,000; provided, however, that such maximum amount with respect to a Performance Award that provides for a performance period longer than one fiscal year shall be the foregoing limit multiplied by the number of full fiscal years in the performance period. At the time of the grant of a Performance Award and to the extent permitted under Code Section 162(m) and regulations thereunder for a Performance Award intended to satisfy the 162(m) Requirements, the Committee may provide for the manner in which the performance goals will be measured in light of specified corporate transactions, extraordinary events, accounting changes and other similar occurrences.

11.4           Performance Goals.  The performance criteria to be used for purposes of Performance Awards may be described in terms of objectives that are related to the individual Participant or objectives that are Company-wide or related to a subsidiary, division, department, region, function or business unit of the Company in which the Participant is employed or with respect to which the Participant performs services, and may consist of one or more or any combination of the following criteria:  (i) earnings or earnings per share (whether on a pre-tax, after-tax, operational or other basis), (ii) return on equity, (iii) return on assets or net assets, (iv) return on capital or invested capital and other related financial measures, (v) cash flow (whether as an absolute number or percentage change), (vi) revenues, (vii) income or operating income, (viii) expenses or expense levels, (ix) one or more operating ratios, (x) stock price, (xi) total stockholder return, (xii) market share, (xiii) operating profit, (xiv) profit margin, (xv) capital expenditures, (xvi) net borrowing, debt leverage levels, credit quality or debt ratings, (xvii) the accomplishment of mergers, acquisitions, dispositions, public offerings or similar extraordinary business transactions, (xviii) net asset value per share, (xix) economic value added, (xx) individual business objectives, (xxi) growth in production, (xxii) added reserves, (xxiii) growth in reserves per share, and (xxiv) inventory growth.  Any one or more of the performance criteria may be used on an absolute or relative basis to measure the performance of the individual Participant, the Company, or a subsidiary, division, department, region, function or business unit of the Company in which the Participant is employed or with respect to which the Participant performs services, or any combination thereof, as the Committee may deem appropriate, or any of the above performance criteria may be compared to the performance of a selected group of comparison companies, or a published or special index that the Committee, in its sole discretion, deems appropriate, or as compared to various stock market indices.  To the extent required under Section 162(m) of the Code, the Committee shall, within the first 90 days of a performance period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code), define in an objective fashion the manner of calculating the performance criteria it selects to use for such performance period and thereafter promptly communicate such performance criteria to the Participant.

11.5           Certification and Negative Discretion.

(a)           Certification.  Following the completion of a performance period and prior to the payment of any compensation pursuant to a Performance Award that is intended to satisfy the 162(m) Requirements, the Committee shall review and certify in writing whether, and to what extent, the performance goals for the performance period have been achieved and, if so, calculate and certify in writing that amount of the Performance Awards earned for the performance period.  The Committee shall then determine the amount of each Participant’s Performance Award actually payable for the performance period and, in so doing, may apply its negative discretion pursuant to subsection (b) below.

(b)           Negative Discretion.  If a Performance Award is intended to satisfy the 162(m) Requirements, the Committee in its sole discretion shall have the authority to reduce or eliminate, but not to increase, the amount payable and the number of shares to be granted, issued, retained or vested pursuant to a Performance Award.

11.6           Code Section 162(m) Approval.  If so determined by the Committee, the provisions of the Plan regarding Performance Awards shall be disclosed and reapproved by shareholders no later than the first shareholder meeting that occurs in the fifth year following the year in which shareholders previously approved such provisions, in each case in order for certain Awards granted after such time to be exempt from the deduction limitations of Section 162(m) of the Code.  Nothing in this Section, however, shall affect the validity of Awards granted after such time if such shareholder approval has not been obtained.

ARTICLE XII.  STOCK AWARDS AND OTHER INCENTIVE AWARDS

12.1           Stock Awards.  Stock Awards may be granted to Participants upon such terms and conditions as the Committee may determine. Shares of Common Stock issued pursuant to Stock Awards may be issued for cash consideration or for no cash consideration. The Committee shall determine the number of shares of Common Stock to be issued pursuant to a Stock Award.

12.2           Other Incentive Awards.  Other Incentive Awards may be granted in such amounts, upon such terms and at such times as the Committee shall determine. Other Incentive Awards may be granted based upon, payable in or otherwise related to, in whole or in part, shares of Common Stock if the Committee, in its sole discretion, determines that such Other Incentive Awards are consistent with the purposes of the Plan. Each grant of an Other Incentive Award shall be evidenced by an Award Agreement that shall specify the amount of the Other Incentive Award and the terms, conditions, restrictions and limitations applicable to such Award. Payment of Other Incentive Awards shall be made at such times and in such form, which may be cash, shares of Common Stock or other property (or a combination thereof), as established by the Committee, subject to the terms of the Plan.

ARTICLE XIII.  CORPORATE CHANGE

13.1           Vesting of Awards.  Except as provided otherwise below in this Article or in an Award Agreement at the time an Award is granted or amended, notwithstanding anything to the contrary in this Plan, if a Participant's employment or service with the Company is terminated for any reason other than death, Cause or Inability to Perform or if a Participant voluntarily terminates employment or service for Good Reason, in either case within the one-year period following a Corporate Change of Rosetta, any time periods, conditions or contingencies relating to the exercise or realization of, or lapse of restrictions under, any Award shall be automatically accelerated or waived so that:

(a)           if no exercise of the Award is required, the Award may be realized in full at the time of the occurrence of the Participant's termination of employment or service; or

(b)           if exercise of the Award is required, the Award may be exercised in full commencing on the date of the Participant's termination of employment or service.

In the event all outstanding Awards are replaced in connection with a Corporate Change by comparable types of awards of at least substantially equivalent value, as determined by the Committee in its sole discretion, such replacement awards shall provide for automatic acceleration or waiver as provided above in the event of a Participant's involuntary termination of employment or service with the Company other than for Cause or voluntary termination of employment or service for Good Reason, as applicable.

13.2           Cancellation of Awards.  Notwithstanding the foregoing, on or prior to the date of a Corporate Change, the Committee may take any of the following actions with respect to any or all outstanding Awards, without the consent of any Participant: (i) the Committee may require that Participants surrender their outstanding Options and SARs in exchange for payment by the Company, in cash, Common Stock, the securities of another company, or a combination thereof, as determined by the Committee, in an amount equal to the amount, if any, by which the then Fair Market Value of the shares of Common Stock subject to the Participant’s unexercised Options and SARs exceeds the exercise price or grant price, and (ii) with respect to Participants holding Restricted Stock, Restricted Stock Units, Performance Awards or Other Incentive Awards, and related Cash Dividend Rights and Dividend Unit Rights (if applicable), the Committee may determine that such Participants shall receive payment in settlement of such Awards (and dividend rights), in an amount equivalent to the value of such Awards (and dividend rights) at the time of such settlement.

ARTICLE XIV.  AMENDMENT AND TERMINATION

14.1           Plan Amendment and Termination.  The Board may at any time suspend, terminate, amend or modify the Plan, in whole or in part; provided, however, that no amendment or modification of the Plan shall become effective without the approval of such amendment or modification by the holders of at least a majority of the shares of Common Stock if (i) such amendment or modification increases the maximum number of shares subject to the Plan (except as provided in Article IV) or changes the designation or class of persons eligible to receive Awards under the Plan, (ii) such amendment or modification is necessary to prevent the Company from being denied a tax deduction under Section 162(m) of the Code, or (iii) counsel for Rosetta determines that such approval is otherwise required by or necessary to comply with applicable law or the listing requirements of NASDAQ or such other exchange or association on which the Common Stock is then listed or quoted. An amendment to the Plan shall not require stockholder approval if it curtails rather than expands the scope of the Plan, nor if it is made to conform the Plan to new statutory or regulatory requirements that arise after submission of the Plan to stockholders for their approval, such as, without limitation, changes to Section 409A of the Code, or regulations issued thereunder. Upon termination of the Plan, the terms and provisions of the Plan shall, notwithstanding such termination, continue to apply to Awards granted prior to such termination. Except as otherwise provided herein, no suspension, termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the consent of the Participant (or the Permitted Transferee) holding such Award.

14.2           Award Amendment and Cancellation.  The Committee may amend the terms of any outstanding Award granted pursuant to the Plan, but except as otherwise provided herein, no such amendment shall adversely affect in any material way the Participant’s (or a Permitted Transferee’s) rights under an outstanding Award without the consent of the Participant (or the Permitted Transferee) holding such Award.

ARTICLE XV.  MISCELLANEOUS

15.1           Award Agreements.  After the Committee grants an Award under the Plan to a Participant, Rosetta and the Participant shall enter into an Award Agreement setting forth the terms, conditions, restrictions and limitations applicable to the Award and such other matters as the Committee may determine to be appropriate. The Committee may permit or require a Participant to defer receipt of the payment of cash or the delivery of shares of Common Stock that would otherwise be due to the Participant in connection with any Award. Awards that are not paid currently shall be recorded as payable on Rosetta’s records for the Plan. The terms and provisions of the respective Award Agreements need not be identical. All Award Agreements shall be subject to the provisions of the Plan, and in the event of any conflict between an Award Agreement and the Plan, the terms of the Plan shall govern.

15.2           Listing; Suspension.

(a)           As long as the Common Stock is listed on a national securities exchange or system sponsored by a national securities association, the issuance of any shares of Common Stock pursuant to an Award shall be conditioned upon such shares being listed on such exchange or system. Rosetta shall have no obligation to issue such shares unless and until such shares are so listed, and the right to exercise any Option or other Award with respect to such shares shall be suspended until such listing has been effected.

(b)           If at any time counsel to Rosetta or its Affiliates shall be of the opinion that any sale or delivery of shares of Common Stock pursuant to an Award is or may in the circumstances be unlawful or result in the imposition of excise taxes on Rosetta or its Affiliates under the laws of any applicable jurisdiction, Rosetta or its Affiliates shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act, or otherwise, with respect to shares of Common Stock or Awards, and the right to exercise any Option or other Award shall be suspended until, in the opinion of such counsel, such sale or delivery shall be lawful or will not result in the imposition of excise taxes on Rosetta or its Affiliates.

(c)           Upon termination of any period of suspension under this Section, any Award affected by such suspension that shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares that would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Award unless otherwise determined by the Committee in its sole discretion.

15.3           Additional Conditions.  Notwithstanding anything in the Plan to the contrary:  (i) the Committee may, if it shall determine it necessary or desirable in its sole discretion, at the time of grant of any Award or the issuance of any shares of Common Stock pursuant to any Award, require the recipient of the Award or such shares of Common Stock, as a condition to the receipt thereof, to deliver to Rosetta a written representation of present intention to acquire the Award or such shares of Common Stock for his own account for investment and not for distribution, (ii) the certificate for shares of Common Stock issued to a Participant may include any legend that the Committee deems appropriate to reflect any restrictions on transfer, and (iii) all certificates for shares of Common Stock delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the SEC, any stock exchange or association upon which the Common Stock is then listed or quoted, any applicable federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions.

15.4           Transferability.

(a)           All Awards granted to a Participant shall be exercisable during his lifetime only by such Participant, or if applicable, a Permitted Transferee as provided in subsection (c) of this Section; provided, however, that in the event of a Participant’s legal incapacity, an Award may be exercised by his guardian or legal representative. When a Participant dies, the personal representative, beneficiary, or other person entitled to succeed to the rights of the Participant may acquire the rights under an Award. Any such successor must furnish proof satisfactory to Rosetta of the successor’s entitlement to receive the rights under an Award under the Participant’s will or under the applicable laws of descent and distribution.

(b)           Except as otherwise provided in this Section, no Award shall be subject to execution, attachment or similar process, and no Award may be sold, transferred, pledged, exchanged, hypothecated or otherwise disposed of, other than by will or pursuant to the applicable laws of descent and distribution. Any attempted sale, transfer, pledge, exchange, hypothecation or other disposition of an Award not specifically permitted by the Plan or the Award Agreement shall be null and void and without effect.

(c)           If provided in the Award Agreement, Nonqualified Stock Options may be transferred by a Participant to a Permitted Transferee. For purposes of the Plan, “Permitted Transferee” means (i) a member of a Participant’s immediate family, (ii) any person sharing the Participant’s household (other than a tenant or employee of the Participant), (iii) trusts in which a person listed in (i) or (ii) above has more than 50% of the beneficial interest, (iv) a foundation in which the Participant or a person listed in (i) or (ii) above controls the management of assets, (v) any other entity in which the Participant or a person listed in (i) or (ii) above owns more than 50% of the voting interests, provided that in the case of the preceding clauses (i) through (v), no consideration is provided for the transfer, and (vi) any transferee permitted under applicable securities and tax laws as determined by counsel to Rosetta. In determining whether a person is a “Permitted Transferee,” immediate family members shall include a Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships.

(d)           Incident to a Participant’s divorce, the Participant may request that Rosetta agree to observe the terms of a domestic relations order which may or may not be part of a qualified domestic relations order (as defined in Code Section 414(p)) with respect to all or a part of one or more Awards made to the Participant under the Plan. Rosetta’s decision regarding such a request shall be made by the Committee, in its sole and absolute discretion, based upon the best interests of Rosetta. The Committee’s decision need not be uniform among Participants. As a condition of participation, a Participant agrees to hold Rosetta harmless from any claim that may arise out of Rosetta’s observance of the terms of any such domestic relations order.

15.5           Withholding Taxes.  The Company shall be entitled to deduct from any payment made under the Plan, regardless of the form of such payment, the amount of all applicable income and employment taxes required by law to be withheld with respect to such payment, may require the Participant to pay to the Company such withholding taxes prior to and as a condition of the making of any payment or the issuance or delivery of any shares of Common Stock under the Plan, and shall be entitled to deduct from any other compensation payable to the Participant any withholding obligations with respect to Awards. In accordance with any applicable administrative guidelines it establishes, the Committee may allow a Participant to pay the amount of taxes required by law to be withheld from or with respect to an Award by (i) withholding shares of Common Stock from any payment of Common Stock due as a result of such Award, or (ii) permitting the Participant to deliver to the Company previously acquired shares of Common Stock, in each case having an aggregate Fair Market Value equal to the amount of such required withholding taxes. No payment shall be made and no shares of Common Stock shall be issued pursuant to any Award unless and until the applicable tax withholding obligations have been satisfied.

15.6           No Fractional Shares.  No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan or any Award granted hereunder, provided that the Committee in its sole discretion may round fractional shares down to the nearest whole share or settle fractional shares in cash.

15.7           Notices.  All notices required or permitted to be given or made under the Plan or pursuant to any Award Agreement (unless provided otherwise in such Award Agreement) shall be in writing and shall be deemed to have been duly given or made if (i) delivered personally, (ii) transmitted by first class registered or certified United States mail, postage prepaid, return receipt requested, (iii) sent by prepaid overnight courier service, or (iv) sent by telecopy or facsimile transmission, with confirmation receipt, to the person who is to receive it at the address that such person has theretofore specified by written notice delivered in accordance herewith. Such notices shall be effective (i) if delivered personally or sent by courier service, upon actual receipt by the intended recipient, (ii) if mailed, upon the earlier of five days after deposit in the mail or the date of delivery as shown by the return receipt therefor, or (iii) if sent by telecopy or facsimile transmission, when the answer back is received. Rosetta or a Participant may change, at any time and from time to time, by written notice to the other, the address that it or such Participant had theretofore specified for receiving notices. Until such address is changed in accordance herewith, notices hereunder or under an Award Agreement shall be delivered or sent (i) to a Participant at his address as set forth in the records of the Company or (ii) to Rosetta at the principal executive offices of Rosetta clearly marked “Attention:  General Counsel.”

15.8           Compliance with Law and Stock Exchange or Association Requirements.  In addition, it is the intent of Rosetta that Options designated Incentive Stock Options comply with the applicable provisions of Section 422 of the Code, and that Awards intended to constitute “qualified performance-based awards” comply with the applicable provisions of Section 162(m) of the Code and that any deferral of the receipt of the payment of cash or the delivery of shares of Common Stock that the Committee may permit or require, and any Award granted that is subject to Section 409A of the Code, comply with the requirements of Section 409A of the Code. To the extent that any legal requirement of Section 16 of the Exchange Act or Sections 422, 162(m) or 409A of the Code as set forth in the Plan ceases to be required under Section 16 of the Exchange Act or Sections 422, 162(m) or 409A of the Code, that Plan provision shall cease to apply. Any provision of this Plan to the contrary notwithstanding, the Committee may revoke any Award if it is contrary to law, governmental regulation, or stock exchange requirements or modify an Award to bring it into compliance with any government regulation or stock exchange requirements. The Committee may agree to limit its authority under this Section.

15.9           California Blue Sky Laws.  Prior to the effective registration of the Common Stock under Section 12 of the Exchange Act, (i) Rosetta shall deliver a balance sheet and an income statement at least annually to each Participant performs services in the State of California, unless such Participant is a key employee whose duties in connection with the Company assure such Participant access to equivalent information, (ii) the Compensation Committee may not impose upon any Award grant made to a Participant performs services in the State of California a vesting schedule that is more restrictive than 20 percent per year vesting, with the initial vesting to occur not later than one year after the Award’s grant date; provided, however, that such vesting limitation shall not be applicable to any Award grants made to individuals who are officers of Rosetta and (iii) with respect to California Participants (including any individual whose Award is based in whole or in part on services performed in California), the Plan shall otherwise be administered in accordance with California Corporations Code section 25102(o) and California Code of Regulations, Title 10, sections 260.140.41, 260.140.42, 260.140.45, and 260.140.46.

15.10         Binding Effect.  The obligations of Rosetta under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of Rosetta, or upon any successor corporation or organization succeeding to all or substantially all of the assets and business of Rosetta. The terms and conditions of the Plan shall be binding upon each Participant and his Permitted Transferees, heirs, legatees, distributees and legal representatives.

15.11         Severability.  If any provision of the Plan or any Award Agreement is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan or such agreement, as the case may be, but such provision shall be fully severable and the Plan or such agreement, as the case may be, shall be construed and enforced as if the illegal or invalid provision had never been included herein or therein.

15.12         No Restriction of Corporate Action.  Nothing contained in the Plan shall be construed to prevent Rosetta or any Affiliate from taking any corporate action (including any corporate action to suspend, terminate, amend or modify the Plan) that is deemed by Rosetta or such Affiliate to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Awards made or to be made under the Plan. No Participant or other person shall have any claim against Rosetta or any Affiliate as a result of such action.

15.13         Governing Law.  The Plan shall be governed by and construed in accordance with the internal laws (and not the principles relating to conflicts of laws) of the State of Texas except as superseded by applicable federal law.

15.14         No Right, Title or Interest in Company Assets.  No Participant shall have any rights as a stockholder of Rosetta as a result of participation in the Plan until the date of issuance of Common Stock in his name and, in the case of Restricted Stock, unless and until such rights are granted to the Participant pursuant to the Plan. To the extent any person acquires a right to receive payments from the Company under the Plan, such rights shall be no greater than the rights of an unsecured general creditor of the Company, and such person shall not have any rights in or against any specific assets of the Company. All Awards shall be unfunded.

15.15         Risk of Participation.  Nothing contained in the Plan shall be construed either as a guarantee by Rosetta or the Affiliates, or their respective stockholders, directors, officers or employees, of the value of any assets of the Plan or as an agreement by Rosetta or the Affiliates, or their respective stockholders, directors, officers or employees, to indemnify anyone for any losses, damages, costs or expenses resulting from participation in the Plan.

15.16         No Guarantee of Tax Consequences.  No person connected with the Plan in any capacity, including without limitation Rosetta and the Affiliates and their respective directors, officers, agents and employees, makes any representation, commitment or guarantee that any tax treatment, including without limitation federal, state and local income, estate and gift tax treatment, will be applicable with respect to any Awards or payments thereunder made to or for the benefit of a Participant under the Plan or that such tax treatment will apply to or be available to a Participant on account of participation in the Plan.

15.17         Continued Employment or Service.  Nothing contained in the Plan or in any Award Agreement shall confer upon any Participant the right to continue in the employ or service of the Company, or interfere in any way with the rights of the Company to terminate a Participant’s employment or service at any time, with or without cause. The loss of existing or potential profit in Awards will not constitute an element of damages in the event of termination of employment or service for any reason, even if the termination is in violation of an obligation of Rosetta or an Affiliate to the Participant.

15.18         Miscellaneous.  Headings are given to the articles and sections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction of the Plan or any provisions hereof. The use of the masculine gender shall also include within its meaning the feminine. Wherever the context of the Plan dictates, the use of the singular shall also include within its meaning the plural, and vice versa.

 

EX-10.27

Exhibit 10.27

Second Amendment

to

Senior Revolving Credit Agreement

Among

Rosetta Resources Inc.,

as Borrower,

BNP Paribas,

as Administrative Agent,

and

The Lenders Signatory Hereto

Effective as of December 6, 2006

Second Amendment to Senior Revolving Credit Agreement

This Second Amendment to Senior Revolving Credit Agreement (this “Second Amendment”) executed effective as of the 6th of December, 2006 (the “Second Amendment Effective Date”) is among Rosetta Resources Inc., a corporation formed under the laws of the State of Delaware (the “Borrower”); each of the undersigned guarantors (the “Guarantors”, and together with the Borrower, the “Obligors”); each of the Lenders that is a signatory hereto; and BNP Paribas, as administrative agent for the Lenders (in such capacity, together with its successors, the “Administrative Agent”).

Recitals

A.            The Borrower, the Administrative Agent and the Lenders are parties to that certain Senior Revolving Credit Agreement dated as of July 7, 2005, as amended by the First Amendment to Senior Revolving Credit Agreement dated September 26, 2005 (the “Credit Agreement”), pursuant to which the Lenders have made certain credit available to and on behalf of the Borrower.

B.             The Borrower has requested and the Administrative Agent and the Lenders have agreed to amend certain provisions of the Credit Agreement.

C.             NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.               Defined Terms.  Each capitalized term which is defined in the Credit Agreement, but which is not defined in this Second Amendment, shall have the meaning ascribed such term in the Credit Agreement.  Unless otherwise indicated, all section references in this Second Amendment refer to the Credit Agreement.

Section 2.                Amendments to Credit Agreement.

2.1            Section 1.02.  The following definitions are hereby added or amended and restated in its entirety as follows:

“Agreement” means this Senior Revolving Credit Agreement, as amended by the First Amendment to Senior Revolving Credit Agreement, dated September 26, 2005 and the Second Amendment to Senior Revolving Credit Agreement, dated December 6, 2006, as the same may from time to time be further amended, modified, supplemented or restated.

Page 2

2.2            Section 9.19.  Section 9.19 is hereby amended and restated in its entirety as follows:

Section 9.19  Swap Agreements.  The Borrower will not, and will not permit any Restricted Subsidiary to, enter into any Swap Agreements with any Person other than (a) those Swap Agreements required under Section 8.18; (b) Swap Agreements in respect of commodities (including price Swap Agreements, basis differential Swap Agreements, caps, collars, floors and other similar agreements described in the definition of “Swap Agreements”) (i) with an Approved Counterparty and (ii) the notional volumes for which, (when aggregated with other commodity Swap Agreements then in effect other than basis differential swaps on volumes already hedged pursuant to other Swap Agreements) do not exceed, as of the date each such Swap Agreement is executed, (A) 100% of the reasonably anticipated projected production (as shown in the most recent Reserve Report) from proved, developed, producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the next thirty-six months succeeding the execution of each such Swap Agreement and 75% of the reasonably anticipated projected production (as shown in the most recent Reserve Report) from proved, developed, producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for each twelve month period after the first thirty-six months after each such Swap Agreement is executed and (B) 50% of the reasonably anticipated projected production (as shown in the most recent Reserve Report) from proved, developed, non-producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the next twenty-four months succeeding the execution of each such Swap Agreement and 35% of the reasonably anticipated projected production (as shown in the most recent Reserve Report) from proved, developed, non-producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the period of twelve months succeeding the two-year anniversary of the execution of each such Swap Agreement, and 0% of the reasonably anticipated projected production (as shown in the most recent Reserve Report) from proved, developed, non-producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for each calendar year thereafter; provided, however, that for purposes of this Section 9.19(b), put options and price floors for crude oil and natural gas shall be disregarded; and (c) Swap Agreements in respect of interest rates with an Approved Counterparty, as follows: (i) Swap Agreements effectively converting interest rates from fixed to floating, the notional amounts of which (when aggregated with all other Swap Agreements of the Borrower and its Restricted Subsidiaries then in effect effectively converting interest rates from fixed to floating) do not exceed 50% of the then outstanding principal amount of the Borrower’s Debt for borrowed money which bears interest at a fixed rate (after netting out any Swap Agreements then in effect effectively converting interest rates from floating to fixed) and (ii) Swap Agreements effectively converting interest rates from floating to fixed, the notional amounts of which (when aggregated with all other Swap Agreements of the Borrower and its Restricted Subsidiaries then in effect effectively converting interest rates from floating to fixed) do not exceed 75% of the then outstanding principal amount of the Borrower’s Debt for borrowed money which bears interest at a floating rate (after netting out any Swap Agreements then in effect effectively converting interest rates from floating to fixed). For purposes of this Section 9.19(b), the notional volumes and corresponding swap volumes so determined shall be calculated and recorded  separately for natural gas and crude oil, and natural gas volumes shall include associated natural gas liquids volumes.  In no event shall any Swap Agreement contain any current requirement, agreement or covenant for the Borrower or any Restricted Subsidiary to post collateral or margin, other than letters of credit permitted by this Agreement (in an amount not to exceed $50,000,000 in the aggregate), to secure their obligations under such Swap Agreement or to cover market exposures.

Page 3

Section 3.              Conditions Precedent.  The effectiveness of this Second Amendment is subject to the receipt by the Administrative Agent of the following documents and satisfaction of the other conditions provided in this Section 3, each of which shall be reasonably satisfactory to the Administrative Agent in form and substance:

3.1            Payment of Outstanding Invoices.  Payment by the Borrower to the Administrative Agent of all fees and other amounts due and payable on or prior to the Second Amendment Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower.

3.2            Second Amendment.  The Administrative Agent shall have received multiple counterparts as requested of this Second Amendment from each Lender.

3.3            No Default.  No Default or Event of Default shall have occurred and be continuing as of the Second Amendment Effective Date.

Section 4.               Representations and Warranties; Etc.  Each Obligor hereby affirms:  (a) that as of the date of execution and delivery of this Second Amendment, all of the representations and warranties contained in each Loan Document to which such Obligor is a party are true and correct in all material respects as though made on and as of the Second Amendment Effective Date (unless made as of a specific earlier date, in which case, was true as of such date); and (b) that after giving effect to this Second Amendment and to the transactions contemplated hereby, no Defaults exist under the Loan Documents or will exist under the Loan Documents.

Section 5.                Miscellaneous.

5.1            Confirmation.  The provisions of the Credit Agreement (as amended by this Second Amendment) shall remain in full force and effect in accordance with its terms following the effectiveness of this Second Amendment.

5.2            Ratification and Affirmation of Obligors.  Each of the Obligors hereby expressly (i) acknowledges the terms of this Second Amendment, (ii) ratifies and affirms its obligations under the Guarantee Agreement and the other Security Instruments to which it is a party, (iii) acknowledges, renews and extends its continued liability under the Guarantee Agreement and the other Security Instruments to which it is a party and agrees that its guarantee under the Guarantee Agreement and the other Security Instruments to which it is a party remains in full force and effect with respect to the Indebtedness as amended hereby.

Page 4

5.3            Counterparts.  This Second Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

5.4            No Oral Agreement.  This written Second Amendment, the Credit Agreement and the other Loan Documents executed in connection herewith and therewith represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or unwritten oral agreements of the parties.  There are no subsequent oral agreements between the parties.

5.5            Governing Law.  This Second Amendment (including, but not limited to, the validity and enforceability hereof) shall be governed by, and construed in accordance with, the laws of the State of New York.

Page 5

IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed effective as of the date first written above.

BORROWER:	ROSETTA RESOURCES INC.
	By:
		Michael J. Rosinski, Executive Vice President,
		Chief Financial Officer, Secretary and Treasurer
GUARANTORS:
	ROSETTA RESOURCES OFFSHORE, LLC
	ROSETTA RESOURCES HOLDINGS, LLC
	ROSETTA RESOURCES OPERATING GP, LLC
	ROSETTA RESOURCES OPERATING LP
	By: Rosetta Resources Operating GP, LLC, its general partner
		By:
			Michael J. Rosinski, Executive Vice
			President, Chief Financial Officer,
			Secretary and Treasurer

Second Amendment – Senior Revolving Credit Agreement

Signature Page - 6

ADMINISTRATIVE AGENT:	BNP PARIBAS,
	as Administrative Agent
	By:
	Name:
	Title:
	By:
	Name:
	Title:
LENDERS:	BNP PARIBAS
	By:
	Name:
	Title:
	By:
	Name:
	Title:
	MIZUHO CORPORATE BANK, LTD.
	By:
	Name:
	Title:
	THE FROST NATIONAL BANK
	By:
	Name:
	Title:

Second Amendment – Senior Revolving Credit Agreement

Signature Page - 7

LENDERS:	AMEGY BANK, NATIONAL ASSOCIATION
	By:
	Name:
	Title:
	WELLS FARGO BANK, N.A.
	By:
	Name:
	Title:
	BANK OF TEXAS, N.A.
	By:
	Name:
	Title:
	ALLIED IRISH BANKS, p.l.c.
	By:
	Name:
	Title:
	By:
	Name:
	Title:

Second Amendment – Senior Revolving Credit Agreement

Signature Page - 8

LENDERS:	THE BANK OF TOKYO – MITSUBISHI UFJ, LTD., NEW YORK BRANCH (AS SUCCESSOR BY MERGER TO UFJ BANK LIMITED)
	By:
	Name:
	Title:
	COMERICA BANK
	By:
	Name:
	Title:
	JPMORGAN CHASE BANK, N.A.
	By:
	Name:
	Title:
	GUARANTY BANK, FSB
	By:
	Name:
	Title:
	CALYON NEW YORK BRANCH
	By:
	Name:
	Title:
	By:
	Name:
	Title:

Second Amendment – Senior Revolving Credit Agreement

Signature Page - 9

LENDERS:	WACHOVIA BANK, NATIONAL ASSOCIATION
	By:
	Name:
	Title:
	UNION BANK OF CALIFORNIA, N.A.
	By:
	Name:
	Title:

Second Amendment – Senior Revolving Credit Agreement

Signature Page - 10

EX-10.28

Exhibit 10.28

Second Amendment

to

Second Lien Term Loan Agreement

Among

Rosetta Resources Inc.,

as Borrower,

BNP Paribas,

as Administrative Agent,

and

The Lenders Signatory Hereto

Effective as of December 6, 2006

Second Amendment to Second Lien Term Loan Agreement

This Second Amendment to Second Lien Term Loan Agreement (this “Second Amendment”) executed effective as of the 6th of December, 2006 (the “Second Amendment Effective Date”) is among Rosetta Resources Inc., a corporation formed under the laws of the State of Delaware (the “Borrower”); each of the undersigned guarantors (the “Guarantors”, and together with the Borrower, the “Obligors”); each of the Lenders that is a signatory hereto; and BNP Paribas, as administrative agent for the Lenders (in such capacity, together with its successors, the “Administrative Agent”).

Recitals

A.             The Borrower, the Administrative Agent and the Lenders are parties to that certain Second Lien Term Loan Agreement dated as of July 7, 2005, as amended by the First Amendment to Second Lien Term Loan Agreement dated September 26, 2005 (the “Credit Agreement”), pursuant to which the Lenders have made certain credit available to and on behalf of the Borrower.

B.             The Borrower has requested and the Administrative Agent and the Lenders have agreed to amend certain provisions of the Credit Agreement.

C.             NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.               Defined Terms.  Each capitalized term which is defined in the Credit Agreement, but which is not defined in this Second Amendment, shall have the meaning ascribed such term in the Credit Agreement.  Unless otherwise indicated, all section references in this Second Amendment refer to the Credit Agreement.

Section 2.                Amendments to Credit Agreement.

2.1            Section 1.02.  The following definitions are hereby added or amended and restated in its entirety as follows:

“Agreement” means this Second Lien Term Loan Agreement, as amended by the First Amendment to Second Lien Term Loan Agreement, dated September 26, 2005 and the Second Amendment to Second Lien Term Loan Agreement, dated December 6, 2006, as the same may from time to time be further amended, modified, supplemented or restated.

Page 2

2.2            Section 9.19.  Section 9.19 is hereby amended and restated in its entirety as follows:

Section 9.19           Swap Agreements.  The Borrower will not, and will not permit any Restricted Subsidiary to, enter into any Swap Agreements with any Person other than (a) those Swap Agreements required under Section 8.18; (b) Swap Agreements in respect of commodities (including price Swap Agreements, basis differential Swap Agreements, caps, collars, floors and other similar agreements described in the definition of “Swap Agreements”) (i) with an Approved Counterparty and (ii) the notional volumes for which, (when aggregated with other commodity Swap Agreements then in effect other than basis differential swaps on volumes already hedged pursuant to other Swap Agreements) do not exceed, as of the date each such Swap Agreement is executed, (A) 100% of the reasonably anticipated projected production (as shown in the most recent Reserve Report) from proved, developed, producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the next thirty-six months succeeding the execution of each such Swap Agreement and 75% of the reasonably anticipated projected production (as shown in the most recent Reserve Report) from proved, developed, producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for each twelve month period after the first thirty-six months after each such Swap Agreement is executed and (B) 50% of the reasonably anticipated projected production (as shown in the most recent Reserve Report) from proved, developed, non-producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the next twenty-four months succeeding the execution of each such Swap Agreement and 35% of the reasonably anticipated projected production (as shown in the most recent Reserve Report) from proved, developed, non-producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the period of twelve months succeeding the two-year anniversary of the execution of each such Swap Agreement, and 0% of the reasonably anticipated projected production (as shown in the most recent Reserve Report) from proved, developed, non-producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for each calendar year thereafter; provided, however, that for purposes of this Section 9.19(b), put options and price floors for crude oil and natural gas shall be disregarded; and (c) Swap Agreements in respect of interest rates with an Approved Counterparty, as follows: (i) Swap Agreements effectively converting interest rates from fixed to floating, the notional amounts of which (when aggregated with all other Swap Agreements of the Borrower and its Restricted Subsidiaries then in effect effectively converting interest rates from fixed to floating) do not exceed 50% of the then outstanding principal amount of the Borrower’s Debt for borrowed money which bears interest at a fixed rate (after netting out any Swap Agreements then in effect effectively converting interest rates from floating to fixed) and (ii) Swap Agreements effectively converting interest rates from floating to fixed, the notional amounts of which (when aggregated with all other Swap Agreements of the Borrower and its Restricted Subsidiaries then in effect effectively converting interest rates from floating to fixed) do not exceed 75% of the then outstanding principal amount of the Borrower’s Debt for borrowed money which bears interest at a floating rate (after netting out any Swap Agreements then in effect effectively converting interest rates from floating to fixed). For purposes of this Section 9.19(b), the notional volumes and corresponding swap volumes so determined shall be calculated and recorded  separately for natural gas and crude oil, and natural gas volumes shall include associated natural gas liquids volumes.  In no event shall any Swap Agreement contain any current requirement, agreement or covenant for the Borrower or any Restricted Subsidiary to post collateral or margin, other than letters of credit permitted by this Agreement (in an amount not to exceed $50,000,000 in the aggregate), to secure their obligations under such Swap Agreement or to cover market exposures.

Page 3

Section 3.              Conditions Precedent.  The effectiveness of this Second Amendment is subject to the receipt by the Administrative Agent of the following documents and satisfaction of the other conditions provided in this Section 3, each of which shall be reasonably satisfactory to the Administrative Agent in form and substance:

3.1            Payment of Outstanding Invoices.  Payment by the Borrower to the Administrative Agent of all fees and other amounts due and payable on or prior to the Second Amendment Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower.

3.2            Second Amendment.  The Administrative Agent shall have received multiple counterparts as requested of this Second Amendment from each Lender.

3.3            No Default.  No Default or Event of Default shall have occurred and be continuing as of the Second Amendment Effective Date.

Section 4.               Representations and Warranties; Etc.  Each Obligor hereby affirms:  (a) that as of the date of execution and delivery of this Second Amendment, all of the representations and warranties contained in each Loan Document to which such Obligor is a party are true and correct in all material respects as though made on and as of the Second Amendment Effective Date (unless made as of a specific earlier date, in which case, was true as of such date); and (b) that after giving effect to this Second Amendment and to the transactions contemplated hereby, no Defaults exist under the Loan Documents or will exist under the Loan Documents.

Section 5.                Miscellaneous.

5.1            Confirmation.  The provisions of the Credit Agreement (as amended by this Second Amendment) shall remain in full force and effect in accordance with its terms following the effectiveness of this Second Amendment.

5.2            Ratification and Affirmation of Obligors.  Each of the Obligors hereby expressly (i) acknowledges the terms of this Second Amendment, (ii) ratifies and affirms its obligations under the Guarantee Agreement and the other Security Instruments to which it is a party, (iii) acknowledges, renews and extends its continued liability under the Guarantee Agreement and the other Security Instruments to which it is a party and agrees that its guarantee under the Guarantee Agreement and the other Security Instruments to which it is a party remains in full force and effect with respect to the Indebtedness as amended hereby.

Page 4

5.3            Counterparts.  This Second Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

5.4            No Oral Agreement.  This written Second Amendment, the Credit Agreement and the other Loan Documents executed in connection herewith and therewith represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or unwritten oral agreements of the parties.  There are no subsequent oral agreements between the parties.

5.5            Governing Law.  This Second Amendment (including, but not limited to, the validity and enforceability hereof) shall be governed by, and construed in accordance with, the laws of the State of New York.

Page 5

IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed effective as of the date first written above.

BORROWER:	ROSETTA RESOURCES INC.
	By:
		Michael J. Rosinski, Executive Vice President,
		Chief Financial Officer, Secretary and Treasurer
GUARANTORS:
	ROSETTA RESOURCES OFFSHORE, LLC
	ROSETTA RESOURCES HOLDINGS, LLC
	ROSETTA RESOURCES OPERATING GP, LLC
	ROSETTA RESOURCES OPERATING LP
	By: Rosetta Resources Operating GP, LLC, its general partner
		By:
			Michael J. Rosinski, Executive Vice
			President, Chief Financial Officer,
			Secretary and Treasurer

Second Amendment – 2nd Lien Term Loan Agreement

Signature Page - 6

ADMINISTRATIVE AGENT:	BNP PARIBAS,
	as Administrative Agent
	By:
	Name:
	Title:
	By:
	Name:
	Title:
LENDERS:	BNP PARIBAS
	By:
	Name:
	Title:
	By:
	Name:
	Title:
	ENERGY COMPONENTS SPC EEP ENERGY EXPLORATION AND PRODUCTION SEGREGATED PORTFOLIO
	By:
	Name:
	Title:
	J.P. MORGAN WHITEFRIARS INC.
	By:
	Name:
	Title:

Second Amendment – 2nd Lien Term Loan Agreement

Signature Page - 7

LENDERS:	THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
	By:
	Name:
	Title:
	PRUCO LIFE INSURANCE COMPANY
	By:
	Name:
	Title:
	AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
	By:	Prudential Investment Management, Inc.,
		as investment manager
		By:
		Name:
		Title:
	GATEWAY RECOVERY TRUST
	By:
	Name:
	Title:

Second Amendment – 2nd Lien Term Loan Agreement

Signature Page - 8

EX-10.29

Exhibit 10.29

Third Amendment

to

Senior Revolving Credit Agreement

Among

Rosetta Resources Inc.,

as Borrower,

BNP Paribas,

as Administrative Agent,

and

The Lenders Signatory Hereto

Effective as of May 1, 2007

Third Amendment to Senior Revolving Credit Agreement

This Third Amendment to Senior Revolving Credit Agreement (this “Third Amendment”) executed effective as of the 1st of May, 2007 (the “Third Amendment Effective Date”) is among Rosetta Resources Inc., a corporation formed under the laws of the State of Delaware (the “Borrower”); each of the undersigned guarantors (the “Guarantors”, and together with the Borrower, the “Obligors”); each of the Lenders that is a signatory hereto; and BNP Paribas, as administrative agent for the Lenders (in such capacity, together with its successors, the “Administrative Agent”).

Recitals

A.           The Borrower, the Administrative Agent and the Lenders are parties to that certain Senior Revolving Credit Agreement dated as of July 7, 2005, as amended by the First Amendment to Senior Revolving Credit Agreement dated September 26, 2005 and the Second Amendment to Senior Revolving Credit Agreement dated December 6, 2006 (as amended, the “Credit Agreement”), pursuant to which the Lenders have made certain credit available to and on behalf of the Borrower.

B.           The Borrower has requested and the Administrative Agent and the Lenders have agreed to amend certain provisions of the Credit Agreement.

C.           NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1. Defined Terms.  Each capitalized term which is defined in the Credit Agreement, but which is not defined in this Third Amendment, shall have the meaning ascribed such term in the Credit Agreement.  Unless otherwise indicated, all section references in this Third Amendment refer to the Credit Agreement.

Section 2. Amendments to Credit Agreement.

2.1           Section 1.02.  The following definitions are hereby added or amended and restated in its entirety as follows:

“Agreement” means this Senior Revolving Credit Agreement, as amended by the First Amendment to Senior Revolving Credit Agreement, dated September 26, 2005, the Second Amendment to Senior Revolving Credit Agreement, dated December 6, 2006 and the Third Amendment to Senior Revolving Credit Agreement, dated as of May 1, 2007, as the same may from time to time be further amended, modified, supplemented or restated.

“Applicable Margin” means, for any day, with respect to any ABR Loan or Eurodollar Loan, or with respect to the Commitment Fee Rate, as the case may be, the rate per annum set forth in the Borrowing Base Utilization Grid below based upon the Borrowing Base Utilization Percentage then in effect:

Page

Borrowing Base Utilization Grid
Borrowing Base Utilization Percentage	< 50%	³ 50% < 75 %	³ 75 %  < 90 %	³ 90 %
LIBOR Margin	1.000%	1.250%	1.500%	1.750%
ABR Margin	0.000%	0.000%	0.250%	0.500%
Commitment Fee Rate	0.250%	0.375%	0.375%	0.375%

Each change in the Applicable Margin or Commitment Fee Rate shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change, provided, however, that if at any time the Borrower fails to deliver a Reserve Report pursuant to Section 8.12(a), then the “Applicable Margin” or “Commitment Fee Rate” means the rate per annum set forth on the grid when the Borrowing Base Utilization Percentage is at its highest level.

2.2           Section 9.19(b).  Section 9.19(b) is hereby amended and restated in its entirety as follows (bold indicates changes from the previous Section 9.19(b)):

“(b) Swap Agreements in respect of commodities (including price Swap Agreements, basis differential Swap Agreements, caps, collars, floors and other similar agreements described in the definition of “Swap Agreements”) (i) with an Approved Counterparty and (ii) the notional volumes for which, (when aggregated with other commodity Swap Agreements then in effect other than basis differential swaps on volumes already hedged pursuant to other Swap Agreements) do not exceed, as of the date each such Swap Agreement is executed, (A) 100% of the reasonably anticipated projected production (as shown in the most recent Reserve Report and/or in another engineering report which is in form and substance satisfactory to the Administrative Agent) from proved, developed, producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the next thirty-six months succeeding the execution of each such Swap Agreement, (B) 75% of the reasonably anticipated projected production (as shown in the most recent Reserve Report and/or in another engineering report which is in form and substance satisfactory to the Administrative Agent) from proved, developed, producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for each twelve month period after the first thirty-six months after each such Swap Agreement is executed, (C) 50% of the reasonably anticipated projected production (as shown in the most recent Reserve Report and/or in another engineering report which is in form and substance satisfactory to the Administrative Agent) from proved, developed, non-producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the next twenty-four months succeeding the execution of each such Swap Agreement and (D) 35% of the reasonably anticipated projected production (as shown in the most recent Reserve Report and/or in another engineering report which is in form and substance satisfactory to the Administrative Agent) from proved, developed, non-producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the period of twelve months succeeding the two-year anniversary of the execution of each such Swap Agreement; provided, however, that for purposes of this Section 9.19(b), put options and price floors for crude oil and natural gas shall be disregarded;”

Page

2.3           Scheduled Redetermination of the Borrowing Base.  Pursuant to Section 2.07(b), the Borrowing Base shall be increased to $350,000,000, effective from and including May 1, 2007 to but excluding the next Redetermination Date.  Notwithstanding the foregoing, the Borrowing Base may be subject to further adjustments from time to time pursuant to Section 8.13(c) or Section 9.13.

Section 3. Conditions Precedent.  The effectiveness of this Third Amendment is subject to the receipt by the Administrative Agent of the following documents and satisfaction of the other conditions provided in this Section 3, each of which shall be reasonably satisfactory to the Administrative Agent in form and substance:

3.1           Payment of Outstanding Invoices.  Payment by the Borrower to the Administrative Agent of all fees and other amounts due and payable on or prior to the Third Amendment Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower.

3.2           Third Amendment.  The Administrative Agent shall have received multiple counterparts as requested of this Third Amendment from each Lender.

3.3           No Default.  No Default or Event of Default shall have occurred and be continuing as of the Third Amendment Effective Date.

Section 4. Representations and Warranties; Etc.  Each Obligor hereby affirms:  (a) that as of the date of execution and delivery of this Third Amendment, all of the representations and warranties contained in each Loan Document to which such Obligor is a party are true and correct in all material respects as though made on and as of the Third Amendment Effective Date (unless made as of a specific earlier date, in which case, was true as of such date); and (b) that after giving effect to this Third Amendment and to the transactions contemplated hereby, no Defaults exist under the Loan Documents or will exist under the Loan Documents.

Section 5. Miscellaneous.

5.1           Confirmation.  The provisions of the Credit Agreement (as amended by this Third Amendment) shall remain in full force and effect in accordance with its terms following the effectiveness of this Third Amendment.

Page

5.2           Ratification and Affirmation of Obligors.  Each of the Obligors hereby expressly (i) acknowledges the terms of this Third Amendment, (ii) ratifies and affirms its obligations under the Guarantee Agreement and the other Security Instruments to which it is a party, (iii) acknowledges, renews and extends its continued liability under the Guarantee Agreement and the other Security Instruments to which it is a party and agrees that its guarantee under the Guarantee Agreement and the other Security Instruments to which it is a party remains in full force and effect with respect to the Indebtedness as amended hereby.

5.3           Counterparts.  This Third Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

5.4           No Oral Agreement.  This written Third Amendment, the Credit Agreement and the other Loan Documents executed in connection herewith and therewith represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or unwritten oral agreements of the parties.  There are no subsequent oral agreements between the parties.

5.5           Governing Law.  This Third Amendment (including, but not limited to, the validity and enforceability hereof) shall be governed by, and construed in accordance with, the laws of the State of New York.

Page

IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed effective as of the date first written above.

BORROWER:	ROSETTA RESOURCES INC.
	By:
		Michael J. Rosinski, Executive Vice President, Chief Financial Officer, Secretary and Treasurer
GUARANTORS:
	ROSETTA RESOURCES OFFSHORE, LLC
	ROSETTA RESOURCES HOLDINGS, LLC
	ROSETTA RESOURCES OPERATING GP, LLC
	ROSETTA RESOURCES OPERATING LP
	By: Rosetta Resources Operating GP, LLC, its general partner
	By:
		Michael J. Rosinski, Executive Vice President, Chief Financial Officer, Secretary and Treasurer

Third Amendment - Senior Revolving Credit Agreement

Signature Page -

ADMINISTRATIVE AGENT:	BNP PARIBAS,
	as Administrative Agent
	By:
	Name:
	Title:
	By:
	Name:
	Title:
LENDERS:	BNP PARIBAS
	By:
	Name:
	Title:
	By:
	Name:
	Title:
	MIZUHO CORPORATE BANK, LTD.
	By:
	Name:
	Title:
	THE FROST NATIONAL BANK
	By:
	Name:
	Title:

Third Amendment - Senior Revolving Credit Agreement

Signature Page -

LENDERS:	AMEGY BANK, NATIONAL ASSOCIATION
	By:
	Name:
	Title:
	WELLS FARGO BANK, N.A.
	By:
	Name:
	Title:
	BANK OF TEXAS, N.A.
	By:
	Name:
	Title:
	ALLIED IRISH BANKS, p.l.c.
	By:
	Name:
	Title:
	By:
	Name:
	Title:

Third Amendment - Senior Revolving Credit Agreement

Signature Page -

LENDERS:	THE BANK OF TOKYO – MITSUBISHI UFJ, LTD., NEW YORK BRANCH (AS SUCCESSOR BY MERGER TO UFJ BANK LIMITED)
	By:
	Name:
	Title:
	COMERICA BANK
	By:
	Name:
	Title:
	JPMORGAN CHASE BANK, N.A.
	By:
	Name:
	Title:
	GUARANTY BANK, FSB
	By:
	Name:
	Title:
	CALYON NEW YORK BRANCH
	By:
	Name:
	Title:
	By:
	Name:
	Title:

Third Amendment - Senior Revolving Credit Agreement

Signature Page -

LENDERS:	WACHOVIA BANK, NATIONAL ASSOCIATION
	By:
	Name:
	Title:
	UNION BANK OF CALIFORNIA, N.A.
	By:
	Name:
	Title:

Third Amendment - Senior Revolving Credit Agreement

Signature Page -

EX-10.30

Exhibit 10.30

Third Amendment

to

Second Lien Term Loan Agreement

Among

Rosetta Resources Inc.,

as Borrower,

BNP Paribas,

as Administrative Agent,

and

The Lenders Signatory Hereto

Effective as of May 1, 2007

Third Amendment to Second Lien Term Loan Agreement

This Third Amendment to Second Lien Term Loan Agreement (this “Third Amendment”) executed effective as of the 1st of May, 2007 (the “Third Amendment Effective Date”) is among Rosetta Resources Inc., a corporation formed under the laws of the State of Delaware (the “Borrower”); each of the undersigned guarantors (the “Guarantors”, and together with the Borrower, the “Obligors”); each of the Lenders that is a signatory hereto; and BNP Paribas, as administrative agent for the Lenders (in such capacity, together with its successors, the “Administrative Agent”).

Recitals

A.           The Borrower, the Administrative Agent and the Lenders are parties to that certain Second Lien Term Loan Agreement dated as of July 7, 2005, as amended by the First Amendment to Second Lien Term Loan Agreement dated September 26, 2005 and the Second Amendment to Second Lien Term Loan Agreement, dated December 6, 2006 (as amended, the “Credit Agreement”), pursuant to which the Lenders have made certain credit available to and on behalf of the Borrower.

B.           The Borrower has requested and the Administrative Agent and the Lenders have agreed to amend certain provisions of the Credit Agreement.

C.           NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.           Defined Terms.  Each capitalized term which is defined in the Credit Agreement, but which is not defined in this Third Amendment, shall have the meaning ascribed such term in the Credit Agreement.  Unless otherwise indicated, all section references in this Third Amendment refer to the Credit Agreement.

Section 2.           Amendments to Credit Agreement.

2.1           Section 1.02.  The following definitions are hereby added or amended and restated in its entirety as follows:

“Agreement” means this Second Lien Term Loan Agreement, as amended by the First Amendment to Second Lien Term Loan Agreement, dated September 26, 2005, the Second Amendment to Second Lien Term Loan Agreement, dated December 6, 2006 and the Third Amendment to Second Lien Term Loan Agreement, dated May 1, 2007, as the same may from time to time be further amended, modified, supplemented or restated.

2.2           Section 9.19(b).  Section 9.19(b) is hereby amended and restated in its entirety as follows (bold indicates changes from the previous Section 9.19(b)):

Page 1

“(b) Swap Agreements in respect of commodities (including price Swap Agreements, basis differential Swap Agreements, caps, collars, floors and other similar agreements described in the definition of “Swap Agreements”) (i) with an Approved Counterparty and (ii) the notional volumes for which, (when aggregated with other commodity Swap Agreements then in effect other than basis differential swaps on volumes already hedged pursuant to other Swap Agreements) do not exceed, as of the date each such Swap Agreement is executed, (A) 100% of the reasonably anticipated projected production (as shown in the most recent Reserve Report and/or in another engineering report which is in form and substance satisfactory to the Administrative Agent) from proved, developed, producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the next thirty-six months succeeding the execution of each such Swap Agreement, (B) 75% of the reasonably anticipated projected production (as shown in the most recent Reserve Report and/or in another engineering report which is in form and substance satisfactory to the Administrative Agent) from proved, developed, producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for each twelve month period after the first thirty-six months after each such Swap Agreement is executed, (C) 50% of the reasonably anticipated projected production (as shown in the most recent Reserve Report and/or in another engineering report which is in form and substance satisfactory to the Administrative Agent) from proved, developed, non-producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the next twenty-four months succeeding the execution of each such Swap Agreement and (D) 35% of the reasonably anticipated projected production (as shown in the most recent Reserve Report and/or in another engineering report which is in form and substance satisfactory to the Administrative Agent) from proved, developed, non-producing Oil and Gas Properties for each twelve month period during which each such Swap Agreement is in effect, for the period of twelve months succeeding the two-year anniversary of the execution of each such Swap Agreement; provided, however, that for purposes of this Section 9.19(b), put options and price floors for crude oil and natural gas shall be disregarded;”

Section 3.           Conditions Precedent.  The effectiveness of this Third Amendment is subject to the receipt by the Administrative Agent of the following documents and satisfaction of the other conditions provided in this Section 3, each of which shall be reasonably satisfactory to the Administrative Agent in form and substance:

3.1           Payment of Outstanding Invoices.  Payment by the Borrower to the Administrative Agent of all fees and other amounts due and payable on or prior to the Third Amendment Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower.

3.2           Third Amendment.  The Administrative Agent shall have received multiple counterparts as requested of this Third Amendment from the Majority Lenders.

Page 2

3.3           No Default.  No Default or Event of Default shall have occurred and be continuing as of the Third Amendment Effective Date.

Section 4.           Representations and Warranties; Etc.  Each Obligor hereby affirms:  (a) that as of the date of execution and delivery of this Third Amendment, all of the representations and warranties contained in each Loan Document to which such Obligor is a party are true and correct in all material respects as though made on and as of the Third Amendment Effective Date (unless made as of a specific earlier date, in which case, was true as of such date); and (b) that after giving effect to this Third Amendment and to the transactions contemplated hereby, no Defaults exist under the Loan Documents or will exist under the Loan Documents.

Section 5.           Miscellaneous.

5.1           Confirmation.  The provisions of the Credit Agreement (as amended by this Third Amendment) shall remain in full force and effect in accordance with its terms following the effectiveness of this Third Amendment.

5.2           Ratification and Affirmation of Obligors.  Each of the Obligors hereby expressly (i) acknowledges the terms of this Third Amendment, (ii) ratifies and affirms its obligations under the Guarantee Agreement and the other Security Instruments to which it is a party, (iii) acknowledges, renews and extends its continued liability under the Guarantee Agreement and the other Security Instruments to which it is a party and agrees that its guarantee under the Guarantee Agreement and the other Security Instruments to which it is a party remains in full force and effect with respect to the Indebtedness as amended hereby.

5.3           Counterparts.  This Third Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

5.4           No Oral Agreement.  This written Third Amendment, the Credit Agreement and the other Loan Documents executed in connection herewith and therewith represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous, or unwritten oral agreements of the parties.  There are no subsequent oral agreements between the parties.

5.5           Governing Law.  This Third Amendment (including, but not limited to, the validity and enforceability hereof) shall be governed by, and construed in accordance with, the laws of the State of New York.

Page 3

IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed effective as of the date first written above.

BORROWER:	ROSETTA RESOURCES INC.
	By:
		Michael J. Rosinski, Executive Vice President, Chief Financial Officer, Secretary and Treasurer
GUARANTORS:
	ROSETTA RESOURCES OFFSHORE, LLC
	ROSETTA RESOURCES HOLDINGS, LLC
	ROSETTA RESOURCES OPERATING GP, LLC
	ROSETTA RESOURCES OPERATING LP
	By: Rosetta Resources Operating GP, LLC, its general partner
	By:
		Michael J. Rosinski, Executive Vice President, Chief Financial Officer, Secretary and Treasurer

Third Amendment – 2nd Lien Term Loan Agreement

Signature Page - 4

ADMINISTRATIVE AGENT:	BNP PARIBAS,
	as Administrative Agent
	By:
	Name:
	Title:
	By:
	Name:
	Title:
LENDERS:	BNP PARIBAS
	By:
	Name:
	Title:
	By:
	Name:
	Title:
	ENERGY COMPONENTS SPC EEP ENERGY EXPLORATION AND PRODUCTION SEGREGATED PORTFOLIO
	By:
	Name:
	Title:
	J.P. MORGAN WHITEFRIARS INC.
	By:
	Name:
	Title:

Third Amendment – 2nd Lien Term Loan Agreement

Signature Page - 5

LENDERS:	THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
	By:
	Name:
	Title:
	PRUCO LIFE INSURANCE COMPANY
	By:
	Name:
	Title:
	AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
	By:	Prudential Investment Management, Inc., as investment manager
	By:
	Name:
	Title:
	GATEWAY RECOVERY TRUST
	By:	Prudential Investment Management, Inc., as asset manager
	By:
	Name:
	Title:

Third Amendment – 2nd Lien Term Loan Agreement

Signature Page - 6

EX-10.31

Exhibit 10.31

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (this “Agreement”), effective as of December 31, 2008 (the “Amendment Date”), is between Rosetta Resources Inc., a Delaware corporation (“Employer”), and Randy L. Limbacher (“Executive”), and supersedes and replaces that certain Employment Agreement between Employer and Executive dated November 1, 2007.

WHEREAS, Executive has been employed as President and Chief Executive Officer of Employer ; and

WHEREAS, the parties desire to amend and restate the Employment Agreement dated as of November 1, 2007, all as herein provided;

NOW, THEREFORE, the parties hereto agree as follows:

1.              Definitions.  As used in this Agreement, the following terms have the following meanings:

(a)            “Affiliate” means, with respect to any entity, any other corporation, organization, association, partnership, sole proprietorship or other type of entity, whether incorporated or unincorporated, directly or indirectly controlling or controlled by or under direct or indirect common control with such entity.

(b)            “Annual Period” means the time period of each year beginning on the first day of the Employment Term and ending on the day before the anniversary of that date.

(c)            “Board” means the Board of Directors of Employer.

(d)            “Cause” means a finding by the Board of acts or omissions constituting, in the Board’s reasonable judgment, any of the following occurring during the Employment Term:

(i) a material breach of duty by Executive in the course of his employment with Employer or its Affiliates involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty to Employer or its Affiliates or moral turpitude constituting criminal felony; (ii) conduct by Executive that is materially detrimental to Employer, monetarily or otherwise, or that reflects unfavorably on Employer or Executive to such an extent that Employer’s best interests reasonably require the termination of Executive’s employment; (iii) acts or omissions of Executive materially in violation of his obligations under this Agreement or at law; (iv) Executive’s material failure to comply with or enforce the personnel policies of Employer or its Affiliates, specifically including those concerning equal employment opportunity and those related to harassing conduct; (v) Executive’s material insubordination to the Board; (vi) subject to the details of Paragraph 4(b), Executive’s failure to devote his full working time and best efforts to the performance of his responsibilities to Employer or its Affiliates; (vii) Executive’s conviction of, or entry of a plea agreement or consent decree or similar arrangement with respect to a felony or any material violation of federal or state securities laws, in either case, having a material adverse effect on Employer or its Affiliates; or (viii) Executive’s material failure to cooperate with any investigation or inquiry authorized by the Board or conducted by a governmental authority related to Employer’s or an Affiliate’s business or Executive’s conduct related to Employer or an Affiliate.

(e)            “Competitor” means any person or entity that is engaged in the acquisition, exploration, development and production of oil and gas properties in competition with the activities of Employer or an Affiliate.

(f)            “Confidential Information” means, without limitation, all documents or information, in whatever form or medium, concerning or evidencing sales; costs; pricing; strategies; forecasts and long range plans; financial and tax information; personnel information; business, marketing and operational projections, plans and opportunities; customer, vendor, and supplier information; geological and geophysical maps, data, interpretations, and analyses; project and prospect locations and leads; well logs, interpretations, and analyses; and production information; but excluding any such information that is or becomes generally available to the public other than as a result of any breach of this Agreement or other unauthorized disclosure by Executive.

(g)            “Corporate Change” means (i) the dissolution or liquidation of Employer; (ii) a reorganization, merger or consolidation of Employer with one or more corporations (other than a merger or consolidation effecting a reincorporation of Employer in another state or any other merger or consolidation in which the shareholders of the surviving corporation and their proportionate interests therein immediately after the merger or consolidation are substantially identical to the shareholders of Employer and their proportionate interests therein immediately prior to the merger or consolidation) (collectively, a “Corporate Change Merger”); (iii) the sale of all or substantially all of the assets of Employer or an Affiliate as defined in the Rosetta Resources, Inc. 2005 Long-Term Incentive Plan; or (iv) the occurrence of a Change in Control. A “Change in Control” shall be deemed to have occurred if (x) individuals who were directors of Employer immediately prior to a Control Transaction shall cease, within two years of such Control Transaction to constitute a majority of the Board of Directors of Employer (or of the Board of Directors of any successor to Employer or to a company which has acquired all or substantially all its assets) other than by reason of an increase in the size of the membership of the applicable Board that is approved by at least a majority of the individuals who were directors of Employer immediately prior to such Control Transaction or (y) any entity, person or Group acquires shares of Employer in a transaction or series of transactions that result in such entity, person or Group directly or indirectly owning beneficially 50% or more of the outstanding shares of Common Stock. As used herein, “Control Transaction” means (A) any tender offer for or acquisition of capital stock of Employer pursuant to which any person, entity, or Group directly or indirectly acquires beneficial ownership of 20% or more of the outstanding shares of Common Stock; (B) any Corporate Change Merger of Employer; (C) any contested election of directors of Employer; or (D) any combination of the foregoing, any one of which results in a change in voting power sufficient to elect a majority of the Board of Directors of Employer. As used herein, “Group” means persons who act “in concert” as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.  Notwithstanding the foregoing, “Corporate Change” shall not include the Acquisition, the Offering or any public offering of equity of Employer pursuant to a registration that is effective under the Securities Act of 1933, as amended. As used herein, “Acquisition” and “Offering” shall have the same meaning given to those terms in the Rosetta Resources Inc. 2005 Long-Term Incentive Plan.

 

(h)            “Employment Termination Date” means the effective date of termination of Executive’s employment as established under Paragraph 6(g).

(i)             “Good Reason” means any of the following actions if taken without Executive’s prior written consent: (i) any material diminution in Executive’s authority, responsibilities or duties; (ii) any material diminution in Executive’s base compensation; (iii) any permanent relocation of Executive’s regular place of business to a location 50 miles or more from the then-current location of Employer’s executive offices; or (iv) any other action or inaction by Employer that constitutes a material breach by Employer of its obligations under this Agreement. Neither a transfer of employment among Employer and any of its Affiliates nor a change in the co-employment relationship, standing alone, constitutes “Good Reason.”

(j)             “Inability to Perform” means and shall be deemed to have occurred if Executive has been determined under Employer’s long-term disability plan to be eligible for long-term disability benefits. In the absence of Executive’s participation in, application for benefits under, or existence of such a plan, “Inability to Perform” means Executive’s inability to perform the essential functions of his position because of an illness or injury for (i) a period of six consecutive months or (ii) an aggregate of six months within any period of 12 consecutive months.

(k)            “Work Product” means all ideas, works of authorship, inventions, and other creations, whether or not patentable, copyrightable, or subject to other intellectual-property protection, that are made, conceived, developed or worked on in whole or in part by Executive while employed by Employer and/or any of its Affiliates, that relate in any manner whatsoever to the business, existing or then-proposed, of Employer and/or any of its Affiliates, or any other business or research or development effort in which Employer and/or any of its Affiliates engages during Executive’s employment.

2.              Employment.  Employer agrees to employ Executive (directly or through an Affiliate), and Executive agrees to be employed, for the period set forth in Paragraph 3. Executive will be employed in the position and with the duties and responsibilities set forth in Paragraph 4(a) and upon the other terms and conditions set out in this Agreement. Employer and Executive agree that such employment may be through a co-employment relationship with a professional employer organization, subject to the requirements of Paragraph 4(a).

3.              Term.  Executive’s employment under this Agreement shall commence on November 1, 2007, and shall be for an initial term of one Annual Period (the “Employment Term”), unless sooner terminated as provided in this Agreement. Subject to earlier termination as provided in this Agreement, the Employment Term shall be automatically extended for an additional Annual Period (not to exceed nine additional Annual Periods) unless either Executive or Employer gives written notice to the other six months or more prior to the end of the initial term or, if the Agreement has been automatically extended beyond the initial term, six months or more prior to the end of the additional Annual Period. In the event of such an automatic extension, each additional Annual Period shall be part of the “Employment Term.”  Upon such timely written notice or at the end of the nine additional periods contemplated above, Executive’s employment will end upon the expiration of the Employment Term.

4.              Position and Duties.

(a)            During the Employment Term, Executive shall be employed as President and Chief Executive Officer of Employer, under the direction and subject to the control of the Board (which direction shall be such as is customarily exercised over a chief executive officer), and Executive shall be responsible for the business, affairs, properties and operations of Employer and shall have general executive charge, management and control of Employer, with all such powers and authority with respect to such business, affairs, properties and operations as may be reasonably incident to such duties and responsibilities.  In addition, Executive shall have such other duties, functions, responsibilities, and authority as are from time to time delegated to Executive by the Board; provided, however, that such duties, functions, responsibilities, and authority are reasonable and customary for a person serving in the same or similar capacity of an enterprise comparable to Employer.

(b)            During the Employment Term, Executive shall devote his full business time, skill, and attention and his best efforts to the business and affairs of Employer to the extent necessary to discharge fully, faithfully, and efficiently the duties and responsibilities delegated and assigned to Executive in or pursuant to this Agreement, except for usual, ordinary, and customary periods of vacation and absence due to illness or other disability and as otherwise specified in this paragraph.  Employer agrees that it shall not be a violation of this paragraph for Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions, and (iii) manage personal investments, so long as in the case of (i), (ii) and (iii) above such activities do not significantly interfere or conflict with the performance of Executive’s responsibilities under this Agreement or the interests of Employer.  Specifically, Employer acknowledges that Executive currently serves on the Board of Directors of CARBO Ceramics, Inc. and currently serves as the Chairman of Junior Achievement for Southeast Texas and represents that such service shall not be considered a violation of this paragraph unless such activities significantly interfere with Executive’s performance of his responsibilities under this Agreement.  Executive shall not become a member of the board of directors or committees of any other business organization without thepriorwrittenconsent of the Board.

(c)            In connection with Executive’s employment under this Agreement, Executive shall be based in Houston, Texas, or at any other place where the principal executive offices of Employer may be located during the Employment Term, subject to the provisions of Paragraph 1(i)(iii). Executive also will engage in such travel as the performance of Executive’s duties in the business of Employer may require.

(d)            All services that Executive may render to Employer or any of its Affiliates in any capacity during the Employment Term shall be deemed to be services required by this Agreement and the consideration for such services is that provided for in this Agreement.

(e)            Executive hereby acknowledges that he has read and is familiar with Employer’s policies regarding business ethics and conduct, and will comply with all such provisions, and any amendments thereto, during the Employment Term.

5.              Compensation and Related Matters.

(a)            Base Salary.  During each Annual Period of the Employment Term, Employer shall pay to Executive for his services under this Agreement an annual base salary (“Base Salary”). The Base Salary as of the Amendment Date shall be $625,000. The Base Salary is subject to annual adjustments beginning in January 2009, at the discretion of the Board, but in no event shall Employer pay Executive a Base Salary less than that set forth above, or any increased Base Salary later in effect, without the consent of Executive. The Base Salary shall be payable in installments in accordance with the general payroll practices of Employer, or as otherwise mutually agreed upon.

(b)            Annual Incentives.  Beginning in calendar year 2008 and during the Employment Term, Executive will participate in any incentive compensation plan (ICP) applicable to Executive’s position, as may be adopted by Employer from time to time and in accordance with the terms of such plan(s).  Executive’s target award opportunity under the ICP will be 100% of Executive’s Base Salary, and shall be subject to such other terms, conditions and restrictions as may be established by the Board or the ICP committee.

(c)            Long-Term Incentives.  During the Employment Term, Executive will participate in Employer’s 2005 Long-Term Incentive Plan (“LTI Plan”) applicable to Executive’s position, or any successor plan as may be adopted by Employer from time to time, in accordance with the terms of such plan(s). Except as provided in Paragraph 5(d), Executive will participate in such long term incentive opportunities (“LTI opportunities”) as may be determined by the Board or the LTI Plan committee, as applicable; provided that, in no event shall the LTI opportunities provided to Executive ever be less than the LTI opportunities then provided to other senior executives of Employer without the consent of Executive.

(d)            Equity Grants Related to Initial Employment.  Executive shall be granted the following awards pursuant to the terms of the LTI Plan:

(i)             On November 1, 2007, a nonqualified stock option to purchase 102,100 shares of Employer’s common stock at an exercise price equal to the Fair Market Value (as defined in the LTI Plan) of Employer’s common stock on the November 1, 2007, which option will have a ten year term and be 100% vested on the date of grant.

(ii)            On November 1, 2007, 102,100 shares of restricted common stock in Employer, which will vest as follows: (A) 25% of such shares (if a fractional number, then the next lower whole number) will vest on November 1, 2008, provided Executive is in the continuous service of Employer or an Affiliate until and on such vesting date; (B) an additional 25% of such shares (if a fractional number, then the next lower whole number) will vest on November 1, 2009, provided Executive is in the continuous service of Employer or an Affiliate until and on such vesting date; and (C) the remaining shares will vest on November 1, 2010, provided Executive is in the continuous service of Employer or an Affiliate until and on such vesting date.

(iii)           On January 1, 2008 (if Executive is employed by Employer on such date), $3,500,000 in value of sign-on restricted common stock in Employer, which will vest in full on the fifth anniversary of November 1, 2007, provided that Executive is in the continuous service of Employer or an Affiliate until and on such vesting date. The number of shares of restricted common stock to be granted to Executive in respect of the $3,500,000 in value shall be determined by dividing $3,500,000 by the Fair Market Value (as defined in the LTI Plan) of Employer’s common stock on November 1, 2007; provided, however, that no more than 200,000 shares of restricted common stock shall be granted to Executive pursuant to this Paragraph 5(d)(iii).

Notwithstanding the foregoing, the percentage indicated below of the total number of shares of restricted common stock granted Executive under this Paragraph 5(d)(iii) will vest on the date on which the Fair Market Value per share of Employer’s common stock has reached a level indicated below (each a “Target Level”) and remained at or above such Target Level for 30 consecutive trading days, provided that Executive is in the continuous service of Employer or an Affiliate until and on the applicable vesting date:

$22 per share 15%

$25 per share 20%

$30 per share 30%

$35 per share 20%

$40 per share 15%

To the extent that a specified percentage of shares vests based on a particular Target Level, and the shares associated with any lower Target Level have not previously vested, the shares associated with that lower Target Level shall vest on the same date.

The equity award grants provided for in this Paragraph 5(d) shall be subject to the terms and conditions of the LTI Plan and the award agreements covering such awards, which shall be substantially in the forms collectively attached hereto as Exhibit A, but only to the extent that such forms are not inconsistent with the terms and conditions of this Agreement.  In the event of an inconsistency between this Agreement and any such award, the terms of this Agreement shall govern (including, for example, the definitions of “Cause” and “Good Reason”).

(e)            Employee Benefits.  During the Employment Term, Executive shall be entitled to participate in all employee benefit plans, programs, and arrangements that are generally made available by Employer to its similarly situated employees, including without limitation Employer’s life insurance, long-term disability, and health plans. Executive acknowledges and agrees that cooperation and participation in medical or physical examinations may be required by one or more insurance companies in connection with the applications for such life and/or disability insurance policies.

(f)             Expenses.  Executive shall be entitled to receive reimbursement for all reasonable expenses incurred by Executive during the Employment Term in performing his duties and responsibilities under this Agreement, consistent with Employer’s policies or practices for reimbursement of expenses incurred by other senior executives of Employer (“Business Expenses”). Notwithstanding the foregoing, (i) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (ii) the reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.

(g)            Vacations.  During each Annual Period of the Employment Term, Executive shall be eligible for four weeks’ paid vacation, as well as sick pay and other paid and unpaid time off in accordance with the policies and practices of Employer. Executive agrees to use his vacation and other paid time off at such times that are (i) consistent with the proper performance of his duties and responsibilities and (ii) mutually convenient for Employer and Executive.

(h)            Fringe Benefits.  During the Employment Term, Executive shall be entitled to the perquisites and other fringe benefits that are made available by Employer to its senior executives generally and to such perquisites and fringe benefits that are made available by Employer to Executive in particular, subject to any applicable terms and conditions of any specific perquisite or other fringe benefit.

6.              Termination of Employment.

(a)            Death.  Executive’s employment shall terminate automatically upon his death.

(b)            Inability to Perform.  Employer may terminate Executive’s employment for Inability to Perform.

(c)            Termination by Employer for Cause.  Employer may terminate Executive’s employment for Cause by providing Executive with a Notice of Termination as set out in Paragraph 6(f). Before terminating Executive’s employment for Cause, Employer must provide Executive with written notice of its intent to do so, which notice must specify the particular circumstances or events that Employer contends gives rise to the existence of Cause; provided, however, that if Employer intends to exercise its right to terminate Executive’s employment in whole or part under provisions (iii), (iv), (v), (vi) or (viii) of the definition of Cause, Employer must first provide Executive with a reasonable period of time to correct those circumstances or events Employer contends give rise to the existence of Cause under such provision(s) (the “Correction Period”),but not to the extent the Board makes a reasonable, good faith determination that those circumstances or events cannot reasonably be corrected. A 30-day Correction Period shall be presumptively reasonable. Executive will be given the opportunity within 30 calendar days of his receipt of Employer’s written notice of its intent to terminate Executive’s employment for Cause to defend himself with respect to the circumstances or events specified in such notice and in a manner and under such procedures as the Board may establish. Nothing in this Paragraph 6(c) precludes informal discussions between Executive and any member of the Board regarding such circumstances or events.

(d)            Termination by Executive for Good Reason.  Executive may terminate his employment for Good Reason. To exercise his right to terminate for Good Reason, Executive must provide written notice to Employer of his belief that Good Reason exists within 60 days of the date he first becomes aware of the condition(s) giving rise to the Good Reason, and that notice shall describe the condition(s) believed to constitute Good Reason. Employer shall have 30 days to remedy the Good Reason condition(s). If not remedied within that 30-day period, Executive may submit a Notice of Termination; provided, however, that the Notice of Termination invoking Executive’s right to terminate his employment for Good Reason must be given no later than 100 days after the date Executive first became aware of the condition(s) giving rise to the Good Reason; otherwise, Executive is deemed to have accepted the condition(s), or Employer’s correction of such condition(s), that may have given rise to the existence of Good Reason.

(e)            Termination by Either Party Without Cause or Without Good Reason.  Either Employer or Executive may terminate Executive’s employment without Cause or without Good Reason upon at least 60 days’ prior written notice to the other party.

(f)             Notice of Termination.  Any termination of Executive’s employment by Employer or by Executive (other than a termination pursuant to Paragraph 6(a)) shall be communicated by a Notice of Termination. A “Notice of Termination” is a written notice that must (i) indicate the specific termination provision in this Agreement relied upon; (ii) in the case of a termination for Inability to Perform, Cause, or Good Reason, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision invoked; and (iii) if the termination is by Executive under Paragraph 6(e), or by Employer for any reason, specify the Employment Termination Date.  The failure by Employer or Executive to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Cause or Good Reason shall not waive any right of Employer or Executive or preclude either of them from asserting such fact or circumstance in enforcing or defending their rights.

(g)            Employment Termination Date.  The Employment Termination Date, whether occurring before or after a Corporate Change, shall be as follows: (i) if Executive’s employment is terminated by his death, the date of his death; (ii) if Executive’s employment is terminated by Employer because of his Inability to Perform or for Cause, the date specified in the Notice of Termination, which date shall be no earlier than the date such notice is given; (iii) if Executive’s employment is terminated by Executive for Good Reason, the date on which the Notice of Termination is given; (iv) if the termination is under Paragraph 6(e), the date specified in the Notice of Termination, which date shall be no earlier than 60 days after the date such notice is given, or (v) if Executive’s employment is terminated by expiration of the Employment Term, or Executive or Employer gives timely notice pursuant to Paragraph 3, the date the Employment Term expires.

(h)            Deemed Resignation.  In the event of termination of Executive’s employment, Executive agrees that if at such time he is a member of the Board or is an officer of Employer or a director or officer of any of its Affiliates, he shall be deemed to have resigned from such position(s) effective on the Employment Termination Date, unless the Board and Executive agree in writing prior to the Employment Termination Date that Executive shall remain a member of the Board, in which case Executive shall not be deemed to have resigned his position as a member of the Board merely by virtue of the termination of his employment. Executive agrees to execute and deliver any documents evidencing his resignation from such positions that Employer may reasonably request; provided, however, that no such document shall affect the date that Executive ceased to be a Board member as described above such that Executive continues to have duties as a Board member beyond the date specified in the preceding sentence.

(i)             Investigation; Suspension.  Employer may suspend Executive with pay pending (a) an investigation as described in Paragraph 1(d)(viii), or (b) a determination by the Board whether Executive has engaged in acts or omissions constituting Cause.  Such a paid suspension shall not constitute a termination of Executive’s employment, or Good Reason.  Executive agrees to cooperate with Employer in connection with any such investigation.

7.              Compensation Upon Termination of Employment.

(a)            Death.  If Executive’s employment is terminated by reason of Executive’s death, Employer shall pay to such person as Executive shall designate in a written notice to Employer (or, if no such person is designated, to his estate) any unpaid portion of Executive’s Base Salary through the Employment Termination Date (the “Compensation Payment”), any earned but unused vacation (the “Vacation Payment”), and any unreimbursed Business Expenses, at the time and in the manner required by applicable law but in no event later than 30 business days after the Employment Termination Date.

(b)            Inability to Perform.  If Executive’s employment is terminated by reason of Executive’s Inability to Perform, Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses at the time and in the manner required by applicable law but in no event later than 30 business days after the Employment Termination Date.

(c)            Termination by Executive Without Good Reason.  If Executive’s employment is terminated by Executive pursuant to and in compliance with Paragraph 6(e), Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses, at the time and in the manner required by applicable law but in no event later than 30 business days after the Employment Termination Date.

(d)            Termination for Cause.  If Executive’s employment is terminated by Employer for Cause, Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses, at the time and in the manner required by applicable law but in no event later than 30 business days after the Employment Termination Date.

(e)            Termination Without Cause or With Good Reason or Upon Expiration of Employment Term.

(i)             If Executive’s employment is terminated by Employer for any reason other than death, Inability to Perform, or Cause, or is terminated by Executive for Good Reason during the Employment Term, or if Executive’s employment ends upon the expiration of the Employment Term, Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses, at the time and in the manner required by applicable law but in no event later than 30 business days after the Employment Termination Date.

(ii)            In addition, if Executive’s employment is terminated by Employer for any reason other than death, Inability to Perform, or Cause, or is terminated by Executive for Good Reason during the Employment Term, or if Employer gives timely notice pursuant to Paragraph 3 and Executive’s employment therefore ends upon the expiration of the Employment Term, Employer shall pay or provide to Executive in lieu of any other severance or separation benefits, at the time and in the manner provided in Paragraph 7(e)(iii), the following if, within 45 days after the Employment Termination Date, Executive has signed a general release agreement substantially in the form attached hereto as Exhibit B and Executive does not revoke such release:

(A)           Executive’s Base Salary as in effect on the Employment Termination Date (but in no event less than the Base Salary on November 1, 2007), multiplied by three;

(B)           Executive’s ICP award at the target level for the performance period in effect on the Employment Termination Date (but in no event less than the target level specified in Paragraph 5(b)), multiplied by three;

(C)           Immediate grant, and full and immediate vesting, of the restricted stock grant described Paragraph 5(d)(iii) if not previously granted;

(D)           Full and immediate vesting of all Employer stock options and restricted stock awards held by Executive as of the Employment Termination Date;

(E)            Executive will have twelve months after the Employment Termination Date, to exercise all Employer stock options, provided that in no event may such stock options be exercised after the latest date upon which the options would have expired by their original terms.

Notwithstanding the foregoing, Employer’s obligation under this Paragraph 7(e)(ii) is limited as follows:

(X)           If Executive engages in any conduct that materially violates Paragraph 8 or engages in any of the Restricted Activities described in Paragraph 9, Employer’s obligation to make payments to Executive under this Paragraph 7(e)(ii), if any such obligation remains, shall end as of the date Employer so notifies Executive in writing; and

(Y)           If Executive is found guilty or enters into a plea agreement, consent decree, or similar arrangement with respect to any felony criminal offense or any material violation of federal or state securities laws, or has a cease-and-desist order, injunction, or other penalty or judgment issued or entered in any material civil enforcement action brought against him by any United States regulatory agency or by a court of competent jurisdiction in a proceeding commenced by such a regulatory agency (in either case, regardless of whether Executive admits or denies the substantive allegations, and in each case for actions or omissions related to his employment with Employer or any of its Affiliates), (1) Employer’s obligation to make payments to Executive under this Paragraph 7(e)(ii) shall end as of the date that Employer so notifies Executive in writing, and (2) Executive shall repay to Employer any amounts paid to him pursuant to this Paragraph 7(e)(ii) within 30 days after receipt of a written request to do so by Employer.

(iii)           The amounts provided for under Paragraphs 7(e)(ii)(A) and 7(e)(ii)(B) shall be paid as follows:

(A)           An amount equal to (1) 50% of the amount provided for under Paragraph 7(e)(ii)(A) plus (2) the sum (to the extent that such sum exceeds zero) of the amounts provided for under Paragraphs 7(e)(ii)(A) and 7(e)(ii)(B) less the payment under Paragraph 7(e)(iii)(A)(1) less the Section 409A Exempt Amount, shall be paid in a single lump sum no later than 60 days after the Employment Termination Date, provided that the Employment Termination Date, constitutes a separation from service for purposes of Code Section 409A. For purposes of this Agreement, the “Section 409A Exempt Amount” is two times the lesser of (x) Executive’s annualized compensation based upon the annual rate of pay for services provided to Employer for the calendar year preceding the calendar year in which Executive has a separation from service (as defined in the Code and the final regulations and other guidance thereunder (“Code Section 409A”)) with Employer (adjusted for any increase during that year that was expected to continue indefinitely if the service provider had not separated from service) or (y) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive has a separation from service.

(B)            The Section 409A Exempt Amount or, if less, the excess of the amount provided for under Paragraphs 7(e)(ii)(A) and 7(e)(ii)(B) over the amount paid under Paragraph 7(e)(iii)(A), shall be paid in equal monthly installments over a period of 18 months commencing on the first day of the sixth month following the Employment Termination Date, provided that the Employment Termination Date constitutes a separation from service for purposes of Code Section 409A.

(f)             Termination of Employment Following Corporate Change.

(i)             If, within the two-year period following a Corporate Change, Executive’s employment with Employer or an Affiliate or successor of Employer is terminated for any reason other than death, Inability to Perform, or Cause, is terminated by Executive for Good Reason, or if Employer or an Affiliate or successor of Employer gives timely notice pursuant to Paragraph 3 and Executive’s employment therefore ends upon the expiration of the Employment Term, Executive will be paid the Compensation Payment, the Vacation Payment and any unreimbursed Business Expenses, at the time and in the manner required by applicable law but in no event later than 30 business days after the Employment Termination Date.  In addition, if, within 45 days after the Employment Termination Date, Executive has signed a general release agreement substantially in the form attached hereto as Exhibit B and Executive does not revoke such release, in lieu of any other payments under Paragraph 7(e)(ii), Employer shall (A) pay Executive a lump-sum amount equivalent to the sum of the amounts specified in Paragraph 7(e)(ii)(A) and 7(e)(ii)(B), and (B) provide Executive the benefits described in Paragraph 7(e)(ii)(C), 7(e)(ii)(D) and 7(e)(ii)(E).  The provisions of Paragraph 7(e)(ii)(X) and 7(e)(ii)(Y) shall not apply to this Paragraph 7(f).

(ii)            The payment provided for in Paragraph 7(f)(i)(A) shall be paid in a single lump sum payment on the 60th business day after the Employment Termination Date.

(iii)           In the event that it is determined that any payment (other than the Gross-Up payment provided for in this Paragraph 7(f)(iii)) or distribution by Employer or any of its Affiliates to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered “contingent on a change in ownership or control” of Employer, within the meaning of Section 280G of the Code or any successor provision thereto (such tax being hereafter referred to as the “Excise Tax”), then Executive will be entitled to receive an additional payment or payments (a “Gross-Up Payment”). The Gross-Up Payment will be in an amount such that, after payment by Executive of all taxes, including any Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. The determination of whether an Excise Tax would be imposed, the amount of such Excise Tax, and the calculation of the amounts referred to in this Paragraph 7(f)(iii) will be made at the expense of Employer by Employer’s regular independent accounting firm (the “Accounting Firm”), which shall provide detailed supporting calculations, and shall be based on the Executive’s actual taxes paid and tax rates applied, determined by reference to the Executive’s tax returns as filed for the relevant year(s), copies of which shall be provided to the Accounting Firm..  Any determination by the Accounting Firm will be binding upon Employer and Executive.  The Gross-Up Payment will be paid to Executive as soon as administratively practicable, but in no event later than the end of the Executive’s taxable year next following the Executive’s taxable year in which Executive remits the related taxes.

(g)            Health Insurance.  In addition, if Executive’s employment with Employer or an Affiliate or successor of Employer is terminated or ends under the circumstances set forth in Paragraph 7(f), Executive will receive, in addition to any other payments due under this Agreement, the following benefit: if, at the time of the Employment Termination Date, Executive participates in one or more health plans offered or made available by Employer and Executive is eligible for and elects to receive continued coverage under such plans in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any successor law, Employer will reimburse Executive during the 18-month period following the Employment Termination Date, for the difference between the total amount of the monthly COBRA premiums for the same coverage as in effect on the Employment Termination Date, that are actually paid by Executive for such continued health plan benefits and the total monthly amount of the same premiums charged to active senior executives of Employer for health insurance coverage. Such reimbursement shall be made within the 90-day period following Executive’s payment of each monthly COBRA premium. Provided, however, that Employer’s reimbursement obligation under this Paragraph 7(g) shall terminate upon the earlier of (i) the expiration of the time period described above or (ii) the date Executive becomes eligible for health insurance coverage under a subsequent employer’s plan without being subject to any preexisting-condition exclusion under that plan, which occurrence Executive shall promptly report to Employer.  Provided further, however, the amount of COBRA reimbursement during a calendar year may not affect the COBRA expenses eligible for reimbursement in any other calendar year.

(h)            Exclusive Compensation and Benefits.  The compensation and benefits described in this Paragraph 7, along with the associated terms for payment, constitute all of Employer’s obligations to Executive with respect to the ending of Executive’s employment with Employer and/or its Affiliates, subject to Paragraph 24 and the remainder of this Paragraph 7(h).  Accordingly, Executive and Employer expressly acknowledge and agree that, following the Employment Termination Date, Executive shall have no rights to any employment by Employer or its Affiliates (including employment as described in Paragraphs 2, 3 and 4 of this Agreement), and no rights to any further compensation or benefits under Paragraph 5 of this Agreement.  Executive and Employer further acknowledge and agree that nothing in this Agreement is intended to limit or terminate (i) any obligations of Employer or Executive under the other terms of this Agreement, including, but not limited to, with respect to Employer, its obligations under Paragraphs 12 and 20, and, with respect to Executive, his obligations under Paragraphs 6(h), 8, 9, 10, 13, 22, and 23, or (ii) any earned, vested benefits (other than any entitlement to severance or separation pay, if any) that Executive may have under the applicable provisions of any benefit plan of Employer in which Executive is participating at the time of the termination of employment.

(i)             Code Section 409A Matters.  This Agreement is intended to comply with Code Section 409A and any ambiguous provisions will be construed in a manner that is compliant with or exempt from the application of Code Section 409A.  If a provision of the Agreement would result in the imposition of an applicable tax under Code Section 409A, the parties agree that such provision shall be reformed to avoid imposition of the applicable tax, with such reformation effected in a manner that has the most favorable result to Executive.

For purposes of Code Section 409A, each payment or amount due under this Agreement shall be considered a separate payment, and Executive’s entitlement to a series of payments under this Agreement is to be treated as an entitlement to a series of separate payments.

If (x) Executive is a “specified employee,” as such term is defined in Code Section 409A and determined as described below in this Paragraph 7(i), and (y) any payment due under this Agreement is subject to Code Section 409A and is required to be delayed under Code Section 409A because Executive is a specified employee, that payment shall be payable on the earlier of (A) the first business day that is six months after Executive’s separation from service, as such term is defined in Code Section 409A, (B) the date of Executive’s death, or (C) the date that otherwise complies with the requirements of Section 409A.  This Paragraph 7(i) shall be applied by accumulating all payments that otherwise would have been paid within six months of Executive’s separation and paying such accumulated amounts on the earliest business day which complies with the requirements of Code Section 409A.  For purposes of determining the identity of specified employees, the Board may establish procedures as it deems appropriate in accordance with Code Section 409A.

(j)             Payment after Executive’s Death.  In the event of Executive’s death after he becomes entitled to a payment or payments pursuant to this Paragraph 7, any remaining unpaid amounts shall be paid, at the time and in the manner such payments otherwise would have been paid to Executive, to such person as Executive shall designate in a written notice to Employer (or, if no such person is designated, to his estate).

(k)            Offset.  Executive agrees that Employer may set off against, and Executive authorizes Employer to deduct from, any payments due to Executive, or to his heirs, legal representatives, or successors, as a result of the termination of Executive’s employment any amounts which may be due and owing to Employer or any of its Affiliates by Executive, whether arising under this Agreement or otherwise; provided, however, that any such set off and deduction shall be made in a manner that complies with Code Section 409A to the extent applicable.

8.              Confidential Information.

(a)            Executive acknowledges and agrees that (i) Employer and its Affiliates are engaged in a highly competitive business; (ii) Employer and its Affiliates have expended considerable time and resources to develop goodwill with their customers, vendors, and others, and to create, protect, and exploit Confidential Information; (iii) Employer must continue to prevent the dilution of its and its Affiliates’ goodwill and unauthorized use or disclosure of its Confidential Information to avoid irreparable harm to its legitimate business interests; (iv) in the oil and gas acquisition, exploration, development and production business, his participation in or direction of Employer’s or its Affiliates’ day-to-day operations and strategic planning are an integral part of Employer’s continued success and goodwill; (v) given his position and responsibilities, he necessarily will be creating Confidential Information that belongs to Employer and enhances Employer’s goodwill, and in carrying out his responsibilities he in turn will be relying on Employer’s goodwill and the disclosure by Employer to him of Confidential Information; and (vi) he will have access to Confidential Information that could be used by any Competitor of Employer in a manner that would irreparably harm Employer’s competitive position in the marketplace and dilute its goodwill.  Employer acknowledges and agrees that nothing in this Agreement precludes Executive from accepting employment from any third party employer after termination of employment with Employer and its Affiliates for whatever reason, provided that Executive complies with his obligations under Paragraph 8(d) and at law with respect to the Confidential Information.

(b)            Employer acknowledges and agrees that Executive must have and continue to have throughout his employment the benefits and use of its and its Affiliates’ goodwill and Confidential Information in order to properly carry out his responsibilities. Employer accordingly promises upon execution and delivery of this Agreement to provide Executive immediate and continuing access to Confidential Information and to authorize him to engage in activities that will create new and additional Confidential Information.

(c)            Employer and Executive thus acknowledge and agree that during Executive’s employment with Employer, and upon execution and delivery of this Agreement, he (i) will receive Confidential Information that is unique, proprietary, and valuable to Employer and/or its Affiliates; (ii) will create Confidential Information that is unique, proprietary, and valuable to Employer and/or its Affiliates; and (iii) will benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill Employer and its Affiliates have generated and from the Confidential Information.

(d)            Accordingly, Executive acknowledges and agrees that at all times during his employment by Employer and/or any of its Affiliates and thereafter:

(i)             all Confidential Information shall remain and be the sole and exclusive property of Employer and/or its Affiliates;

(ii)            he will protect and safeguard all Confidential Information;

(iii)           he will hold all Confidential Information in strictest confidence and not, directly or indirectly, disclose or divulge any Confidential Information to any person other than an officer, director, or employee of, or legal counsel for, Employer or its Affiliates, to the extent necessary for the proper performance of his responsibilities unless authorized to do so by Employer or compelled to do so by law or valid legal process;

(iv)           if he believes he is compelled by law or valid legal process to disclose or divulge any Confidential Information, he will notify Employer in writing sufficiently in advance of any such disclosure to allow Employer the opportunity to defend, limit, or otherwise protect its interests against such disclosure;

(v)           at the end of his employment with Employer for any reason or at the request of Employer at any time, he will return to Employer all Confidential Information and all copies thereof, in whatever tangible form or medium, including electronic; and

(vi)           absent the promises and representations of Executive in this Paragraph 8 and in Paragraph 9, Employer would require him immediately to return any tangible Confidential Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement.

9.              Nonsolicitation Obligations.  In consideration of Employer’s promises to provide Executive with Confidential Information and to authorize him to engage in activities that will create new and additional Confidential Information upon execution and delivery of this Agreement, and the other promises and undertakings of Employer in this Agreement, Executive agrees that, while he is employed by Employer and/or any of its Affiliates and for a 2-year period following the end of that employment for any reason, he shall not engage in any of the following activities (the “Restricted Activities”):

(a)            He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then employed by or otherwise engaged to perform services for Employer or its Affiliates to leave that employment or cease performing those services; and

(b)            He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then a customer, supplier, or vendor of Employer or any of its Affiliates to cease being a customer, supplier, or vendor of Employer or any of its Affiliates or to divert all or any part of such person’s or entity’s business from Employer or any of its Affiliates.

Executive acknowledges and agrees that the restrictions contained in this Paragraph 9 are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in Paragraph 8; that Employer’s promises and undertakings set forth in Paragraph 8 and Executive’s position and responsibilities with Employer give rise to Employer’s interest in restricting Executive’s post-employment activities; that such restrictions are designed to enforce Executive’s promises and undertakings set forth in this Paragraph 9 and his common-law obligations and duties owed to Employer and its Affiliates; that the restrictions are reasonable and necessary, are valid and enforceable under Texas law, and do not impose a greater restraint than necessary to protect Employer’s goodwill, Confidential Information, and other legitimate business interests; that he will immediately notify Employer in writing should he believe or be advised that the restrictions are not, or likely are not, valid or enforceable under Texas law or the law of any other state that he contends or is advised is applicable; that the mutual promises and undertakings of Employer and Executive under Paragraphs 8 and 9 are not contingent on the duration of Executive’s employment with Employer; that absent the promises and representations made by Executive in this Paragraph 9 and Paragraph 8, Employer would require him to return any Confidential Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement; and that his obligations under Paragraphs 8 and 9 supplement, rather than supplant, his common-law duties of confidentiality and loyalty owed to Employer.

 Employer agrees that any action that is undertaken by a subsequent employer of Executive will not be treated as an action by Executive for purposes of the foregoing provisions of this Paragraph 9 unless Executive personally engages in a Restricted Activity, whether directly or indirectly.

10.            Intellectual Property.

(a)            In consideration of Employer’s promises and undertakings in this Agreement, Executive agrees that all Work Product will be disclosed promptly by Executive to Employer, shall be the sole and exclusive property of Employer, and is hereby assigned to Employer, regardless of whether (i) such Work Product was conceived, made, developed or worked on during regular hours of his employment or his time away from his employment, (ii) the Work Product was made at the suggestion of Employer; or (iii) the Work Product was reduced to drawing, written description, documentation, models or other tangible form. Without limiting the foregoing, Executive acknowledges that all original works of authorship that are made by Executive, solely or jointly with others, within the scope of his employment and that are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101), and are therefore owned by Employer from the time of creation.

(b)            Executive agrees to assign, transfer, and set over, and Executive does hereby assign, transfer, and set over to Employer, all of his right, title and interest in and to all Work Product, without the necessity of any further compensation, and agrees that Employer is entitled to obtain and hold in its own name all patents, copyrights, and other rights in respect of all Work Product. Executive agrees to (i) cooperate with Employer during and after his employment with Employer in obtaining patents or copyrights or other intellectual-property protection for all Work Product; (ii) execute, acknowledge, seal, and deliver all documents tendered by Employer to evidence its ownership thereof throughout the world; and (iii) cooperate with Employer in obtaining, defending, and enforcing its rights therein.

(c)            Executive represents that there are no other contracts to assign inventions or other intellectual property that are now in existence between Executive and any other person or entity. Executive further represents that he has no other employment or undertakings that might restrict or impair his performance of this Agreement. Executive will not in connection with his employment by Employer, use or disclose to Employer any confidential, trade secret, or other proprietary information of any previous employer or other person that Executive is not lawfully entitled to disclose.

11.            Reformation.  If the provisions of Paragraphs 8, 9, or 10 are ever deemed by a court to exceed the limitations permitted by applicable law, Executive and Employer agree that such provisions shall be, and are, automatically reformed to the maximum limitations permitted by such law.

12.            Indemnification and Insurance.  Employer shall indemnify Executive both (i) to the fullest extent permitted by the laws of the State of Delaware, and (ii) in accordance with the more favorable of Employer’s certificate of incorporation, bylaws and standard indemnification agreement as in effect on November 1, 2007 or as in effect on the date as of which the indemnification is owed.  In addition, Employer shall provide Executive with coverage under directors’ and officers’ liability insurance policies on terms not less favorable than those provided to any of its other directors and officers as in effect from time to time.

13.            Assistance in Litigation.  During the Employment Term and thereafter for the lifetime of Executive, Executive shall, upon reasonable notice, furnish such information and proper assistance to Employer or any of its Affiliates as may reasonably be required by Employer in connection with any litigation, investigations, arbitrations, and/or any other fact-finding or adjudicative proceedings involving Employer or any of its Affiliates. This obligation shall include, without limitation, to promptly upon request meet with counsel for Employer or any of its Affiliates and provide truthful testimony at the request of Employer or as otherwise required by law or valid legal process. Following the Employment Term, Employer shall reimburse Executive for all reasonable out-of-pocket expenses incurred by Executive and approved in advance by Employer in rendering such assistance (such as travel, parking, and meals but not attorney’s fees), but shall have no obligation to compensate Executive for his time in providing information and assistance in accordance with this Paragraph 13, provided that such reimbursement shall be made on or before the last day of the calendar year following the calendar year in which the expense is incurred, and provided further that Executive’s obligations under this Paragraph 13 following the Employment Termination Date shall not unreasonably interfere with Executive’s employment or other activities and endeavors.

14.            No Obligation to Pay. With regard to any payment due to Executive under this Agreement, it shall not be a breach of any provision of this Agreement for Employer to fail to make such payment to Executive if (i) Employer is prohibited from making the payment; (ii) Employer would be obligated to recover the payment if it was made; or (iii) Executive would be obligated to repay the payment if it was made; provided, however, that this Paragraph 14 shall only apply if such prohibition or obligation is legally imposed by statute or regulation.

15.            Deductions and Withholdings. With respect to any payment to be made to Executive, Employer shall deduct, where applicable, any amounts authorized by Employee, and shall withhold and report all amounts required to be withheld and reported by applicable law.

16.            Notices.  All notices, requests, demands, and other communications required or permitted to be given or made by either party shall be in writing and shall be deemed to have been duly given or made (a) when delivered personally, or (b) when deposited in the United States mail, first class registered or certified mail, postage prepaid, return receipt requested, to the party for which intended at the following addresses (or at such other addresses as shall be specified by the parties by like notice, except that notices of change of address shall be effective only upon receipt):

(i)             If to Employer, at:

Rosetta Resources Inc.

Attn: General Counsel

717 Texas

Suite 2800

Houston, Texas 77002

(ii)            If to Executive, at Executive’s then-current home address on file with Employer.

17.            Injunctive Relief.  Executive acknowledges and agrees that Employer would not have an adequate remedy at law and would be irreparably harmed in the event that any of the provisions of Paragraphs 8, 9, and 10 were not performed in accordance with their specific terms or were otherwise breached. Accordingly, Executive agrees that Employer shall be entitled to equitable relief, including preliminary and permanent injunctions and specific performance, in the event Executive breaches or threatens to breach any of the provisions of such Paragraphs, without the necessity of posting any bond or proving special damages or irreparable injury. Such remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of this Agreement by Executive, but shall be in addition to all other remedies available to Employer at law or equity.

18.            Mitigation.  Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by Executive as the result of employment by another employer after the date of termination of Executive’s employment with Employer, or otherwise.

19.            Binding Effect; No Assignment by Executive; No Third Party Benefit.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors, and assigns; provided, however, that Executive shall not assign or otherwise transfer this Agreement or any of his rights or obligations under this Agreement. Subject to Paragraph 20, Employer is authorized to assign or otherwise transfer this Agreement or any of its rights or obligations under this Agreement only to an Affiliate of Employer. Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any payments or other benefits provided under this Agreement; and no benefits payable under this Agreement shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or pursuant to the laws of descent and distribution. Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties, and their respective heirs, legal representatives, successors, and permitted assigns, any rights, benefits, or remedies of any nature whatsoever under or by reason of this Agreement.

20.            Assumption by Successor.  Employer shall ensure that any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of Employer or the oil and gas acquisition, exploration, development and production business of Employer, either by operation of law or written agreement, assumes the obligations of this Agreement (the “Assumption Obligation”). If Employer fails to fulfill the Assumption Obligation, such failure shall be considered Good Reason; provided, however, that the compensation to which Executive would be entitled to upon a termination for Good Reason pursuant to Paragraph 7(f) shall be the sole remedy of Executive for any failure by Employer to fulfill the Assumption Obligation. As used in this Agreement, “Employer” shall include any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of Employer or the oil and gas exploration, development and production business of Employer that executes and delivers the agreement provided for in this Paragraph 20 or that otherwise becomes obligated under this Agreement by operation of law.

21.            Legal Fees and Expenses.  Employer will reimburse Executive for all reasonable legal fees and expenses incurred by Executive in connection with the preparation, review, and negotiation of this Agreement prior to its execution, provided that any such reimbursement shall be made within the same calendar year in which the fees and expenses are incurred.

22.            Governing Law; Venue.  This Agreement and the employment of Executive shall be governed by the laws of the State of Texas except for its laws with respect to conflict of laws. The exclusive forum for any lawsuit arising from or related to Executive’s employment or this Agreement shall be a state or federal court in Harris County, Texas. This provision does not prevent Employer from removing to an appropriate federal court any action brought in state court. EXECUTIVE HEREBY CONSENTS TO, AND WAIVES ANY OBJECTIONS TO, REMOVAL TO FEDERAL COURT BY EMPLOYER OF ANY ACTION BROUGHT AGAINST IT BY EXECUTIVE.

23.            JURY TRIAL WAIVER.  IN THE EVENT THAT ANY DISPUTE ARISING FROM OR RELATED TO THIS AGREEMENT OR EXECUTIVE’S EMPLOYMENT WITH EMPLOYER RESULTS IN A LAWSUIT, BOTH EMPLOYER AND EXECUTIVE MUTUALLY WAIVE ANY RIGHT THEY MAY OTHERWISE HAVE FOR A JURY TO DECIDE THE ISSUES IN THE LAWSUIT, REGARDLESS OF THE PARTY OR PARTIES ASSERTING CLAIMS IN THE LAWSUIT OR THE NATURE OF SUCH CLAIMS. EMPLOYER AND EXECUTIVE IRREVOCABLY AGREE THAT ALL ISSUES IN SUCH A LAWSUIT SHALL BE DECIDED BY A JUDGE RATHER THAN A JURY.

24.            Entire Agreement.  This Agreement contains the entire agreement between the parties concerning the subject matter expressly addressed herein and supersedes all prior agreements and understandings, written and oral, between the parties with respect to such subject matter.  However, nothing in this Paragraph 24 is intended to limit any obligations of the parties under any other agreement that Employer may enter into with Executive after the Amendment Date.

25.            Modification; Waiver.  No person, other than pursuant to a resolution duly adopted by the members of the Board, shall have authority on behalf of Employer to agree to modify, amend, or waive any provision of this Agreement. Further, this Agreement may not be changed orally, but only by a written agreement signed by the party against whom any waiver, change, amendment, modification or discharge is sought to be enforced. Executive acknowledges and agrees that no breach by Employer of this Agreement or failure to enforce or insist on its rights under this Agreement shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

26.            Construction.  This Agreement is to be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties.

27.            Severability.  If any provision of this Agreement shall be determined by a court to be invalid or unenforceable, the remaining provisions of this Agreement shall not be affected thereby, shall remain in full force and effect, and shall be enforceable to the fullest extent permitted by applicable law.

28.            Counterparts.  This Agreement may be executed by the parties in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

IN WITNESS WHEREOF, Employer has caused this Agreement to be executed on its behalf by its duly authorized officer, and Executive has executed this Agreement, effective as of the date first set forth above.

EMPLOYER	EXECUTIVE
ROSETTA RESOURCES INC.	RANDY L. LIMBACHER
By:
D. HENRY HOUSTON
CHAIRMAN, BOARD OF DIRECTORS

EX-10.32

Exhibit 10.32

 

THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Third Amended and Restated Employment Agreement (this “Agreement”), effective as of December 31, 2008 (the “Third Amendment Date”), is between Rosetta Resources Inc., a Delaware corporation (“Employer”), and Michael J. Rosinski (“Executive”), and supersedes and replaces that certain Second Amended and Restated Employment Agreement between Executive and Employer which became effective on July 1, 2007.

WHEREAS, Executive has been employed as Executive Vice President, Chief Financial Officer, Secretary and Treasurer of Employer pursuant to the Second Amended and Restated Employment Agreement dated July 1, 2007 between Executive and Employer; and

WHEREAS, the parties desire to amend and restate the Second Amended and Restated Employment Agreement dated as of July 1, 2007, all as herein provided;

NOW, THEREFORE, the parties hereto agree as follows:

1.             Definitions.  As used in this Agreement, the following terms have the following meanings:

(a)           “Affiliate” means, with respect to any entity, any other corporation, organization, association, partnership, sole proprietorship or other type of entity, whether incorporated or unincorporated, directly or indirectly controlling or controlled by or under direct or indirect common control with such entity.

(b)           “Annual Period” means the time period of each year beginning on the first day of the Employment Term and ending on the day before the anniversary of that date.

(c)           “Board” means the Board of Directors of Employer.

(d)           “Cause” means a finding by the Board of acts or omissions, whether occurring during or before the Employment Term, constituting, in the Board’s reasonable judgment, (i) a breach of duty by Executive in the course of his employment involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty to Employer or its Affiliates, or moral turpitude constituting criminal felony; (ii) conduct by Executive that is materially detrimental to Employer, monetarily or otherwise, or reflects unfavorably on Employer or Executive to such an extent that Employer’s best interests reasonably require the termination of Executive’s employment; (iii) acts or omissions of Executive materially in violation of his obligations under this Agreement or at law; (iv) Executive’s failure to comply with or enforce Employer’s policies concerning equal employment opportunity, including engaging in sexually or otherwise harassing conduct; (v) Executive’s repeated insubordination; (vi) Executive’s failure to comply with or enforce, in any material respect, all other personnel policies of Employer or its Affiliates; (vii) Executive’s failure to devote his full working time and best efforts to the performance of his responsibilities to Employer or its Affiliates; (viii) Executive’s conviction of, or entry of a plea agreement or consent decree or similar arrangement with respect to a felony or any violation of federal or state securities laws; or (ix) Executive’s failure to cooperate with any investigation or inquiry authorized by the Board or conducted by a governmental authority related to the business or Executive’s conduct.

(e)           “Corporate Change” means (i) the dissolution or liquidation of Employer; (ii) a reorganization, merger or consolidation of Employer with one or more corporations (other than a merger or consolidation effecting a reincorporation of Employer in another state or any other merger or consolidation in which the shareholders of the surviving corporation and their proportionate interests therein immediately after the merger or consolidation are substantially identical to the shareholders of Employer and their proportionate interests therein immediately prior to the merger or consolidation) (collectively, a “Corporate Change Merger”); (iii) the sale of all or substantially all of the assets of Employer or an affiliate as defined in the Rosetta Resources Inc. 2005 Long-Term Incentive Plan; or (iv) the occurrence of a Change in Control.  A “Change in Control” shall be deemed to have occurred if (x) individuals who were directors of Employer immediately prior to a Control Transaction shall cease, within two years of such Control Transaction to constitute a majority of the Board of Directors of Employer (or of the Board of Directors of any successor to Employer or to a company which has acquired all or substantially all its assets) other than by reason of an increase in the size of the membership of the applicable Board that is approved by at least a majority of the individuals who were directors of Employer immediately prior to such Control Transaction or (y) any entity, person or Group acquires shares of Employer in a transaction or series of transactions that result in such entity, person or Group directly or indirectly owning beneficially 50% or more of the outstanding shares of Common Stock.  As used herein, “Control Transaction” means (A) any tender offer for or acquisition of capital stock of Employer pursuant to which any person, entity, or Group directly or indirectly acquires beneficial ownership of 20% or more of the outstanding shares of Common Stock; (B) any Corporate Change Merger of Employer; (C) any contested election of directors of Employer; or (D) any combination of the foregoing, any one of which results in a change in voting power sufficient to elect a majority of the Board of Directors of Employer.  As used herein, “Group” means persons who act “in concert” as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.  Notwithstanding the foregoing, “Corporate Change” shall not include the Acquisition, the Offering or any public offering of equity of Employer pursuant to a registration that is effective under the Securities Act of 1933, as amended.  As used herein, “Acquisition” and “Offering” shall have the same meaning given to those terms in the Rosetta Resources Inc. 2005 Long-Term Incentive Plan.

(f)           “Competitor” means any person or entity that is engaged in the acquisition, exploration, development and production of oil and gas properties in competition with the activities of Employer or an Affiliate.

(g)           “Confidential Information” means, without limitation, all documents or information, in whatever form or medium, concerning or evidencing sales; costs; pricing; strategies; forecasts and long range plans; financial and tax information; personnel information; business, marketing and operational projections, plans and opportunities; customer, vendor, and supplier information; geological and geophysical maps, data, interpretations, and analyses; project and prospect locations and leads; well logs, interpretations, and analyses; and production information; but excluding any such information that is or becomes generally available to the public other than as a result of any breach of this Agreement or other unauthorized disclosure by Executive.

(h)           “Employment Termination Date” means the effective date of termination of Executive’s employment as established under Paragraph 6(g).

(i)            “Good Reason” means any of the following actions if taken without Executive’s prior written consent: (i) any demotion of Executive as evidenced by a material diminution in Executive’s responsibilities or duties; (ii) a material diminution in Executive’s base compensation; (iii) any permanent relocation of Executive’s place of business to a location 50 miles or more from the then-current location, provided such relocation is a material change in geographic location at which Executive must provide services for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder; or (iv) any other action or inaction by Employer that constitutes a material breach by Employer of its obligations under Paragraphs 12 or 20 of this Agreement.  Neither a transfer of employment among Employer and any of its Affiliates, a change in the co-employment relationship, nor a mere change in job title constitutes “Good Reason.”

(j)            “Inability to Perform” means and shall be deemed to have occurred if Executive has been determined under Employer’s long-term disability plan to be eligible for long-term disability benefits.  In the absence of Executive’s participation in, application for benefits under, or existence of such a plan, “Inability to Perform” means a finding by the Board in its sole judgment that Executive is, despite any reasonable accommodation required by law, unable to perform the essential functions of his position because of an illness or injury for (i) 60% or more of the normal working days during six consecutive calendar months or (ii) 40% or more of the normal working days during twelve consecutive calendar months.

(k)            “Work Product” means all ideas, works of authorship, inventions, and other creations, whether or not patentable, copyrightable, or subject to other intellectual-property protection, that are made, conceived, developed or worked on in whole or in part by Executive while employed by Employer and/or any of its Affiliates, that relate in any manner whatsoever to the business, existing or proposed, of Employer and/or any of its Affiliates, or any other business or research or development effort in which Employer and/or any of its Affiliates engages during Executive’s employment.  Work Product includes any material previously conceived, made, developed, or worked on during Executive’s employment with Calpine and any Affiliate.

2.             Employment.  Employer agrees to employ Executive (directly or through an Affiliate), and Executive agrees to be employed, for the period set forth in Paragraph 3.  Executive will be employed in the position and with the duties and responsibilities set forth in Paragraph 4(a) and upon the other terms and conditions set out in this Agreement.  Employer and Executive agree that such employment may be through a co-employment relationship with a professional employer organization.

3.             Term.  Executive’s employment under this Agreement shall commence on July 7, 2005 and shall be for an initial term of two consecutive Annual Periods (the “Employment Term”), unless sooner terminated as provided in this Agreement.  Subject to earlier termination as provided in this Agreement, the Employment Term shall be automatically extended for an additional Annual Period unless either Executive or Employer gives written notice to the other six months or more prior to the end of the initial term or, if the Agreement has been automatically extended beyond the initial term, six months or more prior to the end of the additional Annual Period.  In the event of such an automatic extension, each additional Annual Period shall be part of the “Employment Term.”  Upon such timely written notice, Executive’s employment and this Agreement will end upon the expiration of the Employment Term.  The ending of Executive’s employment as a result of the expiration of the Employment Term shall not constitute a termination of employment by either party under this Agreement.

4.             Position and Duties.

(a)           Executive shall be employed as Executive Vice President, Chief Financial Officer and Treasurer.  In such capacity, Executive, subject to the ultimate control and direction of the Chief Executive Officer of Employer, shall have such duties, functions, responsibilities, and authority as are from time to time delegated to Executive by the Chief Executive Officer of Employer; provided, however, that such duties, functions, responsibilities, and authority are reasonable and customary for a person serving in the same or similar capacity of an enterprise comparable to Employer.

(b)           During the Employment Term, Executive shall devote his full time, skill, and attention and his best efforts to the business and affairs of Employer to the extent necessary to discharge fully, faithfully, and efficiently the duties and responsibilities delegated and assigned to Executive in or pursuant to this Agreement, except for usual, ordinary, and customary periods of vacation and absence due to illness or other disability.

(c)           In connection with Executive’s employment under this Agreement, Executive shall be based in Houston, Texas, or at any other place where the principal executive offices of Employer may be located during the Employment Term.  Executive also will engage in such travel as the performance of Executive’s duties in the business of Employer may require.

(d)           All services that Executive may render to Employer or any of its Affiliates in any capacity during the Employment Term shall be deemed to be services required by this Agreement and the consideration for such services is that provided for in this Agreement.

(e)           Executive hereby acknowledges that he has read and is familiar with Employer’s policies, including but not limited to those regarding business ethics and conduct and securities trading, and will comply with all such policies, and any amendments thereto, during the Employment Term.

5.             Compensation and Related Matters.

(a)           Base Salary; Temporary Supplemental Compensation.  During each Annual Period of the Employment Term, Employer shall pay to Executive for his services under this Agreement an annual base salary (“Base Salary”).  The Base Salary shall be $260,000 effective as of the Third Amendment Date.  The Base Salary is subject to annual adjustments at the discretion of the Board, but in no event shall Employer pay Executive a Base Salary less than that set forth above without the consent of Executive.  The Base Salary shall be payable in installments in accordance with the general payroll practices of Employer, or as otherwise mutually agreed upon.

(b)           Annual Incentives.  During the Employment Term, Executive will participate in any incentive compensation plan (ICP) applicable to Executive’s position, as may be adopted by Employer from time to time and in accordance with the terms of such plan(s).  Executive’s target award opportunity for the year ending on December 31, 2007, will be based upon 75% of Executive’s Base Salary paid to Executive by Employer prorated for the number of months in such period as compared to a full year and shall be subject to such other terms, conditions and restrictions as may be established by the Board or the ICP committee.

(c)           Long-Term Incentives.  During the Employment Term, Executive will participate in Employer’s long-term incentive (LTI) plan applicable to Executive’s position, in accordance with the terms of such plan(s).  Except as provided in Paragraph 5(d), Executive will participate in such LTI plan award opportunities as may be determined by the Board or the LTI committee, as applicable.

(d)           Employee Benefits.  During the Employment Term, Executive shall be entitled to participate in all employee benefit plans, programs, and arrangements that are generally made available by Employer to its similarly situated employees, including without limitation Employer’s life insurance, long-term disability, and health plans.  Executive agrees to cooperate and participate in any medical or physical examinations as may be required by any insurance company in connection with the applications for such life and/or disability insurance policies.

(e)           Expenses.  Executive shall be entitled to receive reimbursement for all reasonable expenses incurred by Executive during the Employment Term in performing his duties and responsibilities under this Agreement, consistent with Employer’s policies or practices for reimbursement of expenses incurred by other senior executives of Employer (“Business Expenses”).  Notwithstanding the foregoing, (i) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (ii) the reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.

(f)           Vacations.  During each Annual Period of the Employment Term, Executive shall be eligible for four weeks’ paid vacation, as well as sick pay and other paid and unpaid time off in accordance with the policies and practices of Employer.  Executive agrees to use his vacation and other paid time off at such times that are (i) consistent with the proper performance of his duties and responsibilities and (ii) mutually convenient for Employer and Executive.

(g)           Fringe Benefits.  During the Employment Term, Executive shall be entitled to the perquisites and other fringe benefits that are made available by Employer to its senior executives generally and to such perquisites and fringe benefits that are made available by Employer to Executive in particular, subject to any applicable terms and conditions of any specific perquisite or other fringe benefit.

6.             Termination of Employment and Agreement.

(a)           Death.  Executive’s employment and this Agreement shall terminate automatically upon his death.

(b)           Inability to Perform.  Employer may terminate this Agreement or this Agreement and Executive’s employment for Inability to Perform.

(c)           Termination by Employer for Cause.  Employer may terminate Executive’s employment and this Agreement for Cause by providing Executive with a Notice of Termination as set out in Paragraph 6(f).  Before terminating Executive’s employment and this Agreement for Cause, Employer must provide Executive with written notice of its intent to do so, which notice must specify the particular circumstances or events that Employer contends gives rise to the existence of Cause; provided, however, that if Employer intends to exercise its right to terminate Executive’s employment and this Agreement in whole or part under provisions (v) or (vi) of the definition of Cause, Employer must first provide Executive with a reasonable period of time to correct those circumstances or events Employer contends give rise to the existence of Cause under such provision(s) (the “Correction Period”), but only to the extent Employer determines that they may reasonably be corrected.  A 30-day Correction Period shall be presumptively reasonable.  Executive will be given the opportunity within 30 calendar days of his receipt of Employer’s written notice of its intent to terminate Executive’s employment and this Agreement for Cause to defend himself with respect to the circumstances or events specified in such notice and in a manner and under such procedures as the Chief Executive Officer of Employer may establish.  Nothing in this Paragraph 6(c) precludes informal discussions between Executive and Employer regarding such circumstances or events.

(d)           Termination by Executive for Good Reason.  Executive may terminate his employment and this Agreement for Good Reason.  To exercise his right to terminate for Good Reason, Executive must provide written notice to Employer of his belief that Good Reason exists within 60 days of the initial existence of the Good Reason condition, and that notice shall describe the condition(s) believed to constitute Good Reason.  Employer shall have 30 days to remedy the Good Reason condition(s).  If not remedied within that 30-day period, Executive may submit a Notice of Termination; provided, however, that the Notice of Termination invoking Executive’s right to terminate his employment for Good Reason must be given no later than 100 days after the date the Good Reason condition first arose; otherwise, Executive is deemed to have accepted the condition(s), or the Employer’s correction of such condition(s), that may have given rise to the existence of Good Reason.

(e)           Termination by Either Party Without Cause or Without Good Reason.  Either Employer or Executive may terminate Executive’s employment and this Agreement without Cause or Good Reason upon at least 60 days’ prior written notice to the other party.

(f)             Notice of Termination.  Any termination of Executive’s employment or, pursuant to Paragraph 6(b), a termination of this Agreement alone, by Employer or by Executive (other than a termination pursuant to Paragraph 6(a)) shall be communicated by a Notice of Termination.  A “Notice of Termination” is a written notice that must (i) indicate the specific termination provision in this Agreement relied upon; (ii) in the case of a termination for Inability to Perform, Cause, or Good Reason, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision invoked; and (iii) if the termination is by Executive under Paragraph 6(e), or by Employer for any reason, specify the Employment Termination Date or, pursuant to Paragraph 6(b), the date of termination of this Agreement.  The failure by Employer or Executive to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Cause or Good Reason shall not waive any right of Employer or Executive or preclude either of them from asserting such fact or circumstance in enforcing or defending their rights.

(g)           Employment Termination Date.  The Employment Termination Date, whether occurring before or after a Corporate Change, shall be as follows: (i) if Executive’s employment is terminated by his death, the date of his death; (ii) if Executive’s employment is terminated by Employer because of his Inability to Perform or for Cause, the date specified in the Notice of Termination, which date shall be no earlier than the date such notice is given; (iii) if Executive’s employment is terminated by Executive for Good Reason, the date on which the Notice of Termination is given; or (iv) if the termination is under Paragraph 6(e), the date specified in the Notice of Termination, which date shall be no earlier than 60 days after the date such notice is given.

(h)           Deemed Resignation.  In the event of termination of Executive’s employment or the expiration of the Employment Term, Executive agrees that if at such time he is a member of the Board or is an officer of Employer or a director or officer of any of its Affiliates, he shall be deemed to have resigned from such position(s) effective on the Employment Termination Date or the expiration of the Employment Term, unless the Board notifies Executive prior to the Employment Termination Date or the expiration of the Employment Term of the Board’s desire that Executive remain a member of the Board, in which case Executive shall not be deemed to have resigned his position as a member of the Board merely by virtue of the termination of his employment or the expiration of the Employment Term.  Executive agrees to execute and deliver any documents evidencing his resignation from such positions that Employer may reasonably request.

(i)             Investigation; Suspension.  Employer may suspend Executive with pay pending an investigation authorized by the Board or a governmental authority or a determination by the Board whether Executive has engaged in acts or omissions constituting Cause, and such paid suspension shall not constitute a termination of this Agreement or Executive’s employment, or Good Reason.  Executive agrees to cooperate with Employer in connection with any such investigation.

7.           Compensation Upon Termination of Employment or Expiration of Employment Term.

(a)           Death.  If Executive’s employment is terminated by reason of Executive’s death, Employer shall pay to such person as Executive shall designate in a written notice to Employer (or, if no such person is designated, to his estate) any unpaid portion of Executive’s Base Salary through the Employment Termination Date (the “Compensation Payment”), any earned but unused vacation (the “Vacation Payment”), and any unreimbursed Business Expenses, at the time and in the manner required by applicable law.

(b)           Inability to Perform.  If Executive’s employment and this Agreement is terminated by reason of Executive’s Inability to Perform, Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses at the time and in the manner required by applicable law.

(c)           Termination by Executive Without Good Reason.  If Executive’s employment is terminated by Executive pursuant to and in compliance with Paragraph 6(e), Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses, at the time and in the manner required by applicable law.

(d)           Termination for Cause.  If Executive’s employment is terminated by Employer for Cause, Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses, at the time and in the manner required by applicable law.

(e)           Termination Without Cause or With Good Reason; Expiration of Employment Term.

(i)           If Executive’s employment is terminated by Employer for any reason other than death, Inability to Perform, or Cause, or is terminated by Executive for Good Reason, during the Employment Term, or if either Employer or Executive gives timely notice pursuant to Paragraph 3 and Executive’s employment and this Agreement therefore ends upon the expiration of the Employment Term, Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses, at the time and in the manner required by applicable law.

(ii)           In addition, if Executive’s employment is terminated by Employer for any reason other than death, Inability to Perform, or Cause, or is terminated by Executive for Good Reason, during the Employment Term, or if Employer gives timely notice pursuant to Paragraph 3 and Executive’s employment and this Agreement therefore ends upon the expiration of the Employment Term, Employer shall pay or provide to Executive in lieu of any other severance or separation benefits, at the time and in the manner provided in Paragraph 7(e)(iii), the following if, within 45 days after the Employment Termination Date or the expiration of the Employment Term, as applicable, Executive has signed a general release agreement in a form acceptable to Employer and Executive does not revoke such release:

(A)           Executive’s Base Salary as in effect on the Employment Termination Date or the expiration of the Employment Term, as applicable, multiplied by two;

(B)           ICP award at the target level for two years, based on the ICP award for the performance period in effect on the Employment Termination Date or the expiration of the Employment Term, as applicable;

(C)           Full and immediate vesting of all Employer stock options and restricted stock awards held by Executive as of the Employment Termination Date or the expiration of the Employment Term, as applicable;

(D)           With respect to Employer stock options that are vested prior to the Employment Termination Date or the expiration of the Employment Term, as applicable, Executive will have twelve months after the Employment Termination Date or the expiration of the Employment Term, as applicable, to exercise such stock options.

Notwithstanding the foregoing, Employer’s obligation under this Paragraph 7(e)(ii) is limited as follows:

(X)           If, in the reasonable judgment of Employer, Executive engages in any conduct that materiallyviolates Paragraph 8 or engages in any of the Restricted Activities described in Paragraph 9, Employer’s obligation to make payments to Executive under this Paragraph 7(e)(ii), if any such obligation remains, shall end as of the date Employer so notifies Executive in writing; and

(Y)           If Executive is found guilty or enters into a plea agreement, consent decree, or similar arrangement with respect to any felony criminal offense or any violation of federal or state securities laws, or has any civil enforcement action brought against him by any regulatory agency, for actions or omissions related to his employment with Employer or any of its Affiliates or if Employer reasonably believes that Executive has committed any act or omission that would have entitled Employer to terminate his employment for Cause, whether such act or omission was committed during his employment with Employer or any of its Affiliates or thereafter, (1) Employer’s obligation to make payments to Executive under this Paragraph 7(e)(ii) shall immediately end, and (2) Executive shall repay to Employer any amounts paid to him pursuant to this Paragraph 7(e)(ii) within 30 days after a written request to do so by Employer.

(iii)           The amounts provided for under Paragraphs 7(e)(ii)(A) and 7(e)(ii)(B) shall be paid as follows:

(A)          An amount equal to (1) 25% of the amount provided for under Paragraph 7(e)(ii)(A) plus (2) the sum (to the extent that such sum exceeds zero) of the amounts provided for under Paragraphs 7(e)(ii)(A) and 7(e)(ii)(B) less the payment under Paragraph 7(e)(iii)(A)(1) less the Section 409A Exempt Amount, shall be paid in a single lump sum no later than 60 days after the Employment Termination Date or the expiration of the Employment Term, as applicable, provided that the Employment Termination Date or the expiration of the Employment Term, as applicable, constitutes a separation from service for purposes of Code Section 409A and the regulations thereunder.  For purposes of this Agreement, the “Section 409A Exempt Amount” is two times the lesser of (x) Executive’s annualized compensation based upon the annual rate of pay for services provided to Employer for the calendar year preceding the calendar year in which Executive has a separation from service (as defined in Code Section 409A and the regulations thereunder) with Employer (adjusted for any increase during that year that was expected to continue indefinitely if the service provider had not separated from service) or (y) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive has a separation from service.

(B)           The Section 409A Exempt Amount or, if less, the excess of the amount provided for under Paragraphs 7(e)(ii)(A) and 7(e)(ii)(B) over the amount paid under Paragraph 7(e)(iii)(A), shall be paid in equal monthly installments over a period of 18 months commencing on the first day of the sixth month following the Employment Termination Date or the expiration of the Employment Term, as applicable, provided that the Employment Termination Date or the expiration of the Employment Term, as applicable, constitutes a separation from service for purposes of Code Section 409A and the regulations thereunder.

(f)            Termination or Expiration of Employment Term Following Corporate Change.

(i)             If, within the two-year period following a Corporate Change, Executive’s employment with Employer or an Affiliate or successor of Employer is terminated by Employer or an Affiliate for any reason other than death, Inability to Perform, or Cause, is terminated by Executive for Good Reason, or if Employer or an Affiliate or successor of Employer gives timely notice pursuant to Paragraph 3 and Executive’s employment and this Agreement therefore ends upon the expiration of the Employment Term, Executive will be paid the Compensation Payment, the Vacation Payment and any unreimbursed Business Expenses, at the time and in the manner required by applicable law.  In addition, if, within 45 days after the Employment Termination Date or the expiration of the Employment Term, as applicable, Executive has signed a general release agreement in a form acceptable to Employer and Executive does not revoke such release, in lieu of any other payments under Paragraph 7(e)(ii), (A) Executive shall be paid a lump-sum amount equivalent to (x) 2 times the sum of Executive’s then-current Base Salary, and (y) 2 times the target ICP award for the performance period in which the Corporate Change occurs, and (B) any unvested Employer stock options and restricted stock will be immediately vested and Executive will have twelve months following the Employment Termination Date or expiration of the Employment Term, as applicable, to exercise the Employer stock options, provided that in no event may such stock options be exercised after the earlier of the latest date upon which the options could have expired by their original terms or the 10th anniversary of the original date of grant of the options.

(ii)            The additional payments provided for in Paragraph 7(f)(i)(A) shall be paid in a single lump sum payment no later than 60 days after the Employment Termination Date or the expiration of the Employment Term, as applicable.

(iii)In the event that it is determined that any payment (other than the Gross-Up payment provided for in this Paragraph 7(f)(iii)) or distribution by Employer or any of its Affiliates to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered “contingent on a change in ownership or control” of Employer, within the meaning of Section 280G of the Code or any successor provision thereto (such tax being hereafter referred to as the “Excise Tax”), then Executive will be entitled to receive an additional payment or payments (a “Gross-Up Payment”).  The Gross-Up Payment will be in an amount such that, after payment by Executive of all taxes, including any Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.  The determination of whether an Excise Tax would be imposed, the amount of such Excise Tax, and the calculation of the amounts referred to in this Paragraph 7(f)(iii) will be made at the expense of Employer by Employer’s regular independent accounting firm (the “Accounting Firm”), which shall provide detailed supporting calculations, and shall be based on the Executive’s actual taxes paid and tax rates applied, determined by reference to the Executive’s tax returns as filed for the relevant year(s), copies of which shall be provided to the Accounting Firm.  Any determination by the Accounting Firm will be binding upon Employer and Executive.  The Gross-Up Payment will be paid to Executive as soon as administratively practicable, but in no event later than the end of the Executive’s taxable year next following the Executive’s taxable year in which Executive remits the related taxes.

(g)           Health Insurance.  In addition, if Executive’s employment with Employer or an Affiliate or successor of Employer is terminated or ends under the circumstances set forth in Paragraph 7(f), Executive will receive, in addition to any other payments due under this Agreement, the following benefit: if, at the time of the Employment Termination Date or the expiration of the Employment Term, as applicable, Executive participates in one or more health plans offered or made available by Employer and Executive is eligible for and elects to receive continued coverage under such plans in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any successor law, Employer will reimburse Executive during 12-month period following the Employment Termination Date or the expiration of the Employment Term, as applicable, for the difference between the total amount of the monthly COBRA premiums for the same coverage as in effect on the Employment Termination Date or the expiration of the Employment Term, as applicable, that are actually paid by Executive for such continued health plan benefits and the total monthly amount of the same premiums charged to active senior executives of Employer for health insurance coverage.  Such reimbursement shall be made within the 90-day period following Executive’s payment of each monthly COBRA premium.  Provided, however, that Employer’s reimbursement obligation under this Paragraph 7(g) shall terminate upon the earlier of (i) the expiration of the time period described above or (ii) the date Executive becomes eligible for health insurance coverage under a subsequent employer’s plan without being subject to any preexisting-condition exclusion under that plan, which occurrence Executive shall promptly report to Employer.  Provided further, however, the amount of COBRA reimbursement during a calendar year may not affect the COBRA expenses eligible for reimbursement in any other calendar year.

(h)           Exclusive Compensation and Benefits.  The compensation and benefits described in this Paragraph 7, along with the associated terms for payment, constitute all of Employer’s obligations to Executive with respect to the termination of Executive’s employment with Employer and/or its Affiliates. However, nothing in this Agreement is intended to limit any earned, vested benefits (other than any entitlement to severance or separation pay, if any) that Executive may have under the applicable provisions of any benefit plan of Employer in which Executive is participating at the time of the termination of employment.

(i)            Compliance with Code Section 409A.  If Employer determines that Executive is a “specified employee” on the date of Executive’s “separation from service,” as those terms are defined in and pursuant to Code Section 409A and related Treasury guidance thereunder, then, notwithstanding any provision of this Agreement to the contrary, no payment of compensation under this Agreement shall be made to Executive during the period lasting six months from the date of Executive’s separation unless Employer determines that there is no reasonable basis for believing that making such payment would cause Executive to suffer adverse tax consequences pursuant to Code Section 409A.  If any payment to Executive is delayed pursuant to the foregoing sentence, such payment instead shall be paid, without interest, on the first day of the month following the expiration of the six-month period referred to in the prior sentence.  Each aforementioned payment is a separate “payment” within the meaning of Treasury Regulation section 1.409A-2(b)(2)(iii).

(j)Payment after Executive’s Death.  In the event of Executive’s death after he becomes entitled to a payment or payments pursuant to this Paragraph 7, any remaining unpaid amounts shall be paid, at the time and in the manner such payments otherwise would have been paid to Executive, to such person as Executive shall designate in a written notice to Employer (or, if no such person is designated, to his estate).

(k)           Offset.  The Executive agrees that Employer may set off against, and Executive authorizes Employer to deduct from, any payments due to the Executive, or to his heirs, legal representatives, or successors, as a result of the termination of the Executive’s employment any amounts which may be due and owing to Employer or any of its Affiliates by the Executive, whether arising under this Agreement or otherwise; provided, however, that any such set off and deduction shall be made in a manner that complies with Section 409A of the Code and the regulations thereunder to the extent applicable.

8.           Confidential Information.

(a)           Executive acknowledges and agrees that (i) Employer and its Affiliates are engaged in a highly competitive business; (ii) Employer and its Affiliates have expended considerable time and resources to develop goodwill with their customers, vendors, and others, and to create, protect, and exploit Confidential Information; (iii) Employer must continue to prevent the dilution of its and its Affiliates’ goodwill and unauthorized use or disclosure of its Confidential Information to avoid irreparable harm to its legitimate business interests; (iv) in the oil and gas acquisition, exploration, development and production business, his participation in or direction of Employer’s or its Affiliates’ day-to-day operations and strategic planning are an integral part of Employer’s continued success and goodwill; (v) given his position and responsibilities, he necessarily will be creating Confidential Information that belongs to Employer and enhances Employer’s goodwill, and in carrying out his responsibilities he in turn will be relying on Employer’s goodwill and the disclosure by Employer to him of Confidential Information; (vi) he will have access to Confidential Information that could be used by any Competitor of Employer in a manner that would irreparably harm Employer’s competitive position in the marketplace and dilute its goodwill; and (vii) he necessarily would use or disclose Confidential Information if he were to engage in competition with Employer.

(b)           Employer acknowledges and agrees that Executive must have and continue to have throughout his employment the benefits and use of its and its Affiliates’ goodwill and Confidential Information in order to properly carry out his responsibilities.  Employer accordingly promises upon execution and delivery of this Agreement to provide Executive immediate and continuing access to Confidential Information and to authorize him to engage in activities that will create new and additional Confidential Information.

(c)           Employer and Executive thus acknowledge and agree that during Executive’s employment with Employer, and upon execution and delivery of this Agreement, he (i) has received, will receive, and will continue to receive Confidential Information that is unique, proprietary, and valuable to Employer and/or its Affiliates; (ii) has created and will continue to create Confidential Information that is unique, proprietary, and valuable to Employer and/or its Affiliates; and (iii) has benefited and will continue to benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill Employer and its Affiliates have generated and from the Confidential Information.

(d)           Accordingly, Executive acknowledges and agrees that at all times during his employment by Employer and/or any of its Affiliates and thereafter:

(i)            all Confidential Information shall remain and be the sole and exclusive property of Employer and/or its Affiliates;

(ii)            he will protect and safeguard all Confidential Information;

(iii)           he will hold all Confidential Information in strictest confidence and not, directly or indirectly, disclose or divulge any Confidential Information to any person other than an officer, director, or employee of, or legal counsel for, Employer or its Affiliates, to the extent necessary for the proper performance of his responsibilities unless authorized to do so by Employer or compelled to do so by law or valid legal process;

(iv)           if he believes he is compelled by law or valid legal process to disclose or divulge any Confidential Information, he will notify Employer in writing sufficiently in advance of any such disclosure to allow Employer the opportunity to defend, limit, or otherwise protect its interests against such disclosure;

(v)           at the end of his employment with Employer for any reason or at the request of Employer at any time, he will return to Employer all Confidential Information and all copies thereof, in whatever tangible form or medium, including electronic; and

(vi)           absent the promises and representations of Executive in this Paragraph 8 and in Paragraph 9, Employer would require him immediately to return any tangible Confidential Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement.

9.           Nondisparagement and Nonsolicitation Obligations.  In consideration of Employer’s promises to provide Executive with Confidential Information and to authorize him to engage in activities that will create new and additional Confidential Information upon execution and delivery of this Agreement, and the other promises and undertakings of Employer in this Agreement, Executive agrees that, while he is employed by Employer and/or any of its Affiliates and for a 2-year period following the end of that employment for any reason, he shall not engage in any of the following activities (the “Restricted Activities”):

(a)           He will not directly or indirectly disparage Employer or its Affiliates, any products, services, or operations of Employer or its Affiliates, or any of the former, current, or future officers, directors, or employees of Employer or its Affiliates;

(b)           He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then employed by or otherwise engaged to perform services for Employer or its Affiliates to leave that employment or cease performing those services; and

(c)           He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then a customer, supplier, or vendor of Employer or any of its Affiliates to cease being a customer, supplier, or vendor of Employer or any of its Affiliates or to divert all or any part of such person’s or entity’s business from Employer or any of its Affiliates.

Executive acknowledges and agrees that the restrictions contained in this Paragraph 9 are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in Paragraph 8; that Employer’s promises and undertakings set forth in Paragraph 8 and Executive’s position and responsibilities with Employer give rise to Employer’s interest in restricting Executive’s post-employment activities; that such restrictions are designed to enforce Executive’s promises and undertakings set forth in this Paragraph 9 and his common-law obligations and duties owed to Employer and its Affiliates; that the restrictions are reasonable and necessary, are valid and enforceable under Texas law, and do not impose a greater restraint than necessary to protect Employer’s goodwill, Confidential Information, and other legitimate business interests; that he will immediately notify Employer in writing should he believe or be advised that the restrictions are not, or likely are not, valid or enforceable under Texas law or the law of any other state that he contends or is advised is applicable; that the mutual promises and undertakings of Employer and Executive under Paragraphs 8 and 9 are not contingent on the duration of Executive’s employment with Employer; that absent the promises and representations made by Executive in this Paragraph 9 and Paragraph 8, Employer would require him to return any Confidential Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement; and that his obligations under Paragraphs 8 and 9 supplement, rather than supplant, his common-law duties of confidentiality and loyalty owed to Employer.

10.           Intellectual Property.

(a)           In consideration of Employer’s promises and undertakings in this Agreement, Executive agrees that all Work Product will be disclosed promptly by Executive to Employer, shall be the sole and exclusive property of Employer, and is hereby assigned to Employer, regardless of whether (i) such Work Product was conceived, made, developed or worked on during regular hours of his employment or his time away from his employment, (ii) the Work Product was made at the suggestion of Employer; or (iii) the Work Product was reduced to drawing, written description, documentation, models or other tangible form.  Without limiting the foregoing, Executive acknowledges that all original works of authorship that are made by Executive, solely or jointly with others, within the scope of his employment and that are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101), and are therefore owned by Employer from the time of creation.

(b)           Executive agrees to assign, transfer, and set over, and Executive does hereby assign, transfer, and set over to Employer, all of his right, title and interest in and to all Work Product, without the necessity of any further compensation, and agrees that Employer is entitled to obtain and hold in its own name all patents, copyrights, and other rights in respect of all Work Product.  Executive agrees to (i) cooperate with Employer during and after his employment with Employer in obtaining patents or copyrights or other intellectual-property protection for all Work Product; (ii) execute, acknowledge, seal, and deliver all documents tendered by Employer to evidence its ownership thereof throughout the world; and (iii) cooperate with Employer in obtaining, defending, and enforcing its rights therein.

(c)           Executive represents that there are no other contracts to assign inventions or other intellectual property that are now in existence between Executive and any other person or entity.  Executive further represents that he has no other employment or undertakings that might restrict or impair his performance of this Agreement.  Executive will not in connection with his employment by Employer, use or disclose to Employer any confidential, trade secret, or other proprietary information of any previous employer or other person that Executive is not lawfully entitled to disclose.

11.           Reformation.  If the provisions of Paragraphs 8, 9, or 10 are ever deemed by a court to exceed the limitations permitted by applicable law, Executive and Employer agree that such provisions shall be, and are, automatically reformed to the maximum limitations permitted by such law.

12.           Indemnification and Insurance.  Employer shall indemnify Executive to the fullest extent permitted by the laws of the State of Delaware.  In addition, Employer shall indemnify Executive in accordance with Employer’s certificate of incorporation and bylaws and pursuant to Employer’s standard indemnification agreement, and shall provide him with coverage under any directors’ and officers’ liability insurance policies, in each case on terms not less favorable than those provided to any of its other directors and officers as in effect from time to time.

13.           Assistance in Litigation.  During the Employment Term and thereafter for the lifetime of Executive, Executive shall, upon reasonable notice, furnish such information and proper assistance to Employer or any of its Affiliates as may reasonably be required by Employer in connection with any litigation, investigations, arbitrations, and/or any other fact-finding or adjudicative proceedings involving Employer or any of its Affiliates.  This obligation shall include, without limitation, to promptly upon request meet with counsel for Employer or any of its Affiliates and provide truthful testimony at the request of Employer or as otherwise required by law or valid legal process.   Following the Employment Term, Employer shall reimburse Executive for all reasonable out-of-pocket expenses incurred by Executive and approved in advance by Employer in rendering such assistance (such as travel, parking, and meals but not attorney’s fees), but shall have no obligation to compensate Executive for his time in providing information and assistance in accordance with this Paragraph 13, provided that such reimbursement shall be made on or before the last day of the calendar year following the calendar year in which the expense is incurred.

14.           No Obligation to Pay.  With regard to any payment due to Executive under this Agreement, it shall not be a breach of any provision of this Agreement for Employer to fail to make such payment to Executive if (i) Employer is legally prohibited from making the payment; (ii) Employer would be legally obligated to recover the payment if it was made; or (iii) Executive would be legally obligated to repay the payment if it was made.

15.            Deductions and Withholdings.  With respect to any payment to be made to the Executive, Employer shall deduct, where applicable, any amounts authorized by Employee, and shall withhold and report all amounts required to be withheld and reported by applicable law.

16.           Notices.  All notices, requests, demands, and other communications required or permitted to be given or made by either party shall be in writing and shall be deemed to have been duly given or made (a) when delivered personally, or (b) when deposited in the United States mail, first class registered or certified mail, postage prepaid, return receipt requested, to the party for which intended at the following addresses (or at such other addresses as shall be specified by the parties by like notice, except that notices of change of address shall be effective only upon receipt):

(i)           If to Employer, at:

Rosetta Resources Inc.

Attn: General Counsel

717 Texas

Suite 2800

Houston, Texas 77002

(ii)           If to Executive, at Executive’s then-current home address on file with Employer.

17.           Injunctive Relief.  Executive acknowledges and agrees that Employer would not have an adequate remedy at law and would be irreparably harmed in the event that any of the provisions of Paragraphs 8, 9, and 10 were not performed in accordance with their specific terms or were otherwise breached.  Accordingly, Executive agrees that Employer shall be entitled to equitable relief, including preliminary and permanent injunctions and specific performance, in the event Executive breaches or threatens to breach any of the provisions of such Paragraphs, without the necessity of posting any bond or proving special damages or irreparable injury.  Such remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of this Agreement by Executive, but shall be in addition to all other remedies available to Employer at law or equity.

18.           Mitigation.  Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by Executive as the result of employment by another employer after the date of termination of Executive’s employment with Employer, or otherwise.

19.           Binding Effect; No Assignment by Executive; No Third Party Benefit.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors, and assigns; provided, however, that Executive shall not assign or otherwise transfer this Agreement or any of his rights or obligations under this Agreement.  Employer is authorized to assign or otherwise transfer this Agreement or any of its rights or obligations under this Agreement to an Affiliate of Employer.  Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any payments or other benefits provided under this Agreement; and no benefits payable under this Agreement shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or pursuant to the laws of descent and distribution.  Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties, and their respective heirs, legal representatives, successors, and permitted assigns, any rights, benefits, or remedies of any nature whatsoever under or by reason of this Agreement.

20.           Assumption by Successor.  Employer shall ensure that any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of the Employer or the oil and gas acquisition, exploration, development and production business of the Employer, either by operation of law or written agreement, assumes the obligations of this Agreement (the “Assumption Obligation”).  If Employer fails to fulfill the Assumption Obligation, such failure shall be considered Good Reason; provided, however, that the compensation to which Executive would be entitled to upon a termination for Good Reason pursuant to Paragraph 7(e) shall be the sole remedy of Executive for any failure by Employer to fulfill the Assumption Obligation.  As used in this Agreement, “Employer” shall include any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of Employer or the oil and gas exploration, development and production business of the Employer that executes and delivers the agreement provided for in this Paragraph 20 or that otherwise becomes obligated under this Agreement by operation of law.

21.           Legal Fees and Expenses.  Employer will reimburse the Executive for all reasonable legal fees and expenses incurred by the Executive in connection with the preparation, review, and negotiation of this Agreement on or after January 1, 2007 and prior to its execution, provided that any such reimbursement shall be made within the same calendar year in which falls the Second Amendment Date.

22.           Governing Law; Venue.  This Agreement and the employment of Executive shall be governed by the laws of the State of Texas except for its laws with respect to conflict of laws.  The exclusive forum for any lawsuit arising from or related to Executive’s employment or this Agreement shall be a state or federal court in Harris County, Texas.  This provision does not prevent Employer from removing to an appropriate federal court any action brought in state court.  EXECUTIVE HEREBY CONSENTS TO, AND WAIVES ANY OBJECTIONS TO, REMOVAL TO FEDERAL COURT BY EMPLOYER OF ANY ACTION BROUGHT AGAINST IT BY EXECUTIVE.

23.           JURY TRIAL WAIVER.  IN THE EVENT THAT ANY DISPUTE ARISING FROM OR RELATED TO THIS AGREEMENT OR EXECUTIVE’S EMPLOYMENT WITH EMPLOYER RESULTS IN A LAWSUIT, BOTH EMPLOYER AND EXECUTIVE MUTUALLY WAIVE ANY RIGHT THEY MAY OTHERWISE HAVE FOR A JURY TO DECIDE THE ISSUES IN THE LAWSUIT, REGARDLESS OF THE PARTY OR PARTIES ASSERTING CLAIMS IN THE LAWSUIT OR THE NATURE OF SUCH CLAIMS.  EMPLOYER AND EXECUTIVE IRREVOCABLY AGREE THAT ALL ISSUES IN SUCH A LAWSUIT SHALL BE DECIDED BY A JUDGE RATHER THAN A JURY.

24.           Entire Agreement.  This Agreement contains the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements and understandings, written and oral, between the parties with respect to the subject matter of this Agreement.

25.           Modification; Waiver.  No person, other than pursuant to a resolution duly adopted by the members of the Board, shall have authority on behalf of Employer to agree to modify, amend, or waive any provision of this Agreement.  Further, this Agreement may not be changed orally, but only by a written agreement signed by the party against whom any waiver, change, amendment, modification or discharge is sought to be enforced.  Executive acknowledges and agrees that no breach by Employer of this Agreement or failure to enforce or insist on its rights under this Agreement shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

26.           Construction.  This Agreement is to be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties.

27.           Severability.  If any provision of this Agreement shall be determined by a court to be invalid or unenforceable, the remaining provisions of this Agreement shall not be affected thereby, shall remain in full force and effect, and shall be enforceable to the fullest extent permitted by applicable law.

28.           Counterparts.  This Agreement may be executed by the parties in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

IN WITNESS WHEREOF, Employer has caused this Agreement to be executed on its behalf by its duly authorized officer, and Executive has executed this Agreement, effective as of the Second Amendment Date first set forth above.

EMPLOYER	EXECUTIVE
ROSETTA RESOURCES INC.	MICHAEL J. ROSINSKI
By:
RANDY L. LIMBACHER
PRESIDENT & CHIEF EXECUTIVE OFFICER

EX-10.36

Exhibit 10.36

INDEMNIFICATION AGREEMENT

INDEMNIFICATION AGREEMENT (this “Agreement”), made and executed as of _________________, by and between Rosetta Resources Inc., a Delaware corporation (the ”Company”), and __________________________, an individual resident of the State of Texas (the “Indemnitee”).

WHEREAS, the Company is aware that, in order to induce highly competent persons to serve the Company as directors or officers or in other capacities, the Company must provide such persons with adequate protection through insurance and indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the Company;

WHEREAS, the Company recognizes that the increasing difficulty in obtaining directors' and officers' liability insurance, the increasing cost of such insurance and the general reductions in coverage of such insurance have made attracting and retaining such persons more difficult;

WHEREAS, the Company recognizes the substantial increase in corporate litigation in general, subjecting directors and officers to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited;

WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company's stockholders that the Company act to assure such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify such persons to the fullest extent permitted by applicable law so that they will continue to serve the Company free from undue concern that they will not be so indemnified; and

WHEREAS, the Indemnitee is willing to serve, continue to serve and take on additional service for or on behalf of the Company or any of its direct or indirect wholly-owned subsidiaries on the condition that he/she be so indemnified.

NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Indemnitee do hereby agree as follows:

1.         DEFINITIONS.  For purposes of this Agreement:

(a)           “Change in Control” shall mean:

(i)            a “change in control” of the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A for a proxy statement filed under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Act”), as in effect on the date of this Agreement;

(ii)           a “person” (as that term is used in 14(d)(2) of the Act) becomes the beneficial owner (as defined in Rule 13d-3 under the Act) directly or indirectly of securities representing 30% or more of the combined voting power for election of directors of the then outstanding securities of the Company;

(iii)           the individuals who at the beginning of any period of two consecutive years or less (starting on or after the date of this Agreement) constitute the Company's Board of Directors cease for any reason during such period to constitute at least a majority of the Company's Board of Directors, unless the election or nomination for election of each new member of the Board of Directors was approved in advance by vote of a majority of the members of such Board of Directors then still in office who were members of such Board of Directors at the beginning of such period;

(iv)           the stockholders of the Company approve any reorganization, merger, consolidation or share exchange as a result of which the common stock of the Company shall be changed, converted or exchanged into or for securities of another organization or any dissolution or liquidation of the Company or any sale or the disposition of 50% or more of the assets or business of the Company; or

(v)           the stockholders of the Company approve any reorganization, merger, consolidation or share exchange with another corporation unless (1) the persons who were the beneficial owners of the outstanding shares of the common stock of the Company immediately before the consummation of such transaction beneficially own more than 60% of the outstanding shares of the common stock of the successor or survivor corporation in such transaction immediately following the consummation of such transaction and (2) the number of shares of the common stock of such successor or survivor corporation beneficially owned by the persons described in Section 1(a)(v)(1) immediately following the consummation of such transaction is beneficially owned by each such person in substantially the same proportion that each such person had beneficially owned shares of the Company common stock immediately before the consummation of such transaction, provided (3) the percentage described in Section 1(a)(v)(1) of the beneficially owned shares of the successor or survivor corporation and the number described in Section 1(a)(v)(2) of the beneficially owned shares of the successor or survivor corporation shall be determined exclusively by reference to the shares of the successor or survivor corporation which result from the beneficial ownership of shares of common stock of the Company by the persons described in Section 1(a)(v)(1) immediately before the consummation of such transaction.

(b)           “Disinterested Director” shall mean a director of the Company who is not or was not a party to the action, suit, investigation or proceeding in respect of which indemnification is being sought by the Indemnitee.

(c)           “Expenses” shall include all attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating or being or preparing to be a witness in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in nature.

(d)           “Independent Counsel” shall mean a law firm or a member of a law firm that neither is presently nor in the past five years has been retained to represent (i) the Company or the Indemnitee in any matter material to either such party or (ii) any other party to the action, suit, investigation or proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitee's right to indemnification under this Agreement.

2.         SERVICE BY THE INDEMNITEE.  The Indemnitee agrees to serve as a director or officer of the Company and will discharge his/her duties and responsibilities to the best of his/her ability so long as the Indemnitee is duly elected or qualified in accordance with the provisions of the Certificate of Incorporation, as amended (the “Certificate”), and the Bylaws, as amended (the “Bylaws”), of the Company and the General Corporation Law of the State of Delaware, as amended (the “DGCL”), or until his/her earlier death, retirement, resignation or removal. The Indemnitee may at any time and for any reason resign from such position (subject to any other obligation, whether contractual or imposed by operation of law), in which event this Agreement shall continue in full force and effect after such resignation. Nothing in this Agreement shall confer upon the Indemnitee the right to continue in the employ of the Company or as a director of the Company, or affect the right of the Company to terminate, in the Company's sole discretion (with or without cause) and at any time, the Indemnitee's employment or position as a director, in each case, subject to any contractual rights of the Indemnitee created or existing otherwise than under this Agreement.

3.         INDEMNIFICATION.  The Company shall indemnify the Indemnitee and advance Expenses to the Indemnitee as provided in this Agreement to the fullest extent permitted by the Certificate, the Bylaws in effect as of the date hereof and the DGCL or other applicable law in effect on the date hereof and to any greater extent that the DGCL or applicable law may in the future from time to time permit. Without diminishing the scope of the indemnification provided by this Section 3, the rights of indemnification of the Indemnitee provided hereunder shall include, but shall not be limited to, those rights hereinafter set forth, except that no indemnification shall be paid to the Indemnitee:

(a)           on account of any action, suit or proceeding in which judgment is rendered against the Indemnitee for disgorgement of profits made from the purchase or sale by the Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Act or similar provisions of any federal, state or local statutory law;

(b)           on account of conduct of the Indemnitee which is finally adjudged by a court of competent jurisdiction to have been knowingly fraudulent or to constitute willful misconduct;

(c)           in any circumstance where such indemnification is expressly prohibited by applicable law;

(d)           with respect to liability for which payment is actually made to the Indemnitee under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, Bylaw or agreement (other than this Agreement), except in respect of any liability in excess of payment under such insurance, clause, Bylaw or agreement;

(e)           if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful (and, in this respect, both the Company and the Indemnitee have been advised that it is the position of the Securities and Exchange Commission that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable, and that claims for indemnification should be submitted to the appropriate court for adjudication); or

(f)           in connection with any action, suit or proceeding by the Indemnitee against the Company or any of its direct or indirect wholly-owned subsidiaries or the directors, officers, employees or other Indemnitees of the Company or any of its direct or indirect wholly-owned subsidiaries, (i) unless such indemnification is expressly required to be made by law, (ii) unless the action, suit or proceeding was previously authorized by a majority of the Board of Directors of the Company, (iii) unless such indemnification is provided by the Company, in its sole discretion, pursuant to the powers vested in the Company under applicable law or (iv) except as provided in Sections 12, 14 and 18 hereof.

4.         ACTIONS OR PROCEEDINGS OTHER THAN AN ACTION BY OR IN THE RIGHT OF THE COMPANY.  The Indemnitee shall be entitled to the indemnification rights provided in this Section 4 if the Indemnitee was or is a party or is threatened to be a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in nature, other than an action by or in the right of the Company, by reason of the fact that the Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any of its direct or indirect wholly-owned subsidiaries, or is or was serving at the request of the Company, or any of its direct or indirect wholly-owned subsidiaries, as a director, officer, employee, agent or fiduciary of any other entity, including, but not limited to, another corporation, partnership, limited liability company, employee benefit plan, joint venture, trust or other enterprise, or by reason of any act or omission by him/her in such capacity. Pursuant to this Section 4, the Indemnitee shall be indemnified against all Expenses, judgments, penalties (including excise and similar taxes), fines, liabilities and amounts paid in settlement which were actually and reasonably incurred by the Indemnitee or on Indemnitee's behalf in connection with such action, suit or proceeding (including, but not limited to, the investigation, defense or appeal thereof), if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his/her conduct was unlawful.

5.         ACTIONS BY OR IN THE RIGHT OF THE COMPANY.  The Indemnitee shall be entitled to the indemnification rights provided in this Section 5 if the Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding brought by or in the right of the Company to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any of its direct or indirect wholly-owned subsidiaries, or is or was serving at the request of the Company, or any of its direct or indirect wholly-owned subsidiaries, as a director, officer, employee, agent or fiduciary of another entity, including, but not limited to, another corporation, partnership, limited liability company, employee benefit plan, joint venture, trust or other enterprise, or by reason of any act or omission by him/her in any such capacity. Pursuant to this Section 5, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by him/her in connection with the defense or settlement of such action, suit or proceeding (including, but not limited to the investigation, defense or appeal thereof), if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, that no such indemnification shall be made in respect of any claim, issue or matter as to which the Indemnitee shall have been adjudged to be liable to the Company, unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action, suit or proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such Expenses which such court shall deem proper.

6.         GOOD FAITH DEFINITION.  For purposes of this Agreement, the Indemnitee shall be deemed to have acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe the Indemnitee's conduct was unlawful, if such action was based on any of the following: (a) the records or books of the account of the Company or other enterprise, including financial statements; (b) information supplied to the Indemnitee by the officers of the Company or other enterprise in the course of his/her duties; (c) the advice of legal counsel for the Company or other enterprise; or (d) information or records given in reports made to the Company or other enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company or other enterprise.  The provisions of this Section 6 shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

7.         INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Agreement, to the extent that the Indemnitee has served on behalf of the Company, or any of its direct or indirect wholly-owned subsidiaries, as a witness or other participant in any class action or proceeding, or has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 4 and 5 hereof, or in defense of any claim, issue or matter therein, including, but not limited to, the dismissal of any action without prejudice, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee in connection therewith.

8.         PARTIAL INDEMNIFICATION.  If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by the Indemnitee in connection with the investigation, defense, appeal or settlement of such suit, action, investigation or proceeding described in Sections 4 and 5 hereof, but is not entitled to indemnification for the total amount thereof, the Company shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by the Indemnitee to which the Indemnitee is entitled.  For purposes of this Section 8 and without limitation, the termination of any claim, issue, or matter in such a proceeding described herein (a) by dismissal, summary judgment, judgment on the pleading, or final judgment, with or without prejudice, or (b) by agreement without payment or assumption or admission of liability by Indemnitee, shall be deemed to be a successful determination or result as to such claim, issue or matter.

9.         PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.

(a)           To obtain indemnification under this Agreement, the Indemnitee shall submit to the Company a written request, including documentation and information which is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification.  The Secretary of the Company shall, promptly upon receipt of a request for indemnification, advise the Board of Directors in writing that the Indemnitee has requested indemnification. Any Expenses incurred by the Indemnitee in connection with the Indemnitee's request for indemnification hereunder shall be borne by the Company. The Company hereby indemnifies and agrees to hold the Indemnitee harmless for any Expenses incurred by the Indemnitee under the immediately preceding sentence irrespective of the outcome of the determination of the Indemnitee's entitlement to indemnification.

(b)           Upon written request by the Indemnitee for indemnification pursuant to Sections 4 and 5 hereof, the entitlement of the Indemnitee to indemnification pursuant to the terms of this Agreement shall be determined by the following person or persons, who shall be empowered to make such determination: (i) if a Change in Control shall have occurred, by Independent Counsel (unless the Indemnitee shall request in writing that such determination be made by the Board of Directors (or a committee thereof) in the manner provided for in clause (b)(ii) of this Section 9) in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee; (ii) if a Change in Control shall not have occurred, (A) by the Board of Directors of the Company, by a majority vote of a quorum consisting of Disinterested Directors, or (B) if a quorum consisting of Disinterested Directors is not obtainable, or if a majority vote of a quorum consisting of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee. The Independent Counsel shall be selected by the Board of Directors and approved by the Indemnitee. Upon failure of the Board of Directors to so select, or upon failure of the Indemnitee to so approve, the Independent Counsel shall be selected by the Chancellor of the State of Delaware or such other person as the Chancellor shall designate to make such selection. Such determination of entitlement to indemnification shall be made not later than 45 days after receipt by the Company of a written request for indemnification.  If the person making such determination shall determine that the Indemnitee is entitled to indemnification as to part (but not all) of the application for indemnification, such person shall reasonably prorate such part of indemnification among such claims, issues or matters. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within 10 days after such determination.

(c)           Indemnitee shall be entitled to indemnification hereunder without a separate determination by or on behalf of the Company, with respect to any proceeding and/or any claim, issue, or matter with respect thereto: (i) which is resolved by agreement without any payment or assumption or admission of liability by Indemnitee; or (ii) as to which a final decision on the merits has been made by the court or other body with jurisdiction over that proceeding, in which Indemnitee was not determined to be liable with respect to such claim, issue, or matter asserted against Indemnitee in the proceeding, or (iii) as to which a court or arbitrator determines upon application that, despite such a determination of liability on the part of Indemnitee, but in view of all the circumstances of the proceeding and of Indemnitee’s conduct with respect thereto, Indemnitee is fairly and reasonably entitled to indemnification for such judgments, penalties, fines, amounts paid in settlement, and Expenses as such court or arbitrator shall deem proper; provided, however, such decision shall have been rendered in or with respect to the proceeding for which Indemnitee seeks indemnification under this Agreement.

10.       PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.

(a)           In making a determination with respect to entitlement to indemnification, the Indemnitee shall be presumed to be entitled to indemnification hereunder and the Company shall have the burden of proof in the making of any determination contrary to such presumption.  Neither the failure of the Board of Directors (or such other person or persons empowered to make the determination of whether the Indemnitee is entitled to indemnification) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor any determination thereby that Indemnitee has not met such applicable standard of conduct, shall be a defense or admissible as evidence in any action for any purpose or create a presumption that Indemnitee has not acted in good faith or met any other applicable standard of conduct.

(b)           If the Board of Directors, or such other person or persons empowered pursuant to Section 9 to make the determination of whether the Indemnitee is entitled to indemnification, shall have failed to make a determination as to entitlement to indemnification within 45 days after receipt by the Company of such request, the requisite determination of entitlement to indemnification shall be deemed to have been made and the Indemnitee shall be absolutely entitled to such indemnification, absent actual and material fraud in the request for indemnification or a prohibition of indemnification under applicable law.  The termination of any action, suit, investigation or proceeding described in Sections 4 or 5 hereof by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself: (i) create a presumption that the Indemnitee did not act in good faith and in a manner which he/she reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that the Indemnitee has reasonable cause to believe that the Indemnitee's conduct was unlawful; or (ii) otherwise adversely affect the rights of the Indemnitee to indemnification, except as may be provided herein.

11.       ADVANCEMENT OF EXPENSES.  Subject to applicable law, all reasonable Expenses actually incurred by the Indemnitee in connection with any threatened or pending action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, if so requested by the Indemnitee, within 20 days after the receipt by the Company of a statement or statements from the Indemnitee requesting such advance or advances. The Indemnitee may submit such statements from time to time. The Indemnitee's entitlement to such Expenses shall include those incurred in connection with any proceeding by the Indemnitee seeking an adjudication or award in arbitration pursuant to this Agreement. Such statement or statements shall reasonably evidence the Expenses incurred by the Indemnitee in connection therewith and shall include or be accompanied by a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the Indemnitee has met the standard of conduct necessary for indemnification under this Agreement and an undertaking by or on behalf of the Indemnitee to repay such amount if it is ultimately determined that the Indemnitee is not entitled to be indemnified against such Expenses by the Company pursuant to this Agreement or otherwise. Each written undertaking to pay amounts advanced must be an unlimited general obligation but need not be secured, and shall be accepted without reference to financial ability to make repayment.

12.       REMEDIES OF THE INDEMNITEE IN CASES OF DETERMINATION NOT TO INDEMNIFY OR TO ADVANCE EXPENSES.  In the event that a determination is made that the Indemnitee is not entitled to indemnification hereunder or if the payment has not been timely made following a determination of entitlement to indemnification pursuant to Sections 9 and 10, or if Expenses are not advanced pursuant to Section 11, the Indemnitee shall be entitled to a final adjudication in an appropriate court of the State of Delaware or any other court of competent jurisdiction of the Indemnitee's entitlement to such indemnification or advance.  Alternatively, the Indemnitee may, at the Indemnitee's option, seek an award in arbitration to be conducted by a single arbitrator chosen by the Indemnitee and approved by the Company, which approval shall not be unreasonably withheld or delayed. If the Indemnitee and the Company do not agree upon an arbitrator within 30 days following notice to the Company by the Indemnitee that it seeks an award in arbitration, the arbitrator will be chosen pursuant to the rules of the American Arbitration Association (the “AAA”). The arbitration will be conducted pursuant to the rules of the AAA and an award shall be made within 60 days following the filing of the demand for arbitration. The arbitration shall be held in Houston, Texas.  The Company shall not oppose the Indemnitee's right to seek any such adjudication or award in arbitration or any other claim. Such judicial proceeding or arbitration shall be made de novo, and the Indemnitee shall not be prejudiced by reason of a determination (if so made) that the Indemnitee is not entitled to indemnification. If a determination is made or deemed to have been made pursuant to the terms of Section 9 or Section 10 hereof that the Indemnitee is entitled to indemnification, the Company shall be bound by such determination and shall be precluded from asserting that such determination has not been made or that the procedure by which such determination was made is not valid, binding and enforceable. The Company further agrees to stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement and is precluded from making any assertions to the contrary. If the court or arbitrator shall determine that the Indemnitee is entitled to any indemnification hereunder, the Company shall pay all reasonable Expenses actually incurred by the Indemnitee in connection with such adjudication or award in arbitration (including, but not limited to, any appellate proceedings).

13.       NOTIFICATION AND DEFENSE OF CLAIM.  Promptly after receipt by the Indemnitee of notice of the commencement of any action, suit or proceeding, the Indemnitee will, if a claim in respect thereof is to be made against the Company under this Agreement, notify the Company in writing of the commencement thereof. The omission by the Indemnitee to so notify the Company will not relieve the Company from any liability that it may have to the Indemnitee under this Agreement or otherwise, except to the extent that the Company may suffer material prejudice by reason of such failure. Notwithstanding any other provision of this Agreement, with respect to any such action, suit or proceeding as to which the Indemnitee gives notice to the Company of the commencement thereof:

(a)           The Company will be entitled to participate therein at its own expense.

(b)           Except as otherwise provided in this Section 13(b), to the extent that it may wish, the Company, jointly with any other indemnifying party similarly notified, shall be entitled to assume the defense thereof with counsel reasonably satisfactory to the Indemnitee. After notice from the Company to the Indemnitee of its election to so assume the defense thereof, Company shall not be liable to the Indemnitee under this Agreement for any legal or other Expenses subsequently incurred by the Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. The Indemnitee shall have the right to employ the Indemnitee's own counsel in such action, suit or proceeding, but the fees and Expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of such action and such determination by the Indemnitee shall be supported by an opinion of counsel, which opinion shall be reasonably acceptable to the Company, or (iii) the Company shall not in fact have employed counsel to assume the defense of the action, in each of which cases the fees and Expenses of counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Company or as to which the Indemnitee shall have reached the conclusion provided for in clause (ii) above.

(c)           The Company shall not be liable to indemnify the Indemnitee under this Agreement for any amounts paid in settlement of any action, suit or proceeding affected without its written consent, which consent shall not be unreasonably withheld. The Company shall not be required to obtain the consent of the Indemnitee to settle any action, suit or proceeding which the Company has undertaken to defend if the Company assumes full and sole responsibility for such settlement and such settlement grants the Indemnitee a complete and unqualified release in respect of any potential liability.  The Company shall have no obligation to indemnify Indemnitee under this Agreement with regard to any judicial award issued in a proceeding, or any related Expenses of Indemnitee, if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such proceeding, except to the extent the Company was not materially prejudiced thereby.

(d)           If, at the time of the receipt of a notice of a claim pursuant to this Section 13, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.

The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of the policies.

14.       OTHER RIGHT TO INDEMNIFICATION.  The indemnification and advancement of Expenses provided by this Agreement are cumulative, and not exclusive, and are in addition to any other rights to which the Indemnitee may now or in the future be entitled under any provision of the Bylaws or Certificate of the Company, the Certificate or Bylaws or other governing documents of any direct or indirect wholly-owned subsidiary of the Company, any vote of the stockholders or Disinterested Directors, any provision of law or otherwise. Except as required by applicable law, the Company shall not adopt any amendment to its Bylaws or Certificate the effect of which would be to deny, diminish or encumber the Indemnitee's right to indemnification under this Agreement.

15.       DIRECTOR AND OFFICER LIABILITY INSURANCE.  The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company, and any direct or indirect wholly-owned subsidiary of the Company, with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not necessary or is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit or if the Indemnitee is covered by similar insurance maintained by a direct or indirect wholly-owned subsidiary of the Company.  However, the Company's decision whether or not to adopt and maintain such insurance shall not affect in any way its obligations to indemnify its officers and directors under this Agreement or otherwise. In all policies of director and officer liability insurance, the Indemnitee shall be named as an insured in such a manner as to provide the Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if the Indemnitee is a director; or of the Company's officers, if the Indemnitee is not a director of the Company, but is an officer. The Company agrees that the provisions of this Agreement shall remain in effect regardless of whether liability or other insurance coverage is at any time obtained or retained by the Company; except that any payments made to, or on behalf of, the Indemnitee under an insurance policy shall reduce the obligations of the Company hereunder.

16.       SPOUSAL INDEMNIFICATION.  The Company will indemnify the Indemnitee's spouse to whom the Indemnitee is legally married at any time the Indemnitee is covered under the indemnification provided in this Agreement (even if the Indemnitee did not remain married to him or her during the entire period of coverage) against any pending or threatened action, suit, proceeding or investigation for the same period, to the same extent and subject to the same standards, limitations, obligations and conditions under which the Indemnitee is provided indemnification herein, if the Indemnitee's spouse (or former spouse) becomes involved in a pending or threatened action, suit, proceeding or investigation solely by reason of his or her status as the Indemnitee's spouse, including, without limitation, any pending or threatened action, suit, proceeding or investigation that seeks damages recoverable from marital community property, jointly-owned property or property purported to have been transferred from the Indemnitee to his/her spouse (or former spouse). The Indemnitee's spouse or former spouse also may be entitled to advancement of Expenses to the same extent that the Indemnitee is entitled to advancement of Expenses herein. The Company may maintain insurance to cover its obligation hereunder with respect to the Indemnitee's spouse (or former spouse) or set aside assets in a trust or escrow funds for that purpose.

17.       INTENT.  This Agreement is intended to be broader than any statutory indemnification rights applicable in the State of Delaware and shall be in addition to any other rights the Indemnitee may have under the Company's Certificate, Bylaws, applicable law or otherwise. To the extent that a change in applicable law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company's Certificate, Bylaws, applicable law or this Agreement, it is the intent of the parties that the Indemnitee enjoy by this Agreement the greater benefits so afforded by such change.

18.       ATTORNEY'S FEES AND OTHER EXPENSES TO ENFORCE AGREEMENT.  In the event that the Indemnitee is subject to or intervenes in any proceeding in which the validity or enforceability of this Agreement is at issue or seeks an adjudication or award in arbitration to enforce the Indemnitee's rights under, or to recover damages for breach of, this Agreement the Indemnitee, if he/she prevails in whole or in part in such action, shall be entitled to recover from the Company and shall be indemnified by the Company against any actual expenses for attorneys' fees and disbursements reasonably incurred by the Indemnitee.

19.       SUBROGATION.  In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

20.       EFFECTIVE DATE.  The provisions of this Agreement shall cover claims, actions, suits or proceedings whether now pending or hereafter commenced and shall be retroactive to cover acts or omissions or alleged acts or omissions which heretofore have taken place. The Company shall be liable under this Agreement, pursuant to Sections 4 and 5 hereof, for all acts of the Indemnitee while serving as a director and/or officer, notwithstanding the termination of the Indemnitee's service, if such act was performed or omitted to be performed during the term of the Indemnitee's service to the Company.

21.       GROSS UP FOR TAXES.  In the event any payment of indemnity to an Indemnitee under this Agreement shall be deemed to be income for federal, state or local income tax purposes, then the Company shall pay to the Indemnitee, in addition to any amount for indemnification provided for herein, an amount equal to the amount of taxes for which such Indemnitee shall become liable (without offset for any deductions which such Indemnitee may have not related to the indemnification amount), promptly upon receipt from such Indemnitee of a copy of such Indemnitee’s tax return, which shall be maintained in strictest confidence by the Company.

22.       DURATION OF AGREEMENT.  This Agreement shall continue until and terminate upon the later of: (a) ten years after the Indemnitee has ceased to occupy any of the positions or have any relationships described in Sections 4 and 5 of this Agreement and (b) the final termination of all pending or threatened actions, suits, proceedings or investigations to which the Indemnitee may be subject by reason of the fact that he/she is or was a director, officer, employee, agent or fiduciary of the Company, or any direct or indirect wholly-owned subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of any other entity, including, but not limited to, another corporation, partnership, limited liability company, employee benefit plan, joint venture, trust or other enterprise, or by reason of any act or omission by the Indemnitee in any such capacity. The indemnification provided under this Agreement shall continue as to the Indemnitee even though he/she may have ceased to be a director or officer of the Company, or any direct or indirect wholly-owned subsidiary of the Company. This Agreement shall be binding upon the Company and its successors and assigns, including, without limitation, any corporation or other entity which may have acquired all or substantially all of the Company's assets or business or into which the Company may be consolidated or merged, and shall inure to the benefit of the Indemnitee and his/her spouse, successors, assigns, heirs, devisees, executors, administrators or other legal representations. The Company shall require any successor or assignee (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by written agreement in form and substance reasonably satisfactory to the Company and the Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place.  No legal action shall be brought and no claim or cause of action shall be asserted by or on behalf of the Company against Indemnitee or any Indemnified Party based upon or arising out of a right of the Company or any obligation of Indemnitee under this Agreement, after the later of one (1) year following (i) the date of termination of Indemnitee’s service to the Company as a director or officer, or (ii) with respect to a particular proceeding in connection with which Indemnitee requests indemnification or advancement of Expenses hereunder, the final termination of such proceeding, and any such claim or cause of action of the Company shall be extinguished and deemed released unless asserted by filing a legal action within such time.

23.       DISCLOSURE OF PAYMENTS.  Except as expressly required by any federal securities laws or other federal or state law, neither party hereto shall disclose any payments under this Agreement unless prior approval of the other party is obtained.

24.       CONTRIBUTION.  To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement, and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving rise to such proceeding, and/or (ii) the relative fault of the Company (and its directors, officers, employees, and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

25.       SEVERABILITY.  If any provision or provisions of this Agreement shall be held invalid, illegal or unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, but not limited to, all portions of any sections of this Agreement containing any such provision held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (b) to the fullest extent possible, the provisions of this Agreement (including, but not limited to, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifest by the provision held invalid, illegal or unenforceable.

26.       COUNTERPARTS.  This Agreement may be executed by one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought shall be required to be produced to evidence the existence of this Agreement.

27.       CAPTIONS.  The captions and headings used in this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

28.       ENTIRE AGREEMENT, MODIFICATION AND WAIVER.  This Agreement constitutes the entire agreement and understanding of the parties hereto regarding the subject matter hereof, and no supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. No supplement, modification or amendment to this Agreement shall limit or restrict any right of the Indemnitee under this Agreement in respect of any act or omission of the Indemnitee prior to the effective date of such supplement, modification or amendment unless expressly provided therein.

29.       NOTICES.  All notices, requests, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given if (a) delivered by hand with receipt acknowledged by the party to whom said notice or other communication shall have been directed, (b) mailed by certified or registered mail, return receipt requested with postage prepaid, on the date shown on the return receipt or (c) delivered by facsimile transmission on the date shown on the facsimile machine report:

(i)	If to the Indemnitee to:
(ii)	If to the Company to:
	Rosetta Resources Inc.
	717 Texas, Suite 2800
	Houston, Texas 77002
	Attention:  Vice President and General Counsel
	Facsimile: (713) 481-8561

or to such other address as may be furnished to the Indemnitee by the Company or to the Company by the Indemnitee, as the case may be.

30.       GOVERNING LAW.  The parties hereto agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, applied without giving effect to any conflicts of law principles.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

THE COMPANY

ROSETTA RESOURCES INC.

By:

Name:

Title:

INDEMNITEE

By:

EX-10.37

Exhibit 10.37

SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Second Amended and Restated Employment Agreement (this “Agreement”), effective as of December 31, 2008 (the “Amendment Date”) is between Rosetta Resources Inc., a Delaware corporation (“Employer”), and Michael H. Hickey (“Executive”), and supersedes and replaces that certain Amended and Restated Employment Agreement between Employer and Executive dated September 1, 2007.

WHEREAS, Executive has been employed as Vice President and General Counsel of Employer; and

WHEREAS, the parties desire to amend and restate the Amended and Restated Employment Agreement dated as of September 1, 2007, all as herein provided;

NOW, THEREFORE, the parties hereto agree as follows:

1.             Definitions.  As used in this Agreement, the following terms have the following meanings:

(a)           “Affiliate” means, with respect to any entity, any other corporation, organization, association, partnership, sole proprietorship or other type of entity, whether incorporated or unincorporated, directly or indirectly controlling or controlled by or under direct or indirect common control with such entity.

(b)           “Annual Period” means the time period of each year beginning on the first day of the Employment Term and ending on the day before the anniversary of that date.

(c)           “Board” means the Board of Directors of Employer.

(d)           “Cause” means a finding by the Board of acts or omissions, whether occurring during or before the Employment Term, constituting, in the Board’s reasonable judgment, (i) a breach of duty by Executive in the course of his employment involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty to Employer or its Affiliates, or moral turpitude constituting criminal felony; (ii) conduct by Executive that is materially detrimental to Employer, monetarily or otherwise, or reflects unfavorably on Employer or Executive to such an extent that Employer’s best interests reasonably require the termination of Executive’s employment; (iii) acts or omissions of Executive materially in violation of his obligations under this Agreement or at law; (iv) Executive’s failure to comply with or enforce Employer’s policies concerning equal employment opportunity, including engaging in sexually or otherwise harassing conduct; (v) Executive’s repeated insubordination; (vi) Executive’s failure to comply with or enforce, in any material respect, all other personnel policies of Employer or its Affiliates; (vii) Executive’s failure to devote his full working time and best efforts to the performance of his responsibilities to Employer or its Affiliates; (viii) Executive’s conviction of, or entry of a plea agreement or consent decree or similar arrangement with respect to a felony or any violation of federal or state securities laws; or (ix) Executive’s failure to cooperate with any investigation or inquiry authorized by the Board or conducted by a governmental authority related to the business or Executive’s conduct, or (x) Executive’s failure to maintain a law license in good standing in the State of Texas.

(e)           “Corporate Change” means (i) the dissolution or liquidation of Employer; (ii) a reorganization, merger or consolidation of Employer with one or more corporations (other than a merger or consolidation effecting a reincorporation of Employer in another state or any other merger or consolidation in which the shareholders of the surviving corporation and their proportionate interests therein immediately after the merger or consolidation are substantially identical to the shareholders of Employer and their proportionate interests therein immediately prior to the merger or consolidation) (collectively, a “Corporate Change Merger”); (iii) the sale of all or substantially all of the assets of Employer or an affiliate as defined in the Rosetta Resources Inc. 2005  Long-Term Incentive Plan; or (iv) the occurrence of a Change in Control.  A “Change in Control” shall be deemed to have occurred if (x) individuals who were directors of Employer immediately prior to a Control Transaction shall cease, within two years of such Control Transaction to constitute a majority of the Board of Directors of Employer (or of the Board of Directors of any successor to Employer or to a company which has acquired all or substantially all its assets) other than by reason of an increase in the size of the membership of the applicable Board that is approved by at least a majority of the individuals who were directors of Employer immediately prior to such Control Transaction or (y) any entity, person or Group acquires shares of Employer in a transaction or series of transactions that result in such entity, person or Group directly or indirectly owning beneficially 50% or more of the outstanding shares of Common Stock.  As used herein, “Control Transaction” means (A) any tender offer for or acquisition of capital stock of Employer pursuant to which any person, entity, or Group directly or indirectly acquires beneficial ownership of 20% or more of the outstanding shares of Common Stock; (B) any Corporate Change Merger of Employer; (C) any contested election of directors of Employer; or (D) any combination of the foregoing, any one of which results in a change in voting power sufficient to elect a majority of the Board of Directors of Employer.  As used herein, “Group” means persons who act “in concert” as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.  Notwithstanding the foregoing, “Corporate Change” shall not include the Acquisition, the Offering or any public offering of equity of Employer pursuant to a registration that is effective under the Securities Act of 1933, as amended.  As used herein, “Acquisition” and “Offering” shall have the same meaning given to those terms in the Rosetta Resources Inc. 2005 Long-Term Incentive Plan.

(f)           “Competitor” means any person or entity that is engaged in the acquisition, exploration, development and production of oil and gas properties in competition with the activities of Employer or an Affiliate.

(g)           “Confidential Information” means any information about Rosetta or its Affiliates that is protected by the attorney-client privilege and any unprivileged information relating to Rosetta or its Affiliates or furnished to Executive by reason of Executive’s legal representation of Rosetta or its Affiliates and Executive’s employment by Rosetta, including, without limitation, all documents or information, in whatever form or medium, concerning or evidencing sales; costs; pricing; strategies; forecasts and long range plans; financial and tax information; personnel information; business, marketing and operational projections, plans and opportunities; customer, vendor, and supplier information; geological and geophysical maps, data, interpretations, and analyses; project and prospect locations and leads; well logs, interpretations, and analyses; and production information; but excluding any such information that is or becomes generally available to the public other than as a result of any breach of this Agreement or other unauthorized disclosure by Executive.

(h)           “Employment Termination Date” means the effective date of termination of Executive’s employment as established under Paragraph 6(g).

(i)           “Good Reason” means any of the following actions if taken without Executive’s prior written consent: (i) any demotion of Executive as evidenced by a material diminution in Executive’s responsibilities or duties; (ii) a material diminution in Executive’s base compensation; (iii) any permanent relocation of Executive’s place of business to a location 50 miles or more from the then-current location, provided such relocation is a material change in geographic location at which Executive must provide services for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder; or (iv) any other action or inaction by Employer that constitutes a material breach by Employer of its obligations under Paragraphs 12 or 20 of this Agreement.  Neither a transfer of employment among Employer and any of its Affiliates, a change in the co-employment relationship, nor a mere change in job title constitutes “Good Reason.”

(j)           “Inability to Perform” means and shall be deemed to have occurred if Executive has been determined under Employer’s long-term disability plan to be eligible for long-term disability benefits.  In the absence of Executive’s participation in, application for benefits under, or existence of such a plan, “Inability to Perform” means a finding by the Board in its sole judgment that Executive is, despite any reasonable accommodation required by law, unable to perform the essential functions of his position because of an illness or injury for (i) 60% or more of the normal working days during six consecutive calendar months or (ii) 40% or more of the normal working days during twelve consecutive calendar months.

(k)           “Work Product” means all ideas, works of authorship, inventions, and other creations, whether or not patentable, copyrightable, or subject to other intellectual-property protection, that are made, conceived, developed or worked on in whole or in part by Executive while employed by Employer and/or any of its Affiliates, that relate in any manner whatsoever to the business, existing or proposed, of Employer and/or any of its Affiliates, or any other business or research or development effort in which Employer and/or any of its Affiliates engages during Executive’s employment.  Work Product includes any material previously conceived, made, developed, or worked on during Executive’s employment with Employer or any Affiliate.

2.             Employment.  Employer agrees to employ Executive (directly or through an Affiliate), and Executive agrees to be employed, for the period set forth in Paragraph 3.  Executive will be employed in the position and with the duties and responsibilities set forth in Paragraph 4(a) and upon the other terms and conditions set out in this Agreement.  Employer and Executive agree that such employment may be through a co-employment relationship with a professional employer organization.

3.             Term.  Executive’s employment under this Agreement shall commence on August 1, 2005 and shall be for an initial term of one Annual Period (the “Employment Term”), unless sooner terminated as provided in this Agreement.  Subject to earlier termination as provided in this Agreement, the Employment Term shall be automatically extended for an additional Annual Period unless either Executive or Employer gives written notice to the other six months or more prior to the end of the initial term or, if the Agreement has been automatically extended beyond the initial term, six months or more prior to the end of the additional Annual Period.  In the event of such an automatic extension, each additional Annual Period shall be part of the “Employment Term.”  Upon such timely written notice, Executive’s employment and this Agreement will end upon the expiration of the Employment Term.  The ending of Executive’s employment as a result of the expiration of the Employment Term shall not constitute a termination of employment by either party under this Agreement.

4.             Position and Duties.

(a)           Executive shall be employed as Vice President and General Counsel.  In such capacity, Executive, subject to the ultimate control and direction of the Chief Executive Officer of Employer, shall have such duties, functions, responsibilities, and authority as are from time to time delegated to Executive by the Chief Executive Officer of Employer; provided, however, that such duties, functions, responsibilities, and authority are reasonable and customary for a person serving in the same or similar capacity of an enterprise comparable to Employer, and provided further, however, that Executive shall not be directed by the Chief Executive Officer or Board to take any action that would reasonably require Executive to withdraw from representation of the Company (other than a withdrawal due to an actual or potential conflict of interest) or that could reasonably be expected to result in sanctions under the Texas Disciplinary Rules of Professional Conduct to the extent that such direction is provided or continues to be provided after Executive has notified the chairman of the Board in writing that the contemplated actions would require withdrawal and/or could reasonably be expected to result in sanctions

(b)           During the Employment Term, Executive shall devote his full time, skill, and attention and his best efforts to the business and affairs of Employer to the extent necessary to discharge fully, faithfully, and efficiently the duties and responsibilities delegated and assigned to Executive in or pursuant to this Agreement, except for usual, ordinary, and customary periods of vacation and absence due to illness or other disability.

(c)           In connection with Executive’s employment under this Agreement, Executive shall be based in Houston, Texas, or at any other place where the principal executive offices of Employer may be located during the Employment Term.  Executive also will engage in such travel as the performance of Executive’s duties in the business of Employer may require.

(d)           All services that Executive may render to Employer or any of its Affiliates in any capacity during the Employment Term shall be deemed to be services required by this Agreement and the consideration for such services is that provided for in this Agreement.

(e)           Executive hereby acknowledges that he has read and is familiar with Employer’s policies, including but not limited to those regarding business ethics and conduct and securities trading, and will comply with all such policies, and any amendments thereto, during the Employment Term.

5.             Compensation and Related Matters.

(a)            Base Salary.  During each Annual Period of the Employment Term, Employer shall pay to Executive for his services under this Agreement an annual base salary (“Base Salary”).  The Base Salary effective as of Amendment Date shall be $240,000.  The Base Salary is subject to adjustments at the discretion of the Board, but in no event shall Employer pay Executive a Base Salary less than that set forth above without the consent of Executive.  The Base Salary shall be payable in installments in accordance with the general payroll practices of Employer, or as otherwise mutually agreed upon.

(b)           Annual Incentives.  During the Employment Term, Executive will participate in any incentive compensation plan (ICP) or retention bonus arrangement applicable to Executive’s position, as may be adopted by Employer from time to time and in accordance with the terms of such plan(s).  Executive’s target award opportunity for the year ending on December 31, 2007, will be based upon 65% of Executive’s Base Salary paid to Executive by Employer prorated for the number of months in such period as compared to a full year and shall be subject to such other terms, conditions and restrictions as may be established by the Board or the compensation committee.

(c)           Long-Term Incentives.  During the Employment Term, Executive will participate in Employer’s long-term incentive (LTI) plan applicable to Executive’s position, in accordance with the terms of such plan(s).  Except as provided in Paragraph 5(d), Executive will participate in such LTI plan award opportunities as may be determined by the Board or the compensation committee of the Board, as applicable.

(d)           Employee Benefits.  During the Employment Term, Executive shall be entitled to participate in all employee benefit plans, programs, and arrangements that are generally made available by Employer to its similarly situated employees, including without limitation Employer’s life insurance, long-term disability, and health plans.  Executive agrees to cooperate and participate in any medical or physical examinations as may be required by any insurance company in connection with the applications for such life and/or disability insurance policies.

(e)           Expenses.  Executive shall be entitled to receive reimbursement for all reasonable expenses incurred by Executive during the Employment Term in performing his duties and responsibilities under this Agreement, consistent with Employer’s policies or practices for reimbursement of expenses incurred by other senior executives of Employer (“Business Expenses”).  Notwithstanding the foregoing, (i) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (ii) the reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred and (iii) the right to reimbursement shall not be subject to liquidation or exchange for any other benefit.

(f)           Vacations.  During each Annual Period of the Employment Term, Executive shall be eligible for four weeks’ paid vacation, as well as sick pay and other paid and unpaid time off in accordance with the policies and practices of Employer.  Executive agrees to use his vacation and other paid time off at such times that are (i) consistent with the proper performance of his duties and responsibilities and (ii) mutually convenient for Employer and Executive.

(g)           Fringe Benefits.  During the Employment Term, Executive shall be entitled to the perquisites and other fringe benefits that are made available by Employer to its senior executives generally and to such perquisites and fringe benefits that are made available by Employer to Executive in particular, subject to any applicable terms and conditions of any specific perquisite or other fringe benefit.

6.             Termination of Employment and Agreement.

(a)           Death.  Executive’s employment and this Agreement shall terminate automatically upon his death.

(b)           Inability to Perform.  Employer may terminate this Agreement or this Agreement and Executive’s employment for Inability to Perform.

(c)           Termination by Employer for Cause.  Employer may terminate Executive’s employment and this Agreement for Cause by providing Executive with a Notice of Termination as set out in Paragraph 6(f).  Before terminating Executive’s employment and this Agreement for Cause, Employer must provide Executive with written notice of its intent to do so, which notice must specify the particular circumstances or events that Employer contends gives rise to the existence of Cause; provided, however, that if Employer intends to exercise its right to terminate Executive’s employment and this Agreement in whole or part under provisions (v) or (vi) of the definition of Cause, Employer must first provide Executive with a reasonable period of time to correct those circumstances or events Employer contends give rise to the existence of Cause under such provision(s) (the “Correction Period”), but only to the extent Employer determines that they may reasonably be corrected.  A 30-day Correction Period shall be presumptively reasonable.  Executive will be given the opportunity within 30 calendar days of his receipt of Employer’s written notice of its intent to terminate Executive’s employment and this Agreement for Cause to defend himself with respect to the circumstances or events specified in such notice and in a manner and under such procedures as the Chief Executive Officer of Employer may establish.  Nothing in this Paragraph 6(c) precludes informal discussions between Executive and Employer regarding such circumstances or events.

(d)           Termination by Executive for Good Reason.  Executive may terminate his employment and this Agreement for Good Reason.  To exercise his right to terminate for Good Reason, Executive must provide written notice to Employer of his belief that Good Reason exists within 60 days of the initial existence of the Good Reason condition, and that notice shall describe the condition(s) believed to constitute Good Reason.  Employer shall have 30 days to remedy the Good Reason condition(s).  If not remedied within that 30-day period, Executive may submit a Notice of Termination; provided, however, that the Notice of Termination invoking Executive’s right to terminate his employment for Good Reason must be given no later than 100 days after the date the Good Reason condition first arose; otherwise, Executive is deemed to have accepted the condition(s), or the Employer’s correction of such condition(s), that may have given rise to the existence of Good Reason.

(e)           Termination by Either Party Without Cause or Without Good Reason.  Either Employer or Executive may terminate Executive’s employment and this Agreement without Cause or Good Reason upon at least 60 days’ prior written notice to the other party.

(f)           Notice of Termination.  Any termination of Executive’s employment or, pursuant to Paragraph 6(b), a termination of this Agreement alone, by Employer or by Executive (other than a termination pursuant to Paragraph 6(a)) shall be communicated by a Notice of Termination.  A “Notice of Termination” is a written notice that must (i) indicate the specific termination provision in this Agreement relied upon; (ii) in the case of a termination for Inability to Perform, Cause, or Good Reason, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision invoked; and (iii) if the termination is by Executive under Paragraph 6(e), or by Employer for any reason, specify the Employment Termination Date or, pursuant to Paragraph 6(b), the date of termination of this Agreement.  The failure by Employer or Executive to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Cause or Good Reason shall not waive any right of Employer or Executive or preclude either of them from asserting such fact or circumstance in enforcing or defending their rights.

(g)           Employment Termination Date.  The Employment Termination Date, whether occurring before or after a Corporate Change, shall be as follows: (i) if Executive’s employment is terminated by his death, the date of his death; (ii) if Executive’s employment is terminated by Employer because of his Inability to Perform or for Cause, the date specified in the Notice of Termination, which date shall be no earlier than the date such notice is given; (iii) if Executive’s employment is terminated by Executive for Good Reason, the date on which the Notice of Termination is given; or (iv) if the termination is under Paragraph 6(e), the date specified in the Notice of Termination, which date shall be no earlier than 60 days after the date such notice is given.

(h)           Deemed Resignation.  In the event of termination of Executive’s employment or the expiration of the Employment Term, Executive agrees that if at such time he is a member of the Board or is an officer of Employer or a director or officer of any of its Affiliates, he shall be deemed to have resigned from such position(s) effective on the Employment Termination Date or the expiration of the Employment Term, unless the Board notifies Executive prior to the Employment Termination Date or the expiration of the Employment Term of the Board’s desire that Executive remain a member of the Board, in which case Executive shall not be deemed to have resigned his position as a member of the Board merely by virtue of the termination of his employment or the expiration of the Employment Term.  Executive agrees to execute and deliver any documents evidencing his resignation from such positions that Employer may reasonably request.

(i)           Investigation; Suspension.  Employer may suspend Executive with pay pending an investigation authorized by the Board or a governmental authority or a determination by the Board whether Executive has engaged in acts or omissions constituting Cause, and such paid suspension shall not constitute a termination of this Agreement or Executive’s employment, or Good Reason.  Executive agrees to cooperate with Employer in connection with any such investigation.

7.             Compensation Upon Termination of Employment or Expiration of Employment Term.

(a)           Death.  If Executive’s employment is terminated by reason of Executive’s death, Employer shall pay to such person as Executive shall designate in a written notice to Employer (or, if no such person is designated, to his estate) any unpaid portion of Executive’s Base Salary through the Employment Termination Date (the “Compensation Payment”), any earned but unused vacation (the “Vacation Payment”), and any unreimbursed Business Expenses, at the time and in the manner required by applicable law.

(b)           Inability to Perform.  If Executive’s employment and this Agreement is terminated by reason of Executive’s Inability to Perform, Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses at the time and in the manner required by applicable law.

(c)           Termination by Executive Without Good Reason.  If Executive’s employment is terminated by Executive pursuant to and in compliance with Paragraph 6(e), Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses, at the time and in the manner required by applicable law.

(d)           Termination for Cause.  If Executive’s employment is terminated by Employer for Cause, Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses, at the time and in the manner required by applicable law.

(e)           Termination Without Cause or With Good Reason; Expiration of Employment Term.

(i)             If Executive’s employment is terminated by Employer for any reason other than death, Inability to Perform, or Cause, or is terminated by Executive for Good Reason, during the Employment Term, or if either Employer or Executive gives timely notice pursuant to Paragraph 3 and Executive’s employment and this Agreement therefore ends upon the expiration of the Employment Term, Employer shall pay to Executive the Compensation Payment, the Vacation Payment, and any unreimbursed Business Expenses, at the time and in the manner required by applicable law.

(ii)           In addition, if Executive’s employment is terminated by Employer for any reason other than death, Inability to Perform, or Cause, or is terminated by Executive for Good Reason, during the Employment Term, or if Employer gives timely notice pursuant to Paragraph 3 and Executive’s employment and this Agreement therefore ends upon the expiration of the Employment Term, Employer shall pay or provide to Executive in lieu of any other severance or separation benefits, at the time and in the manner provided in Paragraph 7(e)(iii), the following if, within 45 days after the Employment Termination Date or the expiration of the Employment Term, as applicable, Executive has signed a general release agreement in a form acceptable to Employer and Executive does not revoke such release:

(A) One times Executive’s Base Salary in effect on the Employment Termination Date or the expiration of the Employment Term, as applicable;

(B) ICP award at the target level for one year, based on the ICP award for the performance period in effect on the Employment Termination Date or the expiration of the Employment Term, as applicable;

(C) Full and immediate vesting of all Employer stock options and restricted stock awards held by Executive as of the Employment Termination Date or the expiration of the Employment Term, as applicable;

(D) With respect to Employer stock options that are vested prior to the Employment Termination Date or the expiration of the Employment Term, as applicable, Executive will have twelve months after the Employment Termination Date or the expiration of the Employment Term, as applicable, to exercise such stock options.

(E) With respect to the special bonus arrangement provided to Executive effective August 14, 2006, any amounts that remain unpaid as of the Employment Termination Date.

Notwithstanding the foregoing, Employer’s obligation under this Paragraph 7(e)(ii) is limited as follows:

(X)           If, in the reasonable judgment of Employer, Executive engages in any conduct that materiallyviolates Paragraph 8 or engages in any of the Restricted Activities described in Paragraph 9, Employer’s obligation to make payments to Executive under this Paragraph 7(e)(ii), if any such obligation remains, shall end as of the date Employer so notifies Executive in writing; and

(Y)           If Executive is found guilty or enters into a plea agreement, consent decree, or similar arrangement with respect to any felony criminal offense or any violation of federal or state securities laws, or has any civil enforcement action brought against him by any regulatory agency, for actions or omissions related to his employment with Employer or any of its Affiliates, or if Employer reasonably believes that Executive has committed any act or omission that would have entitled Employer to terminate his employment for Cause, whether such act or omission was committed during his employment with Employer or any of its Affiliates or thereafter, (1) Employer’s obligation to make payments to Executive under this Paragraph 7(e)(ii) shall immediately end, and (2) Executive shall repay to Employer any amounts paid to him pursuant to this Paragraph 7(e)(ii) within 30 days after a written request to do so by Employer.

(iii)           The amounts provided for under Paragraphs 7(e)(ii)(A) and 7(e)(ii)(B) shall be paid as follows:

(A)           An amount equal to (1) 50% of the amount provided for under Paragraph 7(e)(ii)(A) plus (2) the sum (to the extent that such sum exceeds zero) of the amounts provided for under Paragraphs 7(e)(ii)(A) and 7(e)(ii)(B) less the payment under Paragraph 7(e)(iii)(A)(1) less the Section 409A Exempt Amount, shall be paid in a single lump sum no later than 60 days after the Employment Termination Date or the expiration of the Employment Term, as applicable, provided that the Employment Termination Date or the expiration of the Employment Term, as applicable, constitutes a separation from service for purposes of Code Section 409A and the regulations thereunder.  For purposes of this Agreement, the “Section 409A Exempt Amount” is two times the lesser of (x) Executive’s annualized compensation based upon the annual rate of pay for services provided to Employer for the calendar year preceding the calendar year in which Executive has a separation from service (as defined in Code Section 409A and the regulations thereunder) with Employer (adjusted for any increase during that year that was expected to continue indefinitely if the service provider had not separated from service) or (y) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the year in which Executive has a separation from service.

(B)           The Section 409A Exempt Amount or, if less, the excess of the amount provided for under Paragraphs 7(e)(ii)(A) and 7(e)(ii)(B) over the amount paid under Paragraph 7(e)(iii)(A), shall be paid in equal monthly installments over a period of 6 months commencing on the first day of the sixth month following the Employment Termination Date or the expiration of the Employment Term, as applicable, provided that the Employment Termination Date or the expiration of the Employment Term, as applicable, constitutes a separation from service for purposes of Code Section 409A and the regulations thereunder.

(C)           Notwithstanding the foregoing, if Executive separates from service during 2007, any amounts that would have been paid during 2007 under the terms of this Agreement as in effect on the day before the Amendment Date shall be paid at the same time and in the same manner as provided for under this Agreement as in effect on the day before the Amendment Date and the amount provided for under Paragraph 7(e)(iii)(A) less any payments made during 2007 shall be paid between January 1, 2008 and January 10, 2008.

(f)            Termination or Expiration of Employment Term Following Corporate Change.

(i)             If, within the two-year period following a Corporate Change, Executive’s employment with Employer or an Affiliate or successor of Employer is terminated by Employer or an Affiliate for any reason other than death, Inability to Perform, or Cause, is terminated by Executive for Good Reason, or if Employer or an Affiliate or successor of Employer gives timely notice pursuant to Paragraph 3 and Executive’s employment and this Agreement therefore ends upon the expiration of the Employment Term, Executive will be paid the Compensation Payment, the Vacation Payment and any unreimbursed Business Expenses, at the time and in the manner required by applicable law.  In addition, if, within 45 days after the Employment Termination Date or the expiration of the Employment Term, as applicable, Executive has signed a general release agreement in a form acceptable to Employer and Executive does not revoke such release, in lieu of any other payments under Paragraph 7(e)(ii), (A) Executive shall be paid a lump-sum amount equivalent to the sum of (x) 2 times the Executive’s then-current Base Salary, and (y) 2 times the target ICP award for the performance period in which the Corporate Change occurs; (B) with respect to the special bonus arrangement provided to Executive effective August 14, 2006, Executive shall be paid any amounts that remain unpaid as of the Employment Termination Date; and (C) any unvested Employer stock options and restricted stock will be immediately vested and Executive will have twelve months following the Employment Termination Date or expiration of the Employment Term, as applicable, to exercise the Employer stock options, provided that in no event may such stock options be exercised after the earlier of the latest date upon which the options could have expired by their original terms or the 10th anniversary of the original date of grant of the options.

(ii)           The additional payments provided for in Paragraph 7(f)(i)(A) shall be paid in a single lump sum payment no later than 60 days after the Employment Termination Date or the expiration of the Employment Term, as applicable; provided, however, that if the Employment Termination Date or expiration of the Employment Term, as applicable, occurs during 2007, such single lump sum payment shall not be paid during 2007 but shall be paid between January 1, 2008 and January 10, 2008.

(iii)           In the event that it is determined that any payment (other than the Gross-Up payment provided for in this Paragraph 7(f)(iii)) or distribution by Employer or any of its Affiliates to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered “contingent on a change in ownership or control” of Employer, within the meaning of Section 280G of the Code or any successor provision thereto (such tax being hereafter referred to as the “Excise Tax”), then Executive will be entitled to receive an additional payment or payments (a “Gross-Up Payment”).  The Gross-Up Payment will be in an amount such that, after payment by Executive of all taxes, including any Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.  The determination of whether an Excise Tax would be imposed, the amount of such Excise Tax, and the calculation of the amounts referred to in this Paragraph 7(f)(iii) will be made at the expense of Employer by Employer’s regular independent accounting firm (the “Accounting Firm”), which shall provide detailed supporting calculations, and shall be based on the Executive’s actual taxes paid and tax rates applied, determined by reference to the Executive’s tax returns as filed for the relevant year(s), copies of which shall be provided to the Accounting Firm.  Any determination by the Accounting Firm will be binding upon Employer and Executive.  The Gross-Up Payment will be paid to Executive as soon as administratively practicable, but in no event later than the end of the Executive’s taxable year next following the Executive’s taxable year in which Executive remits the related taxes.

(g)           Health Insurance.  In addition, if Executive’s employment with Employer or an Affiliate or successor of Employer is terminated or ends under the circumstances set forth in Paragraph 7(f), Executive will receive, in addition to any other payments due under this Agreement, the following benefit: if, at the time of the Employment Termination Date or the expiration of the Employment Term, as applicable, Executive participates in one or more health plans offered or made available by Employer and Executive is eligible for and elects to receive continued coverage under such plans in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any successor law, Employer will reimburse Executive during 12-month period following the Employment Termination Date or the expiration of the Employment Term, as applicable, for the difference between the total amount of the monthly COBRA premiums for the same coverage as in effect on the Employment Termination Date or the expiration of the Employment Term, as applicable, that are actually paid by Executive for such continued health plan benefits and the total monthly amount of the same premiums charged to active senior executives of Employer for health insurance coverage.  Such reimbursement shall be made within the 90-day period following Executive’s payment of each monthly COBRA premium.  Provided, however, that Employer’s reimbursement obligation under this Paragraph 7(g) shall terminate upon the earlier of (i) the expiration of the time period described above or (ii) the date Executive becomes eligible for health insurance coverage under a subsequent employer’s plan without being subject to any preexisting-condition exclusion under that plan, which occurrence Executive shall promptly report to Employer.  Provided further, however, the amount of COBRA reimbursement during a calendar year may not affect the COBRA expenses eligible for reimbursement in any other calendar year.

(h)           Exclusive Compensation and Benefits.  The compensation and benefits described in this Paragraph 7, along with the associated terms for payment, constitute all of Employer’s obligations to Executive with respect to the termination of Executive’s employment with Employer and/or its Affiliates. However, nothing in this Agreement is intended to limit any earned, vested benefits (other than any entitlement to severance or separation pay, if any) that Executive may have under the applicable provisions of any benefit plan of Employer in which Executive is participating at the time of the termination of employment.

(i)            Compliance with Code Section 409A.  If Employer determines that Executive is a “specified employee” on the date of Executive’s “separation from service,” as those terms are defined in and pursuant to Code Section 409A and related Treasury guidance thereunder, then, notwithstanding any provision of this Agreement to the contrary, no payment of compensation under this Agreement shall be made to Executive during the period lasting six months from the date of Executive’s separation unless Employer determines that there is no reasonable basis for believing that making such payment would cause Executive to suffer adverse tax consequences pursuant to Code Section 409A.  If any payment to Executive is delayed pursuant to the foregoing sentence, such payment instead shall be paid, without interest, on the first business day following the expiration of the six-month period referred to in the prior sentence.  Each aforementioned payment is a separate “payment” within the meaning of Treasury Regulation section 1.409A-2(b)(2)(iii).

(j)            Payment after Executive’s Death.  In the event of Executive’s death after he becomes entitled to a payment or payments pursuant to this Paragraph 7, any remaining unpaid amounts shall be paid, at the time and in the manner such payments otherwise would have been paid to Executive, to such person as Executive shall designate in a written notice to Employer (or, if no such person is designated, to his estate).

(k)           Offset.  The Executive agrees that Employer may set off against, and Executive authorizes Employer to deduct from, any payments due to the Executive, or to his heirs, legal representatives, or successors, as a result of the termination of the Executive’s employment any amounts which may be due and owing to Employer or any of its Affiliates by the Executive, whether arising under this Agreement or otherwise; provided, however, that any such set off and deduction shall be made in a manner that complies with Section 409A of the Code and the regulations thereunder to the extent applicable.

8.             Confidential Information.

(a)           Executive acknowledges and agrees that (i) Employer and its Affiliates are engaged in a highly competitive business; (ii) Employer and its Affiliates have expended considerable time and resources to develop goodwill with their customers, vendors, and others, and to create, protect, and exploit Confidential Information; (iii) Employer must continue to prevent the dilution of its and its Affiliates’ goodwill and unauthorized use or disclosure of its Confidential Information to avoid irreparable harm to its legitimate business interests; (iv) given his position and responsibilities, he is a fiduciary of Rosetta and its Affiliates; (v) his status as a fiduciary and the proper functioning of the legal system require the preservation by him of the Confidential Information during his employment with Rosetta and thereafter; (vi) he is obligated by the Texas Rules of Disciplinary Conduct and the common law during his employment with Rosetta and thereafter to protect and reserve Rosetta and its Affiliates’ Confidential Information and not to use the Confidential Information to the disadvantage of Rosetta or its Affiliates or for his own or a third party’s benefit; (vii) in the oil and gas acquisition, exploration, development and production business, his participation in or direction of Employer’s or its Affiliates’ day-to-day operations, strategic planning, and legal affairs, are an integral part of Employer’s continued success and goodwill; (viii) given his position and responsibilities, he necessarily will be creating Confidential Information that belongs to Employer and enhances Employer’s goodwill, and in carrying out his responsibilities he in turn will be relying on Employer’s goodwill and the disclosure by Employer to him of Confidential Information; (ix) he will have access to Confidential Information that could be used by any Competitor of Employer in a manner that would irreparably harm Employer’s competitive position in the marketplace and dilute its goodwill; and (x) he necessarily would use or disclose Confidential Information if he were to engage in competition with Employer.

(b)           Employer acknowledges and agrees that Executive must have and continue to have throughout his employment the benefits and use of its and its Affiliates’ goodwill and Confidential Information in order to properly carry out his responsibilities.  Employer accordingly promises upon execution and delivery of this Agreement to provide Executive immediate and continuing access to Confidential Information and to authorize him to engage in activities that will create new and additional Confidential Information.

(c)           Employer and Executive thus acknowledge and agree that during Executive’s employment with Employer, and upon execution and delivery of this Agreement, he (i) has received, will receive, and will continue to receive Confidential Information that is unique, proprietary, and valuable to Employer and/or its Affiliates; (ii) has created and will continue to create Confidential Information that is unique, proprietary, and valuable to Employer and/or its Affiliates; and (iii) has benefited and will continue to benefit, including without limitation by way of increased earnings and earning capacity, from the goodwill Employer and its Affiliates have generated and from the Confidential Information.

(d)           Accordingly, Executive acknowledges and agrees that at all times during his employment by Employer and/or any of its Affiliates and thereafter:

(i)             he will comply in all respects with the Texas Disciplinary Rules of Professional Conduct (“Rules”);

(ii)            all Confidential Information shall remain and be the sole and exclusive property of Employer and/or its Affiliates;

(iii)           he will protect and safeguard all Confidential Information;

(iv)          he will hold all Confidential Information in strictest confidence and not, directly or indirectly, disclose or divulge any Confidential Information to any person other than an officer, director, or employee of, or legal counsel for, Employer or its Affiliates, to the extent necessary for the proper performance of his responsibilities unless authorized to do so by Employer or compelled to do so by law or valid legal process, or required to do so by the Rules;

(v)            if he believes he is compelled by law or valid legal process or required by the Rules to disclose or divulge any Confidential Information, he will notify Employer in writing sufficiently in advance of any such disclosure to allow Employer the opportunity to defend, limit, or otherwise protect its interests against such disclosure;

(vi)          at the end of his employment with Employer for any reason or at the request of Employer at any time, he will return to Employer all Confidential Information and all copies thereof, in whatever tangible form or medium, including electronic; and

(vii)         absent the promises and representations of Executive in this Paragraph 8 and in Paragraph 9, Employer would require him immediately to return any tangible Confidential Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement.

9.            Nondisparagement and Nonsolicitation Obligations.  In consideration of Employer’s promises to provide Executive with Confidential Information and to authorize him to engage in activities that will create new and additional Confidential Information upon execution and delivery of this Agreement, and the other promises and undertakings of Employer in this Agreement, Executive agrees that, while he is employed by Employer and/or any of its Affiliates and for a 2-year period following the end of that employment for any reason, he shall not engage in any of the following activities (the “Restricted Activities”):

(a)           He will not directly or indirectly disparage Employer or its Affiliates, any products, services, or operations of Employer or its Affiliates, or any of the former, current, or future officers, directors, or employees of Employer or its Affiliates;

(b)           He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then employed by or otherwise engaged to perform services for Employer or its Affiliates to leave that employment or cease performing those services; and

(c)           He will not, whether on his own behalf or on behalf of any other individual, partnership, firm, corporation or business organization, either directly or indirectly solicit, induce, persuade, or entice, or endeavor to solicit, induce, persuade, or entice, any person who is then a customer, supplier, or vendor of Employer or any of its Affiliates to cease being a customer, supplier, or vendor of Employer or any of its Affiliates or to divert all or any part of such person’s or entity’s business from Employer or any of its Affiliates.

Executive acknowledges and agrees that the restrictions contained in Paragraphs 8 and 9 are designed to and do comply with Executive’s obligations under the Rules; are ancillary to an otherwise enforceable agreement, including without limitation the mutual promises and undertakings set forth in Paragraph 8; that Employer’s promises and undertakings set forth in Paragraph 8 and Executive’s position and responsibilities with Employer give rise to Employer’s interest in restricting Executive’s post-employment activities; that such restrictions are designed to enforce Executive’s promises and undertakings set forth in this Paragraph 9 and his obligations and duties owed to Employer and its Affiliates under the Rules and at common law; that the restrictions are reasonable and necessary, are valid and enforceable under Texas law, and do not impose a greater restraint than necessary to protect Employer’s goodwill, Confidential Information, and other legitimate business interests; that he will immediately notify Employer in writing should he believe or be advised that the restrictions are not, or likely are not, valid or enforceable under Texas law, the Rules, or the law or disciplinary or ethical rules of any other state or regulatory body that he contends or is advised is applicable; that the mutual promises and undertakings of Employer and Executive under Paragraphs 8 and 9 are not contingent on the duration of Executive’s employment with Employer; and that absent the promises and representations made by Executive in this Paragraph 9 and Paragraph 8, Employer would require him to return any Confidential Information in his possession, would not provide Executive with new and additional Confidential Information, would not authorize Executive to engage in activities that will create new and additional Confidential Information, and would not enter or have entered into this Agreement; and that his obligations under Paragraphs 8 and 9 supplement, rather than supplant, his common-law duties of confidentiality and loyalty owed to Employer.

10.           Intellectual Property.

(a)           In consideration of Employer’s promises and undertakings in this Agreement, Executive agrees that all Work Product will be disclosed promptly by Executive to Employer, shall be the sole and exclusive property of Employer, and is hereby assigned to Employer, regardless of whether (i) such Work Product was conceived, made, developed or worked on during regular hours of his employment or his time away from his employment, (ii) the Work Product was made at the suggestion of Employer; or (iii) the Work Product was reduced to drawing, written description, documentation, models or other tangible form.  Without limiting the foregoing, Executive acknowledges that all original works of authorship that are made by Executive, solely or jointly with others, within the scope of his employment and that are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act (17 U.S.C., Section 101), and are therefore owned by Employer from the time of creation.

(b)           Executive agrees to assign, transfer, and set over, and Executive does hereby assign, transfer, and set over to Employer, all of his right, title and interest in and to all Work Product, without the necessity of any further compensation, and agrees that Employer is entitled to obtain and hold in its own name all patents, copyrights, and other rights in respect of all Work Product.  Executive agrees to (i) cooperate with Employer during and after his employment with Employer in obtaining patents or copyrights or other intellectual-property protection for all Work Product; (ii) execute, acknowledge, seal, and deliver all documents tendered by Employer to evidence its ownership thereof throughout the world; and (iii) cooperate with Employer in obtaining, defending, and enforcing its rights therein.

(c)           Executive represents that there are no other contracts to assign inventions or other intellectual property that are now in existence between Executive and any other person or entity.  Executive further represents that he has no other employment or undertakings that might restrict or impair his performance of this Agreement.  Executive will not in connection with his employment by Employer, use or disclose to Employer any confidential, trade secret, or other proprietary information of any previous employer or other person that Executive is not lawfully entitled to disclose.

11.           Reformation.  If the provisions of Paragraphs 8, 9, or 10 are ever deemed by a court to exceed the limitations permitted by applicable law, Executive and Employer agree that such provisions shall be, and are, automatically reformed to the maximum limitations permitted by such law.

12.           Indemnification and Insurance.  Employer shall indemnify Executive to the fullest extent permitted by the laws of the State of Delaware.  In addition, Employer shall indemnify Executive in accordance with Employer’s certificate of incorporation and bylaws and pursuant to Employer’s standard indemnification agreement, and shall provide him with coverage under any directors’ and officers’ liability insurance policies, in each case on terms not less favorable than those provided to any of its other directors and officers as in effect from time to time.

13.           Assistance in Litigation.  During the Employment Term and thereafter for the lifetime of Executive, Executive shall, upon reasonable notice, furnish such information and proper assistance to Employer or any of its Affiliates as may reasonably be required by Employer in connection with any litigation, investigations, arbitrations, and/or any other fact-finding or adjudicative proceedings involving Employer or any of its Affiliates.  This obligation shall include, without limitation, to promptly upon request meet with counsel for Employer or any of its Affiliates and provide truthful testimony at the request of Employer or as otherwise required by law or valid legal process.   Following the Employment Term, Employer shall reimburse Executive for all reasonable out-of-pocket expenses incurred by Executive and approved in advance by Employer in rendering such assistance (such as travel, parking, and meals but not attorney’s fees), but shall have no obligation to compensate Executive for his time in providing information and assistance in accordance with this Paragraph 13, provided that such reimbursement shall be made on or before the last day of the calendar year following the calendar year in which the expense is incurred.

14.           No Obligation to Pay.  With regard to any payment due to Executive under this Agreement, it shall not be a breach of any provision of this Agreement for Employer to fail to make such payment to Executive if (i) Employer is legally prohibited from making the payment; (ii) Employer would be legally obligated to recover the payment if it was made; or (iii) Executive would be legally obligated to repay the payment if it was made.

15.           Deductions and Withholdings.  With respect to any payment to be made to the Executive, Employer shall deduct, where applicable, any amounts authorized by Employee, and shall withhold and report all amounts required to be withheld and reported by applicable law.

16.           Notices.  All notices, requests, demands, and other communications required or permitted to be given or made by either party shall be in writing and shall be deemed to have been duly given or made (a) when delivered personally, or (b) when deposited in the United States mail, first class registered or certified mail, postage prepaid, return receipt requested, to the party for which intended at the following addresses (or at such other addresses as shall be specified by the parties by like notice, except that notices of change of address shall be effective only upon receipt):

(i)            If to Employer, at:

Rosetta Resources Inc.

Attn: Chief Executive Officer

717 Texas

Suite 2800

Houston, Texas 77002

(ii)           If to Executive, at Executive’s then-current home address on file with Employer.

17.           Injunctive Relief.  Executive acknowledges and agrees that Employer would not have an adequate remedy at law and would be irreparably harmed in the event that any of the provisions of Paragraphs 8, 9, and 10 were not performed in accordance with their specific terms or were otherwise breached.  Accordingly, Executive agrees that Employer shall be entitled to equitable relief, including preliminary and permanent injunctions and specific performance, in the event Executive breaches or threatens to breach any of the provisions of such Paragraphs, without the necessity of posting any bond or proving special damages or irreparable injury.  Such remedies shall not be deemed to be the exclusive remedies for a breach or threatened breach of this Agreement by Executive, but shall be in addition to all other remedies available to Employer at law or equity.

18.           Mitigation.  Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by Executive as the result of employment by another employer after the date of termination of Executive’s employment with Employer, or otherwise.

19.           Binding Effect; No Assignment by Executive; No Third Party Benefit.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors, and assigns; provided, however, that Executive shall not assign or otherwise transfer this Agreement or any of his rights or obligations under this Agreement.  Employer is authorized to assign or otherwise transfer this Agreement or any of its rights or obligations under this Agreement to an Affiliate of Employer.  Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any payments or other benefits provided under this Agreement; and no benefits payable under this Agreement shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or pursuant to the laws of descent and distribution.  Nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties, and their respective heirs, legal representatives, successors, and permitted assigns, any rights, benefits, or remedies of any nature whatsoever under or by reason of this Agreement.

20.           Assumption by Successor.  Employer shall ensure that any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of the Employer or the oil and gas acquisition, exploration, development and production business of the Employer, either by operation of law or written agreement, assumes the obligations of this Agreement (the “Assumption Obligation”).  If Employer fails to fulfill the Assumption Obligation, such failure shall be considered Good Reason; provided, however, that the compensation to which Executive would be entitled to upon a termination for Good Reason pursuant to Paragraph 7(e) shall be the sole remedy of Executive for any failure by Employer to fulfill the Assumption Obligation.  As used in this Agreement, “Employer” shall include any successor or assignee (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all the business and/or assets of Employer or the oil and gas exploration, development and production business of the Employer that executes and delivers the agreement provided for in this Paragraph 20 or that otherwise becomes obligated under this Agreement by operation of law.

21.           Legal Fees and Expenses.  Employer will reimburse the Executive for all reasonable legal fees and expenses incurred by the Executive in connection with the review of this Agreement on or after September 1, 2007 and prior to its execution, provided that any such reimbursement shall be made within the same calendar year in which falls the Amendment Date.

22.           Governing Law; Venue.  This Agreement and the employment of Executive shall be governed by the laws of the State of Texas except for its laws with respect to conflict of laws.  The exclusive forum for any lawsuit arising from or related to Executive’s employment or this Agreement shall be a state or federal court in Harris County, Texas.  This provision does not prevent Employer from removing to an appropriate federal court any action brought in state court.  EXECUTIVE HEREBY CONSENTS TO, AND WAIVES ANY OBJECTIONS TO, REMOVAL TO FEDERAL COURT BY EMPLOYER OF ANY ACTION BROUGHT AGAINST IT BY EXECUTIVE.

23.           JURY TRIAL WAIVER.  IN THE EVENT THAT ANY DISPUTE ARISING FROM OR RELATED TO THIS AGREEMENT OR EXECUTIVE’S EMPLOYMENT WITH EMPLOYER RESULTS IN A LAWSUIT, BOTH EMPLOYER AND EXECUTIVE MUTUALLY WAIVE ANY RIGHT THEY MAY OTHERWISE HAVE FOR A JURY TO DECIDE THE ISSUES IN THE LAWSUIT, REGARDLESS OF THE PARTY OR PARTIES ASSERTING CLAIMS IN THE LAWSUIT OR THE NATURE OF SUCH CLAIMS.  EMPLOYER AND EXECUTIVE IRREVOCABLY AGREE THAT ALL ISSUES IN SUCH A LAWSUIT SHALL BE DECIDED BY A JUDGE RATHER THAN A JURY.

24.           Entire Agreement.  This Agreement contains the entire agreement between the parties concerning the subject matter hereof and supersedes all prior agreements and understandings, written and oral, between the parties with respect to the subject matter of this Agreement.

25.           Modification; Waiver.  No person, other than pursuant to a resolution duly adopted by the members of the Board, shall have authority on behalf of Employer to agree to modify, amend, or waive any provision of this Agreement.  Further, this Agreement may not be changed orally, but only by a written agreement signed by the party against whom any waiver, change, amendment, modification or discharge is sought to be enforced.  Executive acknowledges and agrees that no breach by Employer of this Agreement or failure to enforce or insist on its rights under this Agreement shall constitute a waiver or abandonment of any such rights or defense to enforcement of such rights.

26.           Construction.  This Agreement is to be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties.

27.           Severability.  If any provision of this Agreement shall be determined by a court to be invalid or unenforceable, the remaining provisions of this Agreement shall not be affected thereby, shall remain in full force and effect, and shall be enforceable to the fullest extent permitted by applicable law.

28.           Counterparts.  This Agreement may be executed by the parties in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement.

IN WITNESS WHEREOF, Employer has caused this Agreement to be executed on its behalf by its duly authorized officer, and Executive has executed this Agreement, effective as of the Amendment Date first set forth above.

EMPLOYER	EXECUTIVE
ROSETTA RESOURCES INC.	MICHAEL H. HICKEY
By:
RANDY L. LIMBACHER
PRESIDENT & CHIEF EXECUTIVE OFFICER

EX-10.39

Exhibit 10.39

ROSETTA RESOURCES INC.

2005 LONG-TERM INCENTIVE PLAN

PERFORMANCE SHARE UNIT AWARD AGREEMENT

THIS AGREEMENT, made and entered into as of the ___ day of [MONTH], [YEAR], is entered into by and between ROSETTA RESOURCES INC., a Delaware corporation (“Rosetta”), and [NAME], an employee, outside director or other service provider of Rosetta or one of its Affiliates (“Participant”).

WHEREAS, the Compensation Committee of Rosetta’s Board of Directors or such other committee designated by Rosetta’s Board of Directors (the “Committee”), acting under Rosetta’s 2005 Long-Term Incentive Plan, as amended from time to time (the “Plan”), has the authority to award performance awards in the form of performance share units representing hypothetical shares of Rosetta’s common stock (“PSUs”), with each PSU equal in value to one share of the Company’s $0.001 par value per share (a “Share”), to certain employees, directors or other individuals providing services to Rosetta or an Affiliate; and

WHEREAS, pursuant to the Plan, the Committee has determined to make such an award to Participant on the terms and conditions and subject to the restrictions set forth in the Plan and this Agreement, and Participant desires to accept such award;

NOW, THERFORE, in consideration of the premises and mutual covenants and agreements contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1.            Performance Share Unit Award.  On the terms and conditions and subject to the restrictions, including forfeiture, hereinafter set forth, Rosetta hereby awards to Participant, and Participant hereby accepts, a PSU award (the “Award”) of [NUMBER] PSUs (the “Performance Units”).  The Award is made effective as of the date of this Agreement (the “Effective Date”).

2.             Vesting and Forfeiture.

(a)           Performance Period.  The Performance Period in which the Performance Objectives (as provided in paragraph (b)(i) of this Section 2) are measured shall begin on [DATE] and end on [DATE].

(b)           Restrictions

(i)            Performance Objectives.  The interest of the Participants in the Performance Units shall vest as the Committee determines in its sole discretion, to the extent that the “Performance Objectives” set forth in Appendix A are met and after considering other circumstances, if any, that the Committee determines should apply.

(ii)           Transfer Restrictions.  The Performance Units shall be subject to forfeiture by Participant to Rosetta as provided in this Agreement, and Participant may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of any of the Performance Units, other than by will or pursuant to the applicable laws of descent and distribution(the “Transfer Restrictions”).  Following the settlement of the Performance Units for Shares, as the Committee determines in its discretion, the Participant shall be free to sell, transfer, pledge, exchange, hypothecate or otherwise dispose of such Shares, subject to applicable securities laws and the policies of Rosetta then in effect.  Furthermore, Rosetta shall not be required to treat as an owner of Performance Units, and associated benefits hereunder, any transferee to whom such Performance Units or benefits shall have been so transferred.

(iii)           Service Requirement.  Except as otherwise provided in this paragraph (b)(iii) of Section 2, upon termination of Participant’s employment or service with Rosetta or any Affiliate prior to the time that the Committee certifies the extent to which the performance goals and other material terms of this Award has been achieved or satisfied for the Performance Period, Participant shall forfeit all Performance Units granted under this Award and any rights with respect thereto (the “Service Requirement”).

(A)           Termination with Good Reason or for Reasons Other Than Cause.  If during the Performance Period Participant’s employment is terminated by Rosetta other than for Cause, or by Participant for Good Reason (“Cause” and/or “Good Reason,” as defined in the Participant’s employment agreement with the Company, if applicable, or if the Participant has not entered into an employment agreement with the Company, in the Rosetta Resources Inc. Executive Severance Plan), the Committee may exercise its discretion to accelerate the vesting of the Performance Units granted to such Participant; provided that the condition to such acceleration of vesting shall be that the Participant executes and delivers to Rosetta, and does not revoke, a waiver and release agreement in a form satisfactory to Rosetta within two months of Participant’s date of termination (an “Effective Release”).

(c)           Vesting

(i)            Except for Performance Units that are earlier vested under paragraph (b)(iii)(A) of this Section 2 or in the event of a Corporate Change (as defined in the Plan), as provided in paragraph (d) of this Section 2, at the end of the Performance Period, the Committee shall determine in its sole discretion whether the Performance Objectives set forth in paragraph (b)(i) of this Section 2 have been met and the number of Performance Units that will vest in accordance with the level of achievement of such Performance Objectives.  Participant may receive from zero percent (0%) to two hundred percent (200%) of the Performance Units set forth in Section 1.

(ii)           Upon the vesting of the Performance Units, Participant shall be entitled to receive, as soon as administratively practicable, but not later than thirty (30) days after such vesting event, Shares, cash or a combination of Shares and cash, as the Committee determines in its sole discretion, equal to the number of Performance Units that have vested.  If the Performance Units are settled in cash, in full or in part, prior to the end of the Performance Period, the cash settlement shall be based upon the Fair Market Value (as defined in the Plan) of a Share on the date of vesting. If the Performance Units are settled in cash, in full or in part, after the end of the Performance Period, the cash value shall be based on the Fair Market Value of a Share as of the last trading day of the Performance Period.

(d)           Corporate Change.  After a Corporate Change, the Performance Objectives shall be deemed to be met at target; provided that the Transfer Restrictions and Service Requirements will continue until the end of the Performance Period; provided further that the Service Requirements shall end at the end of the Performance Period and not at the time when the Committee certifies that the Performance Objectives have been met.  For the avoidance of doubt, after a Corporate Change, this grant of Performance Units shall convert to a time-vested grant of Performance Units, rather than based on the achievement of Performance Objectives and restrictions on the Performance Units shall lapse as to the number of Performance Units set forth in Section 1 at the end of the Performance Period if Participant remains employed by the Company until the end of the Performance Period, unless earlier vested under paragraph (d)(i) of this Section 2.

(i)            Termination with Good Reason or for Reasons Other Than Cause after a Corporate Change.  If after a Corporate Change and prior to the end of the Performance Period Participant’s employment is terminated by Rosetta other than for Cause, or by Participant for Good Reason, all Performance Units granted to such Participant in Section 1 hereunder shall immediately be 100% vested conditioned  upon the Participant providing to Rosetta an Effective Release.

3.             No Rights as Stockholder.

(a)           PSUs represent hypothetical Shares, subject to attainment of specified performance conditions.  The Participant shall not be entitled to any of the rights or benefits generally accorded to stockholders.

(b)           Upon the lapse of restrictions, if Rosetta determines, in its sole discretion, to issue a Share for each vested Performance Unit pursuant to paragraph (c)(ii) of Section 2, such Shares shall be released into an unrestricted book entry account with Rosetta’s transfer agent; provided, however, that a portion of such Shares shall be surrendered in payment of required withholding taxes, if necessary and in accordance with Section 4 below, unless Rosetta, in its sole discretion, establishes alternative procedures for the payment of required withholding taxes.

4.             Withholding Taxes.

(a)           Participant (or in the event of Participant’s death, the administrator or executor of Participant’s estate) will pay to Rosetta or the appropriate Affiliate, or make arrangements satisfactory to Rosetta or such Affiliate regarding payment of, any federal, state or local taxes of any kind required by law to be withheld with respect to the cash or Shares in settlement of the Performance Units.

(b)           Any provision of this Agreement to the contrary notwithstanding, if Participant does not satisfy his or her obligations under paragraph (a) of this Section 4, Rosetta shall, to the extent permitted by law, have the right to deduct from any payments made under the Plan, regardless of the form of such payment, or from any other compensation payable to Participant, whether or not pursuant to this Agreement or the Plan and regardless of the form of payment, any federal, state or local taxes of any kind required by law to be withheld with respect to the cash or Shares in settlement of the Performance Units.

5.             Reclassification of Performance Units.  In the event of any reorganization, recapitalization, stock split, stock dividend, merger, consolidation, combination of shares or other change affecting the Common Stock, the Committee shall make such adjustments as it may deem appropriate with respect to the Performance Units.  Any such adjustments made by the Committee shall be conclusive.

6.             Effect on Employment.  Nothing contained in this Agreement shall confer upon Participant the right to continue in the employment or service of Rosetta or any Affiliate, or affect any right which Rosetta or any Affiliate may have to terminate the employment or service of Participant.  This Agreement does not constitute evidence of any agreement or understanding, express or implied, that Rosetta or any Affiliate will retain Participant as a Participant for any period of time or at any particular rate of compensation.

7.             Assignment.  Rosetta may assign all or any portion of its rights and obligations under this Agreement.  The Award, the Performance Units and the rights and obligations of Participant under this Agreement are subject to the Transfer Restrictions in paragraph (c)(ii) of Section 2.

8.            Binding Effect.  This Agreement shall be binding upon and inure to the benefit of (i) Rosetta and its successors and assigns, and (ii) Participant and his or her heirs, devisees, executors, administrators and personal representatives.

9.            Notices.  All notices between the parties hereto shall be in writing and given in the manner provided in Section 15.7 of the Plan.  Notices to Participants shall be given to Participant’s address as contained in Rosetta’s records.  Notices to Rosetta shall be addressed to its General Counsel at the principal executive offices of Rosetta as set forth in Section 15.7 of the Plan.

10.           Governing Law; Exclusive Forum; Consent to Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws (and not the principles relating to conflicts of laws) of the State of Texas, except as superseded by applicable federal law.  The exclusive forum for any action concerning this Agreement or the transactions contemplated hereby shall be in a court of competent jurisdiction in Harris County, Texas, with respect to a state court, or the United States District Court for the Southern District of Texas, Houston Division, with respect to a federal court.  PARTICIPANT HEREBY CONSENTS TO THE EXERCISE OF JURISDICTION OF A COURT IN THE EXCLUSIVE FORUM AND WAIVES ANY RIGHT HE OR SHE MAY HAVE TO CHALLENGE OR CONTEST THE REMOVAL AT ANY TIME BY THE COMPANY OR ANY OF ITS AFFILIATES TO FEDERAL COURT OF ANY SUCH ACTION HE OR SHE MAY BRING AGAINST IT IN STATE COURT.

11.           The Plan.

(a)           Agreement.  The Plan is incorporated herein by reference. The Plan and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of Rosetta and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s interest except by means of a writing signed by Rosetta and Participant.

(b)           Receipt of the Plan.  Participant acknowledges receipt of a copy of the Plan currently in effect and the Plan prospectus and agrees to receive stockholder information, including copies of any annual report, proxy and Form 10-K from the investor relations section of Rosetta’s website at www.rosettaresources.com.  Alternatively, Participant may request to receive the information in this Section 11 upon written or telephonic request to Rosetta’s Corporate Secretary.

IN WITNESS WHEREOF, Rosetta and Participant have executed this Agreement as of the date first written above.

ROSETTA RESOURCES INC.
By:
Randy L. Limbacher
President and Chief Executive Officer
PARTICIPANT
	[NAME]

APPENDIX A

Performance Objectives

Performance Metric	Performance Goal on 12/31/11
Mcfe Reserves per Share	9.7
Inventory / Proved Reserves Multiple	2.0
Percentage Change in Cash Flow Multiple	Higher Percentage Change than the
S&P 400 Oil & Gas Exploration &
Production Index

EX-10.40

Exhibit 10.40

ROSETTA RESOURCES, INC. EXECUTIVE CHANGE-IN-CONTROL PLAN

This Rosetta Resources, Inc. Executive Change-in-Control Plan (the “Plan”), is effective as of July 1, 2008 (the “Effective Date”).

WHEREAS, Rosetta Resources, Inc. (the “Employer”), wishes to employ certain individuals in executive level positions;

WHEREAS, it is the intent of the Employer that the Plan shall constitute an unfunded severance plan, and to the extent applicable, an unfunded nonqualified deferred compensation arrangement; and

WHEREAS, in order to retain the services of such individuals, the Employer desires to provide certain severance benefits as provided herein;

NOW, THEREFORE, the Employer hereby establishes the Plan as follows:

ARTICLE I

DEFINITIONS.

As used in this Plan, the following terms have the following meanings:

(a)           “Affiliate” means, with respect to any entity, any other corporation, organization, association, partnership, sole proprietorship or other type of entity, whether incorporated or unincorporated, directly or indirectly controlling or controlled by or under direct or indirect common control with such entity.

(b)           “Base Salary” means the amount of Executive’s regular annual salary, paid periodically and not based on performance, as reflected in the Employer’s payroll records.

(c)           “Board” means the Board of Directors of the Employer.

(d)           “Cause” means a finding by the Committee of acts or omissions while employed by the Employer, constituting, in the Committee’s sole discretion, (i) a breach of duty by Executive in the course of Executive’s employment involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty to Employer or its Affiliates, or moral turpitude constituting criminal felony; (ii) conduct by Executive that is materially detrimental to Employer, monetarily or otherwise, or reflects unfavorably on Employer or Executive to such an extent that Employer’s best interests reasonably require the termination of Executive’s employment; (iii)  Executive’s failure to comply with or enforce Employer’s policies concerning equal employment opportunity, including engaging in sexually or otherwise harassing conduct; (iv) Executive’s repeated insubordination; (v) Executive’s failure to comply with or enforce, in any material respect, all other personnel policies of Employer or its Affiliates; (vi) Executive’s failure to devote Executive’s full working time and best efforts to the performance of Executive’s responsibilities to Employer or its Affiliates; (vii) Executive’s conviction of, or entry of a plea agreement or consent decree or similar arrangement with respect to a felony or any violation of federal or state securities laws; or (viii) Executive’s failure to cooperate with any investigation or inquiry authorized by the Committee or conducted by a governmental authority related to the business or Executive’s conduct.

(e)           “Change in Control” means a Corporate Change in which (i) individuals who were directors of Employer immediately prior to a Control Transaction shall cease, within two years of such Control Transaction to constitute a majority of the Board of Directors of Employer (or of the Board of Directors of any successor to Employer or to a company which has acquired all or substantially all its assets) other than by reason of an increase in the size of the membership of the applicable Board that is approved by at least a majority of the individuals who were directors of Employer immediately prior to such Control Transaction or (ii) any entity, person or Group acquires shares of Employer in a transaction or series of transactions that result in such entity, person or Group directly or indirectly owning beneficially 50% or more of the outstanding shares of Common Stock.

(f)           “Code” means the Internal Revenue Code of 1986, as amended.

(g)           “Committee” means the Compensation Committee of the Board of Directors.

(h)           “Corporate Change” means (i) the dissolution or liquidation of Employer; (ii) a reorganization, merger or consolidation of Employer with one or more corporations (other than a merger or consolidation effecting a reincorporation of Employer in another state or any other merger or consolidation in which the shareholders of the surviving corporation and their proportionate interests therein immediately after the merger or consolidation are substantially identical to the shareholders of Employer and their proportionate interests therein immediately prior to the merger or consolidation) (collectively, a “Corporate Change Merger”); (iii) the sale of all or substantially all of the assets of Employer or an affiliate as defined in the Rosetta Resources Inc. 2005  Long-Term Incentive Plan; or (iv) the occurrence of a Change in Control.

(i)            “Control Transaction” means (i) any tender offer for or acquisition of capital stock of Employer pursuant to which any person, entity, or Group directly or indirectly acquires beneficial ownership of 20% or more of the outstanding shares of Common Stock; (ii) any Corporate Change Merger of Employer; (iii) any contested election of directors of Employer; or (iv) any combination of the foregoing, any one of which results in a change in voting power sufficient to elect a majority of the Board of Directors of Employer.

(j)            “Covered Termination” means: (1) the termination of an Executive’s employment with the Employer for any reason other than death, Inability to Perform, or for Cause; or (2) the resignation of the Executive from such employment with Good Reason.

(k)           “Eligible Executive” means an Executive who has experienced a Covered Termination.

(l)            “Employment Termination Date” means the effective date of termination of Executive’s employment pursuant to Employer policies and applicable law.

(m)           “Executive” means an individual employed by the Employer in the position of Vice President or higher, who has been designated by the Committee to be eligible to participate in the Plan, or who has accepted a written offer of employment which includes eligibility for participation in this Plan, and who commences employment in such position and capacity as a full-time employee of the Employer.   A list of all individuals designated as Executives at any given time shall be appended as Appendix A to the Plan.  Once designated on Appendix A as an Executive under the Plan, such Executive shall remain so designated and shall continue to be an Executive hereunder until the earliest to occur of (i) the date on which such Executive is removed from Appendix A by action of the Committee or by the Board, (ii) such Executive’s termination of employment for any reason, or (iii) the death of the Executive.

(n)           “Good Reason” means any of the following actions if taken without Executive’s prior written consent: (i) following the designation of an Executive by the Compensation Committee on Appendix A to the Plan, any reduction of the multiple or percentage applicable to an Executive, or removal of Executive, through a subsequent amendment to Appendix A to the Plan, (ii) a material diminution in Executive’s base compensation; or (iii) any permanent relocation of Executive’s place of business to a location 50 miles or more from the then-current location, provided such relocation is a material change in geographic location at which Executive must provide substantial services for purposes of Section 409A.  Neither a transfer of employment among Employer and any of its Affiliates, a change in the co-employment relationship, nor a mere change in job title constitutes “Good Reason.”  To exercise the right hereunder to terminate for Good Reason, Executive must provide Notice of Termination to Employer of his belief that Good Reason exists within 60 days of the initial existence of the Good Reason condition, and that notice shall describe the condition(s) believed to constitute Good Reason.  Employer shall have 30 days to remedy the Good Reason condition(s).  If not remedied within that 30-day period, Executive may submit a Notice of Termination; provided, however, that the Notice of Termination invoking Executive’s right to terminate his employment for Good Reason must be given no later than 100 days after the date the Good Reason condition first arose; otherwise, Executive is deemed to have accepted the condition(s), or the Employer’s correction of such condition(s), that may have given rise to the existence of Good Reason.

(o)           “Group” means persons who act “in concert” as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.

(p)           “Inability to Perform” means and shall be deemed to have occurred if Executive has been determined under Employer’s long-term disability plan to be eligible for long-term disability benefits.  In the absence of Executive’s participation in, application for benefits under, or existence of such a plan, “Inability to Perform” means a finding by the Committee in its sole discretion that Executive is, despite any reasonable accommodation required by law, unable to perform the essential functions of Executive’s position because of an illness or injury for (i) 60% or more of the normal working days during six consecutive calendar months or (ii) 40% or more of the normal working days during twelve consecutive calendar months.

(q)           “Notice of Termination” means a written notice that shall (i) indicate the specific termination provision in this Plan relied upon; (ii) in the case of a termination for Inability to Perform, Cause, or Good Reason, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision invoked; and (iii) if the termination is by Executive for Good Reason, or by Employer for any reason, specify the Employment Termination Date.  The failure by Employer or Executive to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Cause or Good Reason shall not waive any right of Employer or Executive or preclude either of them from asserting such fact or circumstance in connection with a claim or appeal for benefits under this Plan.

(r)            “Section 409A” means Section 409A of the Code and the regulations promulgated thereunder, and any other applicable Treasury guidance, as in effect at the time any payment or other action is to be taken under this Plan.

(s)           “Separation Agreement” means a general release agreement in a form acceptable to Employer which is not revoked by Eligible Executive prior to the date it becomes effective.

ARTICLE II

EMPLOYMENT.

Executives under this Plan shall be employed on an at-will basis, to the maximum extent permitted by applicable law.  This Plan shall not, and shall not be construed or interpreted as, creating a contract of employment with any person.

ARTICLE III

COMPENSATION UPON TERMINATION OF EMPLOYMENT

(a)           Termination of Employment for Any Reason.  If Executive’s employment is terminated, Employer shall pay to Executive (or in the case of death of Executive, to such person as Executive shall designate in a written notice to Employer or, if no such person is designated, to Executive’s estate) any unpaid portion of Executive’s Base Salary through the Employment Termination Date, any earned but unused vacation according to Employer’s policies then in effect, and any unreimbursed business expenses, at the time and in the manner required by applicable law, but in no event later than March 15 of the year following the year of the Executive’s death or termination of employment.

(b)           Termination Following Corporate Change.

(1)           If, within the two-year period following a Corporate Change, Executive’s employment with Employer or an Affiliate or successor of Employer is terminated due to a Covered Termination, Executive will be paid the payments described in Section (a) of Article III of this Plan.  In addition, if, within 21 or 45 days after the Employment Termination Date, as applicable, Executive has signed a Separation Agreement and Executive does not revoke such Separation Agreement, in lieu of any payments under Section (b) of Article III of the Rosetta Resources Inc. Executive Severance Plan, Eligible Executive shall be entitled to receive the following amounts:

(A)           The designated percentage or multiple, as set forth in Appendix A to the Plan as of the Employment Termination Date of such Executive, multiplied times the Eligible Executive’s Base Salary in effect on the Employment Termination Date;

(B)           The designated percentage or multiple, as set forth in Appendix A to the Plan as of the Employment Termination Date of such Executive, multiplied times the Executive’s target performance bonus percentage for one year, utilizing the greater of (i) the target performance bonus percentage for the performance period in effect on the Employment Termination Date, or (ii) the target performance bonus percentage for the performance period in effect on the day preceding the date of the Corporate Change;

(C)           Full and immediate vesting of all Employer stock options and restricted stock awards held by Eligible Executive as of the Employment Termination Date;

(D)           With respect to Employer stock options that are vested as of the Employment Termination Date, Executive may exercise those options according to the terms of the Rosetta Resources Inc. 2005 Long-Term Incentive Plan.

(2)           The additional payments provided for in Sections (a) and (b) of this Article III shall be paid in a single lump-sum payment no later than 60 days after the Employment Termination Date, but in no event shall such single lump sum payment be paid later than the March 15 of the year following the year in which the Executive’s Termination of Employment occurs.

(3)           In the event that it is determined that any payment (other than the Gross-Up Payment provided for in this Section (b)(3) of this Article III) or distribution by Employer or any of its Affiliates to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered “contingent on a change in ownership or control” of Employer, within the meaning of Section 280G of the Code or any successor provision thereto (such tax being hereafter referred to as the “Excise Tax”), then Executive will be entitled to receive an additional payment or payments (a “Gross-Up Payment”).  The Gross-Up Payment will be in an amount such that, after payment by Executive of all taxes, including any Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.  For purposes of determining the amount of the Gross-Up Payment, Executive will be considered to pay (x) federal income taxes at the highest rate in effect in the year in which the Gross-Up Payment will be made and (y) state and local income taxes at the highest rate in effect in the state or locality in which the Gross-Up Payment would be subject to state or local tax, net of the maximum reduction in federal income tax that could be obtained from deduction of such state and local taxes.  The determination of whether an Excise Tax would be imposed, the amount of such Excise Tax, and the calculation of the amounts referred to in this Section (a)(3) of this Article III will be made at the expense of Employer by Employer’s regular independent accounting firm (the “Accounting Firm”), which shall provide detailed supporting calculations.  Any determination by the Accounting Firm will be binding upon Employer and Executive.  The Gross-Up Payment will be paid to Executive as soon as administratively practicable following, but no later than the end of the calendar year in which falls the date on which Executive remits the related taxes, but in no event later than December 31 of the second year following the year in which the Executive’s termination of employment occurs.

(c)           COBRA Reimbursement.  In addition, if Executive’s employment with Employer or an Affiliate or successor of Employer is terminated or ends under the circumstances set forth in Section (b) of this Article III, and if Executive has signed a Separation Agreement and does not revoke such Separation Agreement as provided therein, Executive will receive, in addition to any other payments due under this Plan, the following benefit: if, at the time of the Employment Termination Date, Executive participates in one or more group health plans offered or made available by Employer and Executive is eligible for and elects to receive continued coverage under such plans in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or any successor law, Employer will reimburse Executive during the 12-month period following the Employment Termination Date, for the difference between the total amount of the monthly COBRA premiums for the same coverage as in effect on the Employment Termination Date, that are actually paid by Executive for such continued health plan benefits and the total monthly amount of the same premiums charged to active senior executives of Employer for health insurance coverage.  Such reimbursement shall be made within the 90-day period following Executive’s payment of each monthly COBRA premium.  Provided, however, that Employer’s reimbursement obligation under this Section (c) shall terminate upon the earlier of (i) the expiration of the time period described above or (ii) the date Executive becomes eligible for health insurance coverage under a subsequent employer’s group health plan without being subject to any preexisting-condition exclusion under that plan, which occurrence Executive shall promptly report to Employer.

(d)           Exclusive Compensation and Benefits.  The compensation and benefits described in this Article, along with the associated terms for payment, constitute all of Employer’s obligations to Executive with respect to the termination of Executive’s employment with Employer and/or its Affiliates. However, nothing in this Plan is intended to limit any earned, vested benefits that Executive may have under the applicable provisions of any benefit plan of Employer in which Executive is participating at the time of the termination of employment.

(e)           Compliance with Section 409A.  It is the intent of this Plan to comply with the requirements of Section 409A so that none of the payments and benefits to be provided hereunder will be subject to the income recognition, additional tax and interest imposed under Section 409A, and any ambiguities herein will be interpreted to so comply. Employer shall not be liable to Executive for any adverse tax consequences imposed upon Executive as a result of Section 409A.  Payments under the Plan shall be made only on the date or dates provided herein, and no acceleration or deferral of any such payments shall be made either by the Employer or at the request of the Executive.

(f)            Specified Employee Determination and Payment.  If Employer determines that Section 409A applies to payments to an Executive under this Plan, and such Executive is a “specified employee” on the date of Executive’s “separation from service,” as those terms are defined in and pursuant to Section 409A, then, notwithstanding any provision of this Plan to the contrary, no payment of compensation under this Plan which has been determined to be a payment of “deferred compensation” within the meaning of Section 409A shall be made to Executive during the period lasting six months from the date of Executive’s separation from service unless Employer determines that there is no reasonable basis for believing that making such payment would cause Executive to suffer adverse tax consequences pursuant to Section 409A.  If any payment to Executive is delayed pursuant to the foregoing sentence, such payment instead shall be paid, without interest, on the first business day following the expiration of the six-month period referred to in the prior sentence.

(g)           Payment after Executive’s Death.  In the event of Executive’s death after Executive becomes entitled to a payment or payments pursuant to this Article III, any remaining unpaid amounts shall be paid, at the time and in the manner such payments otherwise would have been paid to Executive, to such person as Executive shall designate in a written notice to Employer (or, if no such person is designated, to Executive’s estate).  Notwithstanding anything herein to the contrary, an Executive who has been determined to be a “specified employee” who dies following such Executive’s “separation from service”, as provided in Section 409A, but prior to the six (6) month anniversary of the date of Executive’s “separation from service,” then any amounts payable under this Plan which are determined by the Employer to be subject to Section 409A, payment of which is delayed in accordance with this Article III, will be payable in a lump sum as soon as administratively practicable after the date of Executive’s death and all other amounts payable under this Plan will be payable in accordance with the payment schedule applicable to each payment or benefit.

(h)           Offset.  To the maximum extent permitted by applicable law, Employer may set off against, and Executive authorizes Employer to deduct from, any payments due to the Executive, or to Executive’s heirs, legal representatives, or successors, as a result of the termination of the Executive’s employment any amounts which may be due and owing to Employer or any of its Affiliates by the Executive, whether arising under this Plan or otherwise; provided, however, that any such set off and deduction shall be made in a manner that complies with Section 409A and other laws, to the extent applicable.

ARTICLE IV

NO OBLIGATION TO PAY.

With regard to any payment due to Executive under this Plan, to the maximum extent permitted by applicable law, it shall not be a breach of any provision of this Plan for Employer to fail to make such payment to Executive if (i) Employer is legally prohibited from making the payment; (ii) Employer would be legally obligated to recover the payment if it was made; or (iii) Executive would be legally obligated to repay the payment if it was made.

ARTICLE V

DEDUCTIONS AND WITHHOLDINGS

With respect to any payment to be made to the Executive, Employer shall deduct, where applicable, any amounts authorized by Employee, and shall withhold and report all amounts required to be withheld and reported by applicable law.

ARTICLE VI

NOTICES.

(a)           All notices, requests, demands, and other communications required or permitted to be given or made by either party shall be in writing and shall be deemed to have been duly given or made (1) when delivered personally, or (2) when deposited in the United States mail, first class registered or certified mail, postage prepaid, return receipt requested, to the party for which intended at the following addresses (or at such other addresses as shall be specified by the parties by like notice, except that notices of change of address shall be effective only upon receipt):

(b)            If to Employer, at:

Rosetta Resources Inc.

Attn: General Counsel

717 Texas, Suite 2800

Houston, Texas 77002

(c)            If to Executive, at Executive’s then-current home address on file with Employer.

ARTICLE VII

MITIGATION.

Executive shall not be required to mitigate the amount of any payment provided for in this Plan by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Plan be reduced by any compensation earned by Executive as the result of employment by another employer after the date of termination of Executive’s employment with Employer, or otherwise.

ARTICLE VIII

BENEFITS UNASSIGNABLE.

Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any payments or other benefits provided under this Plan; and no benefits payable under this Plan shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or pursuant to the laws of descent and distribution.

ARTICLE IX

AMENDMENT AND TERMINATION.

The Employer may amend or terminate this Plan at any time by action of the Board, subject to the rights of any Eligible Executive who has incurred a Covered Termination as of the date of such amendment or termination.

ARTICLE X

GOVERNING LAW; VENUE.

This Plan shall be governed by the laws of the State of Texas except for its laws with respect to conflict of laws, and except to the extent preempted by any federal law.  The exclusive forum for any lawsuit arising from or related to Executive’s employment or this Plan shall be a state or federal court in Harris County, Texas.  To the extent this Plan is governed by federal law, nothing herein shall prevent or prohibit Employer from removing to an appropriate federal court any action brought in state court.

ARTICLE XI

ADMINISTRATION, CLAIMS, APPEALS, EXHAUSTION REQUIREMENT.

(a)           Plan Administrator.  The overall responsibility for the administration and control of this Plan resides with the Committee.

(b)           Powers.  The Committee has the following authority with respect to the Plan:

(1)           The responsibility for the day to day administration and operation of the Plan;

(2)           The authority to issue and implement such rules as the Committee deems appropriate to administer the Plan;

(3)           The authority to interpret the Plan’s provisions, and to make factual determinations under the Plan, including but not limited to, the power to determine eligibility for payments hereunder, and the right to resolve and determine ambiguities, inconsistencies, and omissions in the provisions hereof;

(4)           The authority to appoint or designate such person or persons as the Committee deems necessary or advisable to carry out the administrative duties hereunder.

(c)           Claims.   The Committee shall have the power and authority to determine claims for payments under the Plan, and shall make all factual determinations under the Plan in relation to any claim, or as otherwise required in this Plan.  Except as otherwise provided herein, the Executive (“claimant”) may make a claim for payment hereunder, or a claim contesting a factual determination hereunder, within 30 days of receipt of notice of such factual determination, or of any event giving rise to the existence of a right of payment under this Plan.  The Committee shall make a determination on a claim hereunder within 30 days of the receipt of a claim for payments under this Plan, and the claimant shall have the right to submit documentation or other evidence to the Committee in support of such claim.  The Committee may, by written notice to the claimant within the original 30 day claim period, have an additional 30 days in which to make a decision on the initial claim.  If the Committee does not provide a notice of extension or a decision on the initial claim within the time limits provided in this Article, the claim will be deemed denied for purposes of this Article.

(d)           Appeal of Denied Claim.  If a claim under Section (c) of this Article is denied or deemed denied, the claimant may file a written appeal with the full Board.  The claimant shall have the right to submit any additional documentation or other evidence to the Board in support of such appeal.  The Board shall make its decision and provide notice thereof in writing to the claimant within 30 days of the receipt of the appeal.  Provided, however, the Board may, by written notice to the claimant within the original 30 day appeal  period, have an additional 30 days  in which to make a decision on the initial appeal.  If the Board does not provide a notice of extension or a decision on the initial appeal within the time limits provided in this Article, the claim will be deemed denied for purposes of this Article.

(e)           Contents of Notice of Denied Claim or Appeal.   Notice of any denied claim or appeal provided by the Committee or the Board, as appropriate, shall be in writing, and shall contain the following, at a minimum:

(1)           The facts determined, claim determination made or decision on appeal (herein, the “determination”);

(2)           A summary of the facts on which the determination was based;

(3)           The relevant provisions of this Plan on which the determination was based;

(4)           If appropriate, a description of any information or documentation required to complete the claimant’s claim; and

(5)           A description of the claimant’s appeal rights, if any.

(f)            Exhaustion of Administrative Remedy Required.  Executive may not bring a proceeding in any court under this Plan, or intended to enforce any provision of this Plan, without first having exhausted the administrative remedies provided herein.

(g)           Limitation of Actions.   No action may be brought to enforce any provision of this Plan after twelve (12) months following the denial of the later of: (i) the claimant’s claim under Section (c) of this Article XI, or (ii) the denial of the appeal provided for in Section (d) of this Article XI.

ARTICLE XII

TREATMENT OF PLAN UNDER ERISA.

Is the intent of the Employer, and this Plan shall be interpreted, construed and operated such that, this Plan shall be a “top-hat” plan exempt from certain provisions of ERISA, as provided in and within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, as appropriate.  Benefits under this Plan shall be paid solely out of the general assets of the Employer and shall constitute an unsecured obligation of the Employer.

IN WITNESS WHEREOF, Employer has caused this Plan to be executed on its behalf by its duly authorized officer, and such duly authorized officer has executed this Plan, effective as of the Effective Date first set forth above.

EMPLOYER

ROSETTA RESOURCES INC.

By:

RANDY L. LIMBACHER

PRESIDENT & CHIEF EXECUTIVE OFFICER

EX-10.41

Exhibit 10.41

ROSETTA RESOURCES INC. EXECUTIVE SEVERANCE PLAN

This Rosetta Resources, Inc. Executive Severance Plan (the “Plan”), is effective as of July 1, 2008 (the “Effective Date”).

WHEREAS, Rosetta Resources Inc. (the “Employer”), wishes to employ certain individuals in executive level positions;

WHEREAS, it is the intent of the Employer that the Plan shall constitute an unfunded severance plan, and to the extent applicable, an unfunded nonqualified deferred compensation arrangement; and

WHEREAS, in order to retain the services of such individuals, the Employer desires to provide certain severance benefits as provided herein;

NOW, THEREFORE, the Employer hereby establishes the Plan as follows:

ARTICLE I

DEFINITIONS.

As used in this Plan, the following terms have the following meanings:

(a)               “Affiliate” means, with respect to any entity, any other corporation, organization, association, partnership, sole proprietorship or other type of entity, whether incorporated or unincorporated, directly or indirectly controlling or controlled by or under direct or indirect common control with such entity.

(b)           “Base Salary” means the amount of Executive’s regular annual salary, paid periodically and not based on performance, as reflected in the Employer’s payroll records.

(c)           “Board” means the Board of Directors of the Employer.

(d)           “Cause” means a finding by the Committee of acts or omissions while employed by the Employer, constituting, in the Committee’s sole discretion, (i) a breach of duty by Executive in the course of Executive’s employment involving fraud, acts of dishonesty (other than inadvertent acts or omissions), disloyalty to Employer or its Affiliates, or moral turpitude constituting criminal felony; (ii) conduct by Executive that is materially detrimental to Employer, monetarily or otherwise, or reflects unfavorably on Employer or Executive to such an extent that Employer’s best interests reasonably require the termination of Executive’s employment; (iii) Executive’s failure to comply with or enforce Employer’s policies concerning equal employment opportunity, including engaging in sexually or otherwise harassing conduct; (iv) Executive’s repeated insubordination; (v) Executive’s failure to comply with or enforce, in any material respect, all other personnel policies of Employer or its Affiliates; (vi) Executive’s failure to devote Executive’s full working time and best efforts to the performance of Executive’s responsibilities to Employer or its Affiliates; (vii) Executive’s conviction of, or entry of a plea agreement or consent decree or similar arrangement with respect to a felony or any violation of federal or state securities laws; or (viii) Executive’s failure to cooperate with any investigation or inquiry authorized by the Committee or conducted by a governmental authority related to the business or Executive’s conduct.

(e)           “Code” means the Internal Revenue Code of 1986, as amended.

(f)           “Committee” means the Compensation Committee of the Board of Directors.

(g)           “Covered Termination” means: (1) the termination of an Executive’s employment with the Employer for any reason other than death, Inability to Perform, or for Cause; or (2) the resignation of the Executive from such employment with Good Reason.

(h)           “Eligible Executive” means an Executive who has experienced a Covered Termination.

(i)            “Employment Termination Date” means the effective date of termination of Executive’s employment pursuant to Employer policies and applicable law.

(j)            “Executive” means an individual employed by the Employer in the position of Vice President or higher, who has been designated by the Committee to be eligible to participate in the Plan, or who has accepted a written offer of employment which includes eligibility for participation in this Plan, and who commences employment in such position and capacity as a full time employee of the Employer.  A list of all individuals designated as Executives at any given time shall be appended as Appendix A to the Plan.  Once designated on Appendix A as an Executive under the Plan, such Executive shall remain so designated and shall continue to be an Executive hereunder until the earliest to occur of (i) the date on which such Executive is removed from Appendix A by action of the Committee or by the Board, (ii) such Executive’s termination of employment for any reason, or (iii) the death of the Executive.

(k)           “Good Reason” means any of the following actions if taken without Executive’s prior written consent: (i) following the designation of an Executive by the Compensation Committee on Appendix A to the Plan, any reduction of the multiple or percentage applicable to an Executive, or removal of Executive, through a subsequent amendment to Appendix A to the Plan, (ii) a material diminution in Executive’s base compensation; or (iii) any permanent relocation of Executive’s place of business to a location 50 miles or more from the then-current location, provided such relocation is a material change in geographic location at which Executive must provide substantial services for purposes of Section 409A.  Neither a transfer of employment among Employer and any of its Affiliates, a change in the co-employment relationship, nor a mere change in job title constitutes “Good Reason.”  To exercise the right hereunder to terminate for Good Reason, Executive must provide Notice of Termination to Employer of his belief that Good Reason exists within 60 days of the initial existence of the Good Reason condition, and that notice shall describe the condition(s) believed to constitute Good Reason.  Employer shall have 30 days to remedy the Good Reason condition(s).  If not remedied within that 30-day period, Executive may submit a Notice of Termination; provided, however, that the Notice of Termination invoking Executive’s right to terminate his employment for Good Reason must be given no later than 100 days after the date the Good Reason condition first arose; otherwise, Executive is deemed to have accepted the condition(s), or the Employer’s correction of such condition(s), that may have given rise to the existence of Good Reason.

(l)            “Inability to Perform” means and shall be deemed to have occurred if Executive has been determined under Employer’s long-term disability plan to be eligible for long-term disability benefits.  In the absence of Executive’s participation in, application for benefits under, or existence of such a plan, “Inability to Perform” means a finding by the Committee in its sole discretion that Executive is, despite any reasonable accommodation required by law, unable to perform the essential functions of Executive’s position because of an illness or injury for (i) 60% or more of the normal working days during six consecutive calendar months or (ii) 40% or more of the normal working days during twelve consecutive calendar months.

(m)           “Notice of Termination” means a written notice that shall (i) indicate the specific termination provision in this Plan relied upon; (ii) in the case of a termination for Inability to Perform, Cause, or Good Reason, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision invoked; and (iii) if the termination is by Executive for Good Reason, or by Employer for any reason, specify the Employment Termination Date.  The failure by Employer or Executive to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Cause or Good Reason shall not waive any right of Employer or Executive or preclude either of them from asserting such fact or circumstance in connection with a claim or appeal for benefits under this Plan.

(n)           “Section 409A” means Section 409A of the Code and the regulations promulgated thereunder, and any other applicable Treasury guidance, as in effect at the time any payment or other action is to be taken under this Plan.

(o)           “Separation Agreement” means a general release agreement in a form acceptable to Employer which is not revoked by Eligible Executive prior to the date it becomes effective.

ARTICLE II

EMPLOYMENT.

Executives under this Plan shall be employed on an at-will basis, to the maximum extent permitted by applicable law.  This Plan shall not, and shall not be construed or interpreted as, creating a contract of employment with any person.

ARTICLE III

COMPENSATION UPON TERMINATION OF EMPLOYMENT

(a)           Termination of Employment for Any Reason.  If Executive’s employment is terminated, Employer shall pay to Executive (or in the case of death of Executive, to such person as Executive shall designate in a written notice to Employer or, if no such person is designated, to Executive’s estate) any unpaid portion of Executive’s Base Salary through the Employment Termination Date, any earned but unused vacation according to Employer’s policies then in effect, and any unreimbursed business expenses, at the time and in the manner required by applicable law, but in no event later than March 15 of the year following the year of the Executive’s death or termination of employment.

(b)           Covered Termination.  In addition to the payments described in Section (a) of this Article III, if Executive’s employment is terminated in a Covered Termination, Employer shall pay or provide to Eligible Executive in lieu of any other severance or separation benefits, at the time and in the manner provided  in Section (e) of this Article III, the following if, within 21 or 45 days after the Employment Termination Date, as applicable, Eligible Executive has signed a Separation Agreement and does not revoke such Separation Agreement:

(1)            The designated percentage or multiple, as set forth in Appendix A to the Plan as of the Employment Termination Date of such Executive, multiplied times the Eligible Executive’s Base Salary in effect on the Employment Termination Date;

(2)            The designated percentage or multiple, as set forth in Appendix A to the Plan as of the Employment Termination Date of such Executive, multiplied times the Executive’s target performance bonus percentage for one year, based on the target performance bonus percentage for the performance period in effect on the Employment Termination Date;

(3)            Full and immediate vesting of all Employer stock options and restricted stock awards held by Eligible Executive as of the Employment Termination Date;

(4)            With respect to Employer stock options that are vested as of the Employment Termination Date, Executive may exercise those options according to the terms of the Rosetta Resources Inc. 2005 Long-Term Incentive Plan.

Provided, however, no payment shall be made under this Section (b) of this Article III if any payment is due or payable to the Eligible Executive under the Rosetta Resources Inc. Executive Change in Control Plan.

(c)           Exclusive Compensation and Benefits.  The compensation and benefits described in this Article III, along with the associated terms for payment, constitute all of Employer’s obligations to Executive with respect to the termination of Executive’s employment with Employer and/or its Affiliates. However, nothing in this Plan is intended to limit any earned, vested benefits that Executive may have under the applicable provisions of any benefit plan of Employer in which Executive is participating at the time of the termination of employment.

(d)           Exclusion from Section 409A.  It is the intent of this Plan to not provide “deferred compensation” as defined in Section 409A of the Code and the regulations thereunder (“Section 409A”) so that none of the payments and benefits to be provided hereunder will be subject to the provisions of Section 409A, and any ambiguities herein will be interpreted to so provide. Employer shall not be liable to Executive for any adverse tax consequences imposed upon Executive as a result of the operation of Section 409A.  Payments under the Plan shall be made only on the date or dates provided herein, and no acceleration or deferral of any such payments shall be made either by the Employer or at the request of the Executive.

(e)           Time of Payment of Severance Compensation.  Amounts payable under this Article III of this Plan shall be determined by the Committee and shall be made in a single lump sum payment not later than sixty (60) days after the Employment Termination Date, but in no event later than March 15 of the year following the year in which the Executive’s Termination of Employment occurs.  No request to accelerate or defer a payment to be made under this Plan or under a Separation Agreement will be permitted and no Separation Agreement shall allow for any such acceleration or deferral.

(f)           Payment after Executive’s Death.  In the event of Executive’s death after Executive becomes entitled to a payment or payments pursuant to this Article III, any remaining unpaid amounts shall be paid, at the time and in the manner such payments otherwise would have been paid to Executive, to such person as Executive shall designate in a written notice to Employer (or, if no such person is designated, to Executive’s estate).

(g)           Offset.  To the maximum extent permitted by applicable law, Employer may set off against, and Executive authorizes Employer to deduct from, any payments due to the Executive, or to Executive’s heirs, legal representatives, or successors, as a result of the termination of the Executive’s employment, any amounts which may be due and owing to Employer or any of its Affiliates by the Executive, whether arising under this Plan or otherwise.

(h)           Notice of Termination.  Each of Executive, in the case of a termination with Good Cause, or Employer, in case of a termination for any other reason, shall provide the other with a Notice of Termination which, in the case of a Notice of Termination by Employer which sets for Cause or Inability to Perform, such notice shall be treated as the denial of a claim for benefits for purposes of Article XI of this Plan.

ARTICLE IV

NO OBLIGATION TO PAY.

With regard to any payment due to Executive under this Plan, to the maximum extent permitted by applicable law, it shall not be a breach of any provision of this Plan for Employer to fail to make such payment to Executive if (i) Employer is legally prohibited from making the payment; (ii) Employer would be legally obligated to recover the payment if it was made; or (iii) Executive would be legally obligated to repay the payment if it was made.

ARTICLE V

DEDUCTIONS AND WITHHOLDINGS.

With respect to any payment to be made to the Executive, Employer shall deduct, where applicable, any amounts authorized by Employee, and shall withhold and report all amounts required to be withheld and reported by applicable law.

ARTICLE VI

NOTICES.

(a)           All notices, requests, demands, and other communications required or permitted to be given or made by either party shall be in writing and shall be deemed to have been duly given or made (1) when delivered personally, or (2) when deposited in the United States mail, first class registered or certified mail, postage prepaid, return receipt requested, to the party for which intended at the following addresses (or at such other addresses as shall be specified by the parties by like notice, except that notices of change of address shall be effective only upon receipt):

(b)           If to Employer, at:

Rosetta Resources Inc.

Attn: General Counsel

717 Texas, Suite 2800

Houston, Texas 77002

(c)           If to Executive, at Executive’s then-current home address on file with Employer.

ARTICLE VII

MITIGATION.

Executive shall not be required to mitigate the amount of any payment provided for in this Plan by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Plan be reduced by any compensation earned by Executive as the result of employment by another employer after the date of termination of Executive’s employment with Employer, or otherwise.

ARTICLE VIII

BENEFITS UNASSIGNABLE.

Executive shall not have any right to pledge, hypothecate, anticipate, or in any way create a lien upon any payments or other benefits provided under this Plan; and no benefits payable under this Plan shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or pursuant to the laws of descent and distribution.

ARTICLE IX

AMENDMENT AND TERMINATION.

The Employer may amend or terminate this Plan at any time by action of the Board, subject to the rights of any Eligible Executive who has incurred a Covered Termination as of the date of such amendment or termination.

ARTICLE X

GOVERNING LAW; VENUE.

This Plan shall be governed by the laws of the State of Texas except for its laws with respect to conflict of laws, and except to the extent preempted by any federal law.  The exclusive forum for any lawsuit arising from or related to Executive’s employment or this Plan shall be a state or federal court in Harris County, Texas.  To the extent this Plan is governed by federal law, nothing herein shall prevent or prohibit Employer from removing to an appropriate federal court any action brought in state court.

ARTICLE XI

ADMINISTRATION, CLAIMS, APPEALS, EXHAUSTION REQUIREMENT.

(a)           Plan Administrator.  The overall responsibility for the administration and control of this Plan resides with the Committee.

(b)           Powers.  The Committee has the following authority with respect to the Plan:

(1)            The responsibility for the day-to-day administration and operation of the Plan;

(2)            The authority to issue and implement such rules as the Committee deems appropriate to administer the Plan;

(3)            The authority to interpret the Plan’s provisions, and to make factual determinations under the Plan, including but not limited to, the power to determine eligibility for payments hereunder, and the right to resolve and determine ambiguities, inconsistencies, and omissions in the provisions hereof;

(4)            The authority to appoint or designate such person or persons as the Committee deems necessary or advisable to carry out the administrative duties hereunder.

(c)           Claims.  The Committee shall have the power and authority to determine claims for payments under the Plan, and shall make all factual determinations under the Plan in relation to any claim, or as otherwise required in the Plan.  Except as otherwise provided herein, the Executive (“claimant”) may make a claim for payment hereunder, or a claim contesting a factual determination hereunder, within 30 days of receipt of notice of such factual determination, or of any event giving rise to the existence of a right of payment under the Plan.  The Committee shall make a determination on a claim hereunder within 30 days of the receipt of a claim for payments under the Plan, and the claimant shall have the right to submit documentation or other evidence to the Committee in support of such claim.  The Committee may, by written notice to the claimant within the original 30-day claim period, have an additional 30 days in which to make a decision on the initial claim.  If the Committee does not provide a notice of extension or a decision on the initial claim within the time limits provided in this Article, the claim will be deemed denied for purposes of this Article.

(d)           Appeal of Denied Claim.  If a claim under Section (c) of this Article is denied or deemed denied, the claimant may file a written appeal with the full Board.  The claimant shall have the right to submit any additional documentation or other evidence to the Board in support of such appeal.  The Board shall make its decision and provide notice thereof in writing to the claimant within 30 days of the receipt of the appeal; provided, however, the Board may, by written notice to the claimant within the original 30-day appeal period, have an additional 30 days in which to make a decision on the initial appeal.  If the Board does not provide a notice of extension or a decision on the initial appeal within the time limits provided in this Article, the claim will be deemed denied for purposes of this Article.

(e)           Contents of Notice of Denied Claim or Appeal.   Notice of any denied claim or appeal provided by the Committee or the Board, as appropriate, shall be in writing, and shall contain the following, at a minimum:

(1)            The facts determined, claim determination made or decision on appeal (herein, the “determination”);

(2)            A summary of the facts on which the determination was based;

(3)            The relevant provisions of the Plan on which the determination was based;

(4)            If appropriate, a description of any information or documentation required to complete the claimant’s claim; and

(5)            A description of the claimant’s appeal rights, if any.

(f)            Exhaustion of Administrative Remedy Required.  Executive may not bring a proceeding in any court under this Plan, or intended to enforce any provision of this Plan, without first having exhausted the administrative remedies provided herein.

(g)           Limitation of Actions.   No action may be brought to enforce any provision of this Plan after twelve (12) months following the denial of the later of: (i) the claimant’s claim under Section (c) of this Article XI, or (ii) the denial of the appeal provided for in Section (d) of this Article XI.

ARTICLE XII

TREATMENT OF PLAN UNDER ERISA.

Is the intent of the Employer, and this Plan shall be interpreted, construed and operated such that, the Plan shall be a “top-hat” plan exempt from certain provisions of ERISA, as provided in and within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, as appropriate.  Benefits under this Plan shall be paid solely out of the general assets of the Employer and shall constitute an unsecured obligation of the Employer.

IN WITNESS WHEREOF, Employer has caused this Plan to be executed on its behalf by its duly authorized officer, and such duly authorized officer has executed this Plan, effective as of the Effective Date first set forth above.

EMPLOYER

ROSETTA RESOURCES INC.

By:

RANDY L. LIMBACHER

PRESIDENT & CHIEF EXECUTIVE OFFICER

EX-21.1

Exhibit 21.1

ROSETTA RESOURCES INC.
Subsidiaries
Name	Jurisdiction of Incorporation
Rosetta Resources Offshore, LLC(1)	Delaware
Rosetta Resources Operating GP, LLC(1)	Delaware
Rosetta Resources Holdings, LLC(1)	Delaware
Rosetta Resources Operating LP(2)	Delaware
Rosetta Resources Gathering, GP LLC(1)	Delaware
Rosetta Resources Gathering, LP(3)	Delaware
W&D Gas Partners, LP(3)	Texas

(1) Directly owned by Rosetta Resources Inc.

(2) Directly owned by Rosetta Resources Operating GP, LLC and Rosetta Resources Holdings, LLC

(3) Directly owned by Rosetta Resources Gathering GP, LLC and Rosetta Resources Holdings, LLC

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 000-51801) of Rosetta Resources Inc. of our report dated February 27, 2009 relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

February 27, 2009

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

As independent petroleum engineers, we hereby consent to the references to us and to estimates of reserves contained in this Annual Report on Form 10-K of Rosetta Resources Inc. for the year ended December 31, 2008.

NETHERLAND, SEWELL & ASSOCIATES, INC.
	\s\ Danny D. Simmons, P.E.
By:
	Danny D. Simmons, P.E.
	President and Chief Operating Officer

Houston, Texas

February 27, 2009

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-31.1

Exhibit 31.1

I, Randy L. Limbacher, certify that:

1. I have reviewed this report on Form 10-K of Rosetta Resources Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February __, 2008	/s/ Randy L. Limbacher
	Randy L. Limbacher
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Michael J. Rosinski, certify that:

1. I have reviewed this report on Form 10-K of Rosetta Resources Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February __, 2008	/s/ Michael J. Rosinski
	Michael J. Rosinski
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C.  Section 1350

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Rosetta Resources Inc. (the “Company”) on Form 10-K for the period ended December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February __, 2008	/s/ Randy L. Limbacher
	Randy L. Limbacher
	President and Chief Executive Officer
	/s/ Michael J. Rosinski
	Michael J. Rosinski
	Executive Vice President and Chief Financial Officer